Environmental Analysis

Retail Pharmacy
INDIA v/s UK

By: Aarti G
Ankush
Anushree
Janaki
Prachi
 Industry Overview – India
and UK
Pharmacy is the health profession that links the health sciences with the
chemical sciences, and it is charged with ensuring the safe and effective
use of medication.
Beside selling allopathic medicines, pharmacies also offer OTC and
alternate medicines, surgical, rehabilitation aids and body care products
India
• The pharmacy trade generate an estimated business of Rs. 32,000 crore.
• Additional Rs. 18,000 added by hospital pharmacies and exports.
• Pharmacies generate Rs. 15,000 crore through body care products.
• Total expenditure on health per capita (Intl $, 2005): 100
• Total expenditure on health as % of GDP (2005): 5.0
• Total population: 1,151,751,000
UK
• Retail pharmacy industry was worth [pounds sterling] 12.8 billion in 2006.
• It has outperformed total retail in nine of the past 10 years
• Total expenditure on health per capita (Intl $, 2005): 2,598
• Total expenditure on health as % of GDP (2005): 8.2
• Total population of: 60,943,912 (July 2008 est.)
• Market growth is expected to be almost guaranteed over the next two
decades.
 Business Model - India & UK
India
• Private sector medicine distribution characterized by a high number of
generic equivalents, retailers and wholesalers with limited storage space,
and high levels of competition at each level of the system.
• Manufacturers can only sell to a licensed wholesaler; wholesalers can only
sell to licensed retailers.
• Storage limitations are a factor in how medicines are distributed .
Sometimes, wholesalers deliver to retailers even on a daily basis.
• Wholesalers are responsible for bearing the costs of local delivery
(Distribution costs are included in the wholesale margin)  
• Licenses: To obtain a retail chemist’s license, the applicant must be
registered with the Pharmacy council.
• Granted by the state Drug Controller
• Monitored at the state level (in NCT Delhi, by the Drug Controller of DHS)
UK
The UK pharmacy - Dual role - same premises
• NHS Business - profits are regulated by the government policy.
NHS business depends on location (near surgery or medical centre).
Revenues from NHS receipts account for 60%-70% on an average.
• The Counter Business – running around normal commercial lines.
 Porter 5 Forces - India
Entry Barriers (HIGH)
• A company can be a manufacturer, wholesaler and a retailer saving margins.
• Contacts between existing retailers and distributors-better trading margins-barrier for new
comer.
• Inventory management – better for experienced players – no learning curve for new comer.
• Obtaining licenses is not very difficult. Government regulations – fairly transparent.
• Soaring retail space prices are a very high barrier to entry
Power of Supplier (LOW)
• Pharmacies - The only Point of Sales (POS), Changes in the stocking patterns
• Many generic versions of the same drug – more availability – more competition – less
supplier power
• Also pharmacists’ trusted advisory role - power to influence what the customer walks out of
the store with
Power of Buyer (HIGH)
• Different retail formats, Internet – offering more choice, thus Customer switching costs is
low.
• The healthcare industry - relatively unaffected by buyer power. People fall sick – need
medicines anyway.
• Polygamous Buyers– fulfill requirement by buying from multiple pharmacies (Little product
differentiation)
• Little knowledge about pricing.
Availability of Substitute (HIGH)
• High substitutability between retail outlets . MedEx - based on the home delivery model
• Alternative therapy retailers – e.g. the “Patanjali Chikitsalaya” by Baba Ramdev
• Growing ‘wellness’ market - demonizing pharmaceutical products – promoting ‘natural and
Entry Barriers
Porter 5 Forces - UK
• Capital requirement of entry – not very high. The exit barriers are low.
• A number of financing options - wholesaler’s guarantee, small firm loan guarantee scheme,
financing from the National Pharmaceutical Association (NPA) financial services.
• First mover advantage – Differentiation/value add in the services, relationship building with
the customer.
• Expected retaliation (high)– After deregulation (entry to the community pharmacy market)
in 2005.
• No restrictions on the FDI.
Power of Supplier (LOW)
• Pharmacies - The only Point of Sales (POS), Changes in the stocking patterns
• Many generic versions of the same drug – more availability – more competition – less
supplier power
• Also pharmacists’ trusted advisory role - power to influence what the customer walks out of
the store with
Power of Buyer (HIGH)
• The major buyer in the UK market is Government (60-70% revenues from NHS prescription).
• After Deregulation (entry to the pharmacy market) in 2005 – more competition – more
choices with consumer.
Availability of Substitute (HIGH)
• Product-for-product substitution - The natural and herbal products are substitutes for
the pharmaceutical drugs. Also there is growing wellness market promoting the use of
natural/herbal medicines over pharmaceutical drugs.
• Doing without the product: ‘Yoga’ is promoted as a substitute for medicines for many
diseases.
• Cost of switching to substitutes is not high. Mindset changed is required pertaining to the
use of the substitutes.
Competitive Rivalry (HIGH)
•
Political Structure and Trends
PEST - India
• Entry licensing requirements need to be fulfilled.
• Continuous inspection (drugs sold at a price not exceeding the MRP) under the Drugs Prices
Control Order.
• Pricing Ministry of Chemicals and Fertilizers (MoC&F) instituted - National Pharmaceutical
Pricing Authority (NPPA)
• Margins at different stages set by the government.
ECONOMIC FACTORS
• Taxation: From 2006 - new policy calculates 4% value-added tax (VAT) as part of the MRP -
customer pays box price
• NPPA ordered a 2.84 per cent reduction in prices of formulation drugs under Government
control.
• FDI Despite having foreign direct investment (FDI) through the ‘indirect route’, Indian
“owned and controlled” company can venture into sectors like multi-brand retail.
• So, even if foreign holding in a company is 49%, its investment in another downstream
subsidiary company will be termed as fully domestic investment and the downstream
company will be treated as an Indian company and can venture into a sector like multi-
brand retail, which has not been opened to FDI till now.
• Venture Capitalists showing interests in Indian retail sector.
• Private Equity - The Ajay Piramal Group launched a $200 million PE fund dedicated to
healthcare. A part of it is meant for retail pharmacy chains.
• Rising retail space prices & rising Salary demands of qualified pharmacists to run a
pharmacy
SOCIAL Environment
• Increasing use of Lifestyle drugs among the Indian Population - benefit for the
pharmaceutical sector.
Political Structure and Trends
PEST - US
• Pharmacy openings moderated by licensing requirements at local level.
• Government policy on pricing of drugs a key future issue.
• Deregulation of the community pharmacy in April 2005 – more competition and greater
benefits to consumers.
• New Pharmacy Contract 2005 – more services, NPfIT compliance, PCTs training to
community pharmacists.
•  New pharmacy regulator (General Pharmaceutical Council ) in 2010 , Royal
Pharmaceutical Society of Great Britain (Current Regulator) - demerger of its regulatory and
professional roles - your chance to have your say 
Economic Structure and Trends
• Demand for prescription medicines, which draws customers into pharmacy stores, remains
in recession.
• There are a number of options to avail credit/ loan for running/starting up of a retail
pharmacy.
• 60 to 70% revenues through reimbursements by the NHS - some foundations laid down by
the NPA like payment level and dispensing staff - to be in accordance with the number of
items dispensed by that particular pharmacy. For OTCs, after the abolition of RPM, the big
retail chains can cut down their selling prices (playing on volumes) 
• FDI in UK - There is no quota or restrictions on investors or investments in UK 
Socio-Cultural and Lifestyle Aspirations  
• Fashion and lifestyle pressures important stimulants for beauty products and lifestyle drugs.
• Increasing use of self medication, improved awareness and information creating a new
market niche
• Media encouragement of preventative medicines stimulates market
• Increased travel generates demand for travel related products - sun cream, sickness
 Comparison on the basis of SWOT Analysis for
both the Regions
Points in favor of India:
• Indian population - huge in comparison to that of the UK.
• Indian market is untapped (penetration of modern medicine less that 30% in India).
• In India, there is a also huge scope for Rural expansion.
• The growth of middle class in the country opening a huge market for lifestyle drugs.
• The number of retail pharmacies has been static in UK.
• Indian manufacturers - low cost producers of drugs. UK does not compete with emerging
economies on cost.
• Huge scope of medical tourism in India
• 9 out of 10 blockbuster drugs in the future - bio-tech based, would require compatible
storage and transportation facility, huge opportunity to gain first mover’s advantage.
• The UK pharmacy industry - heavily relies on government expenditure (60-70% from NHS
Prescriptions), Indian Pharmacy Industry - government expenditure is only 36%.Huge scope
for a private pharmacy to step in and provide the much needed services to the general
population.
Points in favor of UK:
• The pharmacy as a profession is more developed in UK as compared to in India.
• After the New Pharmacy Contract in 2005 - the scope of the services rendered by a
pharmacy in UK has increased. Pharmacists are ready to accept an extended role to working
with General Practitioners, assisting doctors in surgeries etc. The research suggests that this
will help to reduce the monotony in the profession and give a greater sense of job
satisfaction to a pharmacist.
• India stands at 121st rank in starting a business , 28th in getting credit ,169th in paying
taxes (ease)
• Foreign investors are attracted by the UK's general business environment, economic
stability; the tax and regulatory regime. UK market - easy to set-up and do business.
 Recommended Model
INTRODUCING A CHAIN of SMALL FORMAT STORES
“No- frills small format stores with adequate air conditioning and refrigeration
facilities”. The characteristics are:
• Fleet of small format stores: Stores of about 550-600 sq. ft. size would be developed
across each city or town or zones. Focus on the number of stores & hence market
penetration rather than the size of each store.
• A Qualified Pharmacist at each store: Also services of a doctor(Physician) for a few hours
each day .
• Economies of scale : Bulk buying - get trade discounts , the advantage to be passed on to
the final consumer, like other retail pharmacy chains like Apollo, Hetero, Subhiksha and Med
Plus.
WHY SMALL FORMAT?
Medicine – low shelf space. An outlet of 550-600 sq. ft. can easily stock more than 10,000
SKUs, along with essential daily utilities & cosmetics. The rationale for the above strategy is
as follows:
• Lower Capital investments
• Keeping costs down
• Improving the distribution reach
• Attracting the urban poor
How to keep the competitive advantage
• Product/Service – Providing the right mix, depth and breadth of assortment, brands ( Rx
(prescription ), OTC , Healthcare products – lifestyle drugs , cosmetics etc could be stocked)
• Price – low, value, or exclusive (pass on discount advantage to customers)
• People – knowledge, attitude, empathy, responsiveness, etc.
• Position – name, shop layout and presentation.
Apart from the 4P’s the retailer needs to :-
Update on the popularity of different generic brands (among the doctors)
Filter the spurious medicines
Thank
You