Consolidation in the Indian Online Pharma Sector: Will the Mergers Survive?
Would online pharmacies become the primary interface between a pharma company and patients across India? What's triggering the entry of deep pockets in the sector and mergers between players? A HE report.
Where do you go when you have to purchase your parent's medical requirements? Frequently, the answer to this inquiry, at least among the English speaking urban Indians is an online pharmacy.
Proof: The surge in the number of households which opted for online pharmacies during the lockdown due to COVID-19. According to a recent white paper published by FICCI, 3.5 million households were buying medicines from e-pharmacies, pre-COVID. During the lockdown period, the number rose to 9 million. The post-COVID 19 forecast is that by 2025, this number will go up to 70 million.
Dr Akash Rajpal, EVP, Medikabazaar, notes that Indians prefer door-step delivery and COVID is not the only reason for the popularity of online pharmacies. "That's the reason for the success of players like Swiggy and Zomato. India was among the first in this part of sub continent where McDonald started home delivery at such a large scale. The American fast-food company does not do home delivery everywhere. It's due to the demand of the behaviour of a particular nation. Even the senior citizens have started ordering from e-pharmacies and digital payment platforms. The sector has a bright future ahead."
Retail incentives like loyalty programmes, coupons and discount cards are almost as old as retail itself. Probably, that's why discount is the backbone of the current online pharmacy model. But the discounts have started plummeting now. While there are no options like one-click shopping or same-day delivery, today online pharmacies are considered not just a handy choice, but even the safer alternative.
Significant Developments
Four significant developments in the sector created a positive sentiment in the healthcare industry.
First was the entry of Amazon. It launched its first online pharmacy store in Bengaluru. The company announced in August that its new service Amazon Pharmacy had started accepting orders for Over-the-Counter and prescription-based medicines. In addition to this, it also sells traditional herbal medicines and health devices.
A second significant development in the sector was the entry of Reliance. Reliance acquired a 60 per cent stake in Vitalic Health, which runs Netmeds.
The third significant development was the merger of Medlife with PharmEasy. However, there were hurdles for the merger. The South Chemist and Distributors Association (SCDA) wrote to the Competition Commission of India (CCI) insisting that the online transactions of medicines are not allowed under the Indian law; hence the merger should be refused.
The fourth was the entry of Flipkart into space. It has partnered with Gurgaon based 1MG. It also brought 1MG into its platform.
Why?
What are the strategies, mechanisms and fortuitous circumstances that underpin the success of these online pharmacies? And like the e-commerce sector, would there only be few significant players at the end?
Prashant Tandon, CEO and Co-founder of 1mg, says that this is an excellent time for healthcare space in India. "We are seeing new large players entering the e-Pharma space and also witnessing consolidation amongst some of the existing players. All these are indications that Healthcare and Healthstack have become mainstream; and to us, this is a very strong validation of our belief that healthcare models such as ours are here to stay and will continue to play a pivotal role in making healthcare accessible, affordable and understandable for all Indians. e-Pharma space is a fairly large market, and I feel it is too early to decide whether it will be for similar business model players or multiple different kinds of models which will eventually lead to a health-tech revolution. What is for certain and now has enough validation too is that the sector overall is large and there is an immediate market need amongst customers. The critical factor to any M&A is a communicated value proposition that the M&A can create for the merged entity. Leadership plays an important role in enabling the communication and execution roadmap for achieving the aspired value propositions," he explains.
He also notes that multiple reports and surveys have shown time and again across many sectors that the primary reason for consumers to choose a player and stay loyal to a player is convenience and loyalty benefits of using a digital platform. "While discount has been one of the primary tools for customer acquisition, a lot of other important elements go into achieving customer retention and delight. Seamless user journey, payment options, product range, language, delivery TATs, rapid deliveries, quality assurances are some of the other very important determinants which directly affect the outcomes of any customer acquisition strategy," explains Tandon.
Essential Service During Lockdown
Recognizing the decisive role of e-Pharmacies during the lockdown crisis, the Union Home Ministry, vide order number 403/2020-D dated 24 March 2020, explicitly stated delivery of medicines through e-commerce as an essential service. It was one of the notable determinants which triggered the growth of the number of users of e-pharmacies.
So what sort of policy framework is required for the growth of the sector? "A few that come to my mind are certainly around defining the guidelines for the sector; and ensuring that as e-Pharma takes large strides in the coming months, a level playing field for all players exists from a governance and policy facilitation perspective," says Tandon.
Lockdown Challenges
According to the FICCI White paper, during the initial phases of lockdown e-pharmacies did face some challenges due to practical on-ground challenges. "The closure of inter-state borders led to breakage in the first-mile supply chain, due to which the pharmacy distributor to pharmacy transport was affected, which led to a shortage of inventory and lower fill rates. On the other hand, difficulty in movement of delivery workforce limited the ePharmacy platform's ability to deliver the orders placed by consumers. However, as supply chain and human resources challenges resolved, the ePharmacy platforms were able to service the increased demand for home delivery of medicines," states the report.
Scalable Strategy
Do Online Pharmacies have a scalable strategy? According to Karthik Anantharaman, former Director, E-Pharmacy and Private Label Business at Medlife.com, many e-pharmacies are burning cash by giving huge discounts and need to find an alternate revenue generation model to survive. "Low prices and good service always attract customers. However, today at several online pharmacies, you can't always expect good service. Majority of online pharmacies take at least three days to deliver an order. Further, the order also often gets revised due to lack of availability of a particular brand of drug. Most online pharmacies don't have a scalable strategy. Instead of offering everything under the sun, they should focus on a limited range of products and improve customer service. Profit margins are slim for the sector, and the heavy discounts and special requirements for storage and delivery often put additional pressure on the supply chain," concludes Anantharaman.