Kishor Shah, a frail man with a shock of white hair, looks an unlikely David facing the Goliath-like might of large retail chains beginning to muscle into the world of mom-and-pop drug stores. But get the 64-year-old drugs veteran talking, and visitors to his midtown Mumbai office get an insight into plans that thousands of pharmacy stores and drug distributors are readying to fight a common enemy: organized retailers.
The most visible face of such organized retail chains is Subhiksha Trading Services Ltd, a Chennai-based discount chain. Subhiksha’s USP: a 10% discount on medicines retailed at its pharmacies, which have expanded to 650 outlets nationwide from 140 last year. Chemists say that Subhiksha’s strategy is anti-competitive because it keeps costs down using its scale and high volumes, which they do not have.
Shah, who has been in the pharmaceuticals business for decades, has banded nearly 5,500 drug stores together to adopt contemporary management practices and customer-loyalty schemes, and employ crafty near-militant tactics. “Have you heard of the Shiv Sena? I have the Chemist Sena,” he says. Shah heads the Retail and Dispensing Chemists Association (RDCA).
The ‘Chemist Sena’ is not the first such grouping of chemists seeking to reinvent themselves. At the All India Organization of Chemists and Druggists, the biggest association among India’s half-a-million drug stores dispensing more than Rs30,000 crore of medicines every year, small retailers have formed a corporate entity to buy directly from drug companies and supply to chemists through a common system at cheaper rates.
Air-conditioning and computerization are on top of the agenda for chemists who are part of Shah’s association; some are also working with wholesalers to ensure that the stores of all members are well stocked. They also look for regulatory loopholes that they can use to jeopardize Subhiksha’s operations. Example: they have complained against Subhiksha at state food and drug administrations, Narcotics Bureau and the Bombay Municipal Corporation.
Such corporate guerilla warfare seems to be working. RDCA has crippled supplies to Subhiksha pharmacies, even as the chain has expanded to new cities, including Mumbai, Ahmedabad, Pune and Chandigarh. The chain’s Pune stores received no medicines for a week last year and supplies to its Ahmedabad stores were blocked for a few days. More than a fifth of the medicines that make their way to the shelves at its Mumbai stores are flown in from other cities. Result: Customers at Subhiksha stores may well not get their entire prescription.
“We have had supply issues in Mumbai and some other cities, which have been passed on to customers,” says R. Subramanian, MD, Subhiksha. “But we just have to be patient and wear them (the chemists) down.” That may take a while though. Shah intends to have common branding for all his member stores, called ‘Sehat’ (health in Hindi) and has created loyalty schemes, which include free holidays and birthday presents for large spenders. Bakulesh Thakkar, a Mumbai drug-store owner, has taken patient counselling classes and helped other colleagues take it. “The margin we get is because we provide an essential service to society by advising on which doctors to go to, how to take drugs, etc. We should provide better guidance and service rather than cut margins,” he says.
But pharmacies admit they have started to offer discounts. “For the first time, customers have started asking me for a discount,” says Ashraf Biran, who runs a more-than-four-decade-old pharmacy in Parel, central Mumbai. “We can fight them on everything, but not price.” Drug associations say revenues for pharmacies close to Subhiksha stores could be dented by as much as 30%.
With margins on medicines being capped at 16% for retailers, chemists say rising costs for rent, power and wages put them in a tight position. Already, wages for pharmacists have gone up to Rs10,000 a month from Rs6,000 two years ago as organized pharmacy chains, such as Fortis Healthworld and Lifetime Healthcare, enter the market. “It will be hard for small retailers to survive this,” says Thakkar. “I might find something else to do, but this trade will be affected,” he adds.
With several more players, including Wal-Mart Stores Inc., and the Reliance-Anil Dhirubhai Ambani Group, planning to enter the pharmacy business, chemists know that deeper discounts are on the anvil.
“India is a unique market because large chain stores are located in dense urban areas and small retailers can organize and fight against these stores,” says Reena Desai, director of the FDI Watch campaign, which is lobbying for legislation to check organized retail, including predatory pricing. A recent study of corner shops and hawkers within a kilometre of three Mumbai malls found 71% respondents saying that business was down since the mall opened, with four-fifths saying they did not expect their children to be in the business.