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Offline medical stores in India find online pharmacies a bitter pill to swallow

Fledgling startups like 1MG, Netmeds, Pharmeasy, Medikabazaar are slowly making their presence felt in India. Needless to say, the physical stores find the development unsettling.

Nov 19, 2018 by Avanish Tiwary
Offline medical stores in India find online pharmacies a bitter pill to swallow

Image credit: Sujith Sukumar/ The Passage

Posters displaying WhatsApp numbers for home delivery are a common sight in front of medical shops in Patna, a tier 2 city in northern India. The looming threat of online pharmacies has forced the physical store keepers to rewrite their business plans.

Last August, the government asked online pharmacies to register with the Central Drugs Standard Control Organisation.

“It’s definitely a positive move for us because so far the Drugs and Cosmetics Act did not cover online pharmacy or e-pharmacy, which is why it was a big question mark for a lot of us in the industry,” said Dharmil Seth, co-founder, Pharmeasy.

In September, 850,000 members of All India Organisation of Chemists and Druggists (AIOCD) staged protests against the Central government’s draft proposal to legitimise the online sale of medicines.

Fledgling startups like 1MG, Netmeds, Pharmeasy, Medikabazaar are slowly making their presence felt in India. Needless to say, the physical stores find the development unsettling.

The friction between online pharmacies and physical stores is similar to the initial pushback e-commerce companies such as Flipkart, Snapdeal, Amazon, etc. had to face from offline retailers.

Getting physical stores to toe the line

Most e-pharmacies follow the marketplace model—list inventory from physical stores and arrange for fulfilling the orders. The challenge for online pharmacies is to get the physical stores—that take issue with their very existence—to sign up on their platform. Three-year-old Pharmeasy has managed to rope in just 150 pharmacy stores across 15 cities.

The online pharmacies hope the draft guideline will convince the retailers to work with them. The industry is quite new and might take some time to settle in, Seth said. He claimed Pharmeasy gets requests from around 500 pharmacies every month for partnerships.

“However, there's no point in forging partnerships unless the stores adhere to our process. I'm very confident, going forward, retailers will improve on their operational processes and systems to facilitate partnerships,” Seth said.

Online pharmacies The Passage spoke to say they have no intentions to cannibalise the market share of physical stores. They claim, partnering with them can help stores to get more leads, streamline daily operations, provide analytical intelligence to predict which inventory to stock.

“With our expertise in supply chain and technology, physical stores could maximise operational efficiency and improve the bottom line. Besides, they don't have to worry about demand generation as well,” Seth explained.

The odds of hitting it big

Sajid Fazalbhoy, partner at Blume Ventures, said e-pharma companies have to come up with innovative solutions to lure away customers from physical stores. Fazalbhoy, in his personal capacity, has invested in a physical pharmacy chain, Value Forever, which he claims has 140 stores spread across Maharashtra and Goa.

“I am on the board of a pharmaceutical company, and they are cutting Rs 100,000 (USD 1380) bills a day. Why should they partner with online pharmacies when the get customers in the store anyway. I understand there is online proliferation and people stand to benefit from home delivery. Mostly, the online players are focusing on chronic patients, where the chances for repeat customers are high. I think that is the go to market for them,” Fazalbhoy said.

Netmeds founder, Pradeep Dadha said, “India currently has over 850,000 independent pharmacy retail stores that are able to meet only 60% of the total domestic demand.” Dadha believes there is a lot of scope for online pharmacy business in India.

It’s raining funds

“India is an extremely vast market. Currently, the estimated size of the Indian e-pharmacy market is reportedly USD 142 million, just 1% of the traditional Indian pharma market, according to India Epharmacy Market Opportunity Outlook. Today, the e-pharmacy’s market potential is worth over a billion dollar with more than 30 startups contributing to the growth across India,” he said.

Netmeds recently raised USD 35 million from Southeast Asian business group Daun Penh and existing investors Sistema Asia Fund and Tanncam Investment.

Mumbai-based Medikabazaar, a B2B online pharma company that supplies drugs to hospitals and clinics, raised USD 5 million in its Series A round led by HealthQuad, a leading healthcare venture capital fund. Medikabazaar, according to its founder Vivek Tiwari, will reach 50,000 hospitals and clinics by the end of next financial year. It also plans to increase its fulfillment centers from existing 7 to 20 plus across India including tier 2 and 3 regions.

Last July, Saif Partners, Nexus Ventures and a few others invested USD 11 million in New-Delhi based LifCare, a subscription-based online pharmacy company. The interest in this burgeoning sector is evident by the media reports that claim e-commerce behemoths such as Flipkart, Big Basket, Swiggy and Amazon are in talks with e-pharmacy startups to either invest or acquire.

“Investors are extremely excited as this is one of the stickiest categories. For example, a chronic patient will buy medicines 12-14 times a year. The delivery charges are extremely low because of the low weight of the products. If there is one chronic patient and two regular patients in a family, you are looking at 20-25 transactions a year. That is extremely interesting for VCs,” said Seth.

1MG founder, Gaurav Agarwal agrees with Seth on chronic patients being one of the main drivers for e-pharmacy business. According to Agarwal, one of the biggest problem for customers is they have to go to multiple pharmacy stores to fulfill the whole prescription. One of the core value, according to Agarwal, is customers find everything at one place when they order from an online store.

“For chronic patients who need medicines every month, convenience becomes a major factor as they don’t have to go out every month to get medicines. We also give subscription option which spares customers from re-ordering same thing every month. The system automatically places the order,” said Agarwal.

Fazalbhoy thinks online pharmacies can’t rely on discounts to get customers. To make money, apart from targeting chronic patients, online pharmacies should get into private labels.

“If you see global players such as Walmart, the large percentage of their sales is from their own private label. Gross margin is very high on such products. You can’t make a lot of money on generic medicines alone, given the basket size is so small,” Fazalbhoy said.

(Rashi Varshney contributed to the story.)

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

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