Chennai: Apollo Pharmacy, the medical store chain of Apollo Hospitals Enterprises Ltd, plans to launch a pharmacy format that’s more than double the size of the existing 350 sq. ft model and increasingly stock outlets with competitively priced private-label consumer goods ranging from soaps to diapers.
By 2015, company-branded toothbrushes, first-aid products, soaps, face scrubs, vitamin drinks, sanitary napkins and other such consumer goods will comprise 10% of the total sales of Apollo Pharmacy, both hospital-attached and independent outlets, according to Atul Ahuja, vice-president (retail).
“We aren’t competing with the bigger FMCG (fast-moving consumer goods) companies, but are looking at battling with regional brands that are there in all geographies and so with 200 SKUs (stock-keeping units, or number of unique products based on sizes) I am running a mini-FMCG firm,” Ahuja said.
Over the next three years, the healthcare services provider plans to launch 300 large-format stores with supermarket-style self-service aisles as part of its retail expansion. While the location will determine the success of the larger 750 sq. ft stores, 300 of which are expected to be launched by 2015, Apollo-branded or marketed goods may not work for all categories, a retail consultant said.
“In many FMCG categories, such as toothpastes and soaps, there is immense brand pull and it might be difficult to displace market leaders through private labels,” said Ankur Bisen, a retail specialist at consultancy Technopak Advisors Pvt. Ltd. “And as far as plans for the bigger pharmacy stores go, the key thing would be finding the right location to ensure high-level customer traffic to justify investments.”
Private-label business of pharmacies is a fixture in markets such as the US and Europe.
The Prathap Reddy-founded firm launched Apollo-branded consumer goods three years ago. It was also the time rivals Gurgaon-based Guardian Lifecare Pvt. Ltd and Hyderabad-based MedPlus Health Services Pvt. Ltd were entering the fray.
As a composition of Apollo Pharmacy’s total sales, the contribution of the in-house brand has doubled from 2% to 4% of sales in the last one year. Sales from the 1,380 Apollo Pharmacy stores are expected to touch Rs 1,150 crore in the year ending March 2013 from Rs 902 crore last year, continuing the nearly 30% growth in recent years.
Most Indian pharmacies sell consumer goods made by companies such as Hindustan Unilever Ltd, Procter and Gamble India, Dabur India Ltd, and on an average earn a 14% margin. But in-house brands fetch more than three times that profit rate of up to 50% despite pricing their products as much as 30% cheaper than competitive brands, Ahuja said.
Although Apollo Pharmacy was launched in the 1990s, it went through an unprofitable spell following a rapid expansion from a base of 200 stores starting in 2006. However, the rising composition of private-label consumer goods in its stores 2009 onwards has helped the unit reverse its losses, according to the company.
Parent firm Apollo Hospitals’ profit last year also got a lift from the pharmacy chain’s move to a marginal profit last year after nearly three years of losses.
“Given India’s population size, there will definitely be takers for any tried and trusted pharmacy chain’s reasonably-priced self-branded consumer goods,” said Anjan Sen, who focuses on the healthcare sector for advisory Deloitte Touche Tohmatsu India Pvt. Ltd.
Currently, company labelled over-the-counter products, such as cough syrups and antacids, comprise 1% of the business unit’s sales.
Apollo has not yet started retailing prescription drugs under its brand, but plans to launch Apollo brands in this category in next three years, following permission from the Drug Controller General of India.
While the existing smaller stores required an investment of Rs 10 lakh each, the bigger outlets will require Rs 15 lakh per store, or a total of Rs 45 crore for 300 stores to be launched by 2015-16. “The size planned cannot qualify as a big store in a retail sense although it is large for a pharmacy store,” said Technopak’s Bisen. “It is difficult to promote a supermarket concept and experience through a 750 sq. ft store.”