Are pharmacies the next big thing for Indian retail?

Reliance and D-Mart will sell medicines too

India’s top 2 organized retailers, Reliance Retail and D-Mart, are increasingly concentrating on the colossal yet fragmented pharma retail market. The Rs2 trillion pharma retail market is monopolized by small-scale mom-and-pop stores, almost like the dominance of Kirana stores in the FMCG sector. This pharma foray is not new. Reliance Retail is already selling medicines online through its subsidiary, Netmeds, but now plans to open about 2,000 standalone brick-and-mortar pharmacy stores in the next few years. These standalone pharma stores will leverage multiple channels to serve the pharmacy needs of Indian customers. D-Mart has set up a new pharmaceutical subsidiary, Reflect Healthcare and Retail. It is currently focused in the MMRDA region but plans to expand shortly. 

Open Demat Account

Your first step to enter share market Get Started

* By signing up you agree to our Terms and Conditions

Avoiding “Unknown Terrain” syndrome of Vietnam War

He priority should be to thoroughly research the marketplace. Understanding the supply chain logistics, the behaviour of target customers, choosing perfect locations for outlets are all critical decisions to maximize margins. There is likely to be a lot of money invested into gaining such insights. But the biggest challenge would be the issue of customer loyalty. What would drive a customer to a pharmacy store run by  Reliance or a D-Mart? After all, they are still associated with home needs and not with pharmacy products. Today, people in India prefer to walk across to the nearest pharmacy store to buy medicines and it is familiarity that matters.

Look at the Apollo model and Jio model

On the subject of customer loyalty, one model has been natural product extensions. For instance, Apollo Pharmacies hardly had any issue getting  people to use their medical stores since the connect was already there with the highly popular chain of Apollo Hospitals across India. However, what Reliance Retail and D-Mart can do is to use Jio as a case study. Jio had originally positioned its SIM cards as a backup SIM card atop the existing Airtel and Vodafone customers. Gradually, the quality of service and the bandwidth provided by Jio was the key deciding factor and eventually it became the market leader. Ideally, organized pharmacy players should avoid imposing themselves upon their target audience, but let their work speak volumes. Directly attacking a competitor with a loyal fanbase can prove detrimental, and the Pepsodent-Colgate fiasco as well as Microsoft’s “Gmail Man” debacle should make the organized players think twice.

Can big retail rethink Indian pharmacies?

It will indeed be a colossal challenge for D-Mart and Reliance Retail to send waves of disruption across the pharma sector. There is a lot that will have to be put at stake, but at the end of the day, it is a risk worth taking. The number of organized players within the pharma sector is very small and most industries have seen customers showing a preference for the organized sector. Their only competitors are the mom-and-pop stores, and perhaps Apollo Pharmacy, but Reliance Retail and D-Mart have deep pockets to gain the critical edge.

Pharmacy foray will be profitable for retail 

Regardless of short-term volatilities, pharmacies are most likely to be profitable in the long-term for retail players. After all, it is a demand that can neither be postponed nor dispensed with. They are obviously a critical part of the lives of every person, so you have an unlimited number of customers to cater to. In the future, given the profitable scope of facilitating Corporate Social Responsibility, these organized players can use the profits earned to fund R&D for new medicines too! For now, that may look like a long hop!

 Content Source: Financial Express