Step into any new-look air-conditioned corporate pharmacy stores, and the things that catch your attention are most likely not medicines but neatly arranged stacks of soaps, sunscreen lotions, health drinks and protein supplements. These are strategically placed in the stores for a reason.
Organised chemists like Apollo Pharmacy, Medplus, Hetero, Guardian Lifecare and Religare Wellness—which comprise a mere 2 to 3 per cent of the fragmented six lakh-odd unorganised pharmacy stores—are drumming up a new business: private labels. Cashing in on the public perception that everything sold at a medical store is clinically proven, the pharmacy chains have launched its own brands in categories like skincare, haircare, nutrition, health drinks and baby care. Sales, it seems, is thriving.
“Pharmacies are introducing their own labels in categories where consumers are not brand-conscious but want quality and value for money,” says Ankur Bisen, head-retail, Technopak Advisors, a management consulting firm. Rahul Chadha, CEO of Religare Wellness, adds, “Pharmacies are foraying into private labels principally to address issues of supply consistency and margins.” Sensing the rising business potential, Religare, which is mostly present in north India, is considering launching a label of its own in the near future.
Interestingly, these products are sold alongside reputed brands. For pharmacies, this strategy works in two ways. One, it creates brand awareness among consumers. Two, it attempts to make a decisive impact on the consumer’s purchasing habits. By offering attractive pricing and packaging, it seems to be making headway. Take for instance protein supplements. While Nestle’s Resource (200g pack) is priced at Rs 364 and Wockhardt’s ProtienX is for Rs 280, Apollo’s Protein is available in a relatively lower price bracket of Rs 170. Similarly, Hetero’s Glucon-D is priced at Rs 25 as against pure play FMCG brands’ price that varies between Rs 35 and Rs 45.
The private label market in India is roughly about Rs 13 billion, of which organised retail accounts for over 10-12 per cent. Private labels (all categories included) contribute over 15 per cent to the overall retail turnover. While margins from private labels for electronics are considered to be approximately 20 per cent higher than established brands and 30-50 per cent in clothing, for FMCG products, margins can be as high as 50-70 per cent. “Margins are high because we source products directly from manufacturers and don’t have huge advertising budgets. It, thus, allows us to pass on the price benefit to end-consumers,” says Madhukar Gangadi, founder & CEO of MedPlus, which sells over 140 private labels across its 1,240 stores.
Private labels are helping pharmacy stores enhance their margins too. Since, these are directly sourced and sans marketing and promotional activities, returns are much higher—usually 2x the investment. “FMCG companies have always justified the low retailer margins based on their brand equity and marketing prowess. However, the ability of the retailer (pharmacies) to counsel and sell its own private label can address this issue and help them improve margins significantly,” says Chadha. Consider Hindustan Unilever Ltd (HUL), which spent Rs 3,674 crore in FY14 towards advertising and promotion. Dabur India’s advertising budget rose 20 per cent to Rs 1,000 crore in FY14, up from Rs 837 crore a year ago. Typically, FMCG and consumer durable companies top the ad spend list, forking out an average 10 per cent of their total sales towards advertising and branding every year. HUL earmarks 12 per cent of its total sales, Dabur India spends 12.9 per cent, Colgate Palmolive about 20 per cent and Tata Global Beverages around 18 per cent of its total net sales. Pharmacies, on the other hand, advertise in-house without any additional cost.
In order to penetrate its products, pharmacies do intelligent marketing instead of capital-intensive promotional activities. “Companies with private labels do not run national campaigns, as these products aren’t available elsewhere other than its own stores,” says Bisen. As a part of its intelligent marketing, Apollo Pharmacy, the country’s largest corporate pharmacy chain with over 1,632 outlets in 20 states, offers discounts on personal hygiene products regularly. Medplus and Hetero too offer periodic discounts on its labels.
Direct sourcing and zero marketing spend allows pharmacies to offer products at a price 20-30 per cent lower than branded players. The strategy seems to be paying off. While Apollo’s revenue from private labels rose from 1.8 per cent in 2012 to 6 per cent, Medplus saw its revenue increase from over 1 per cent a couple of years ago to nearly 4.5 per cent now. It plans to double it in the next few years. “We have set a target of 20 per cent revenues from private labels in the next five years,” says PB Ramamoorthy, COO, Apollo Pharmacy, which sells over 200 private brands, ranging from handwash to adult diapers and even condoms.
Currently, organised chemists’ private label portfolio comprises 10-20 per cent of their overall products. “It may not go beyond 20 per cent, which is a healthy share in itself,” says Bisen.
Experts say that private labels are not introduced with an intent to replace FMCG brands and are unlikely to emerge as formidable players. “Though pharmacies are promoting their personal care products, these are sold only through their own outlets. Scalability will, thus, always be an issue, making their reach limited,” says Vimal K Pande, group CEO, VI-John, an FMCG products company.
Whatever the future might hold, a healthy competition is definitely brewing.