The Indian pharmaceutical market is the world's 13th largest market in terms of value and 4th largest in terms of volume. The two segments of the industry worth watching for the next 5 years are R& D and retail. Both these segments are witnessing unprecedented activity and focus. Though a lot of people believe that the pharmaceutical retail is under going revolution , in fact it is nothing but evolution and the changes are time bound and market forces driven that come naturally as result of opening of the economy , changes happening in other sectors & the rise of the new knowledgeable consumer class .

Pharmacy retail will change for the following reasons:

Corporate driven changes - These are market driven: As all forms of retailing are changing and the new class of retailers are emerging , pharmaceutical retailing cannot remain untouched . Five years back only 5-6 chains were present . Today the number is above 25 . The number of organised retail pharmacies has crossed 2000.The organised pharmacy retail will continue to grow between 50-100 % every year . TPAs would also start empanelling the pharmacies and chains would have an edge due to uniform & centralised system.

Malls & Supermarkets : Pharmacy outlets have entered this space and some of the experiments have succeeded. Some of the pharmacy chains like Reliance retail, MedPlus, Apollo, Medicine Shoppe®, Guardian, Tulsi -Pantaloon, Manipal have big plans for a pan India presence. Current growth for all these chains is around 100 % for the new store openings.

Customers driven changes - Perception post the mall - supermarket phase has changed .The scare of the air conditioned , bigger shops being expensive is fading day by day. Also , the fear of Sub standard / spurious drugs being sold by chemists is driving people towards reliable branded stores.

Product Driven changes: With patented products being launched in India which require a lot of do's and don'ts, organised pharmacies with better trained staff & CRM would have an edge as compared to other pharmacies., In the next 5 years Internet pharmacies will also come in, thereby affecting the business

Qualified Manpower has a lot to do with these changes. According to WHO studies (2004 ) physicians per 1000 population is 0.60 , Nurses per 1000 population is 0.80 , Dentist per 1000 population is 0.06 and according to WHO report 2003 pharmacist per 1000 population is 0.56 . We know that all the pharmacist don't work at the chemists and a lot go to the industry and government jobs. The new class of jobs at the call centres pay double the market rates ( a pharmacy pays around Rs. 4500 - 12500 per month & call centres pay as high as Rs.20000 to start with ) .

So this mismatch between the number of pharmacists available , the expectations as salary and keeping in mind that average annual turnover of pharmacies is Rs.410000.00 . A lot of chemists will not be able to suffer the tantrums of the pharmacists and exit the business.

Eventually , most of the changes will be driven by the educated and aware customer who will start demanding for air conditioning and other details .

We can divide the pharmacy retail evolution in the following phases:

First phase : This is the trial and error phase. This phase will last for another 4-5 years i.e till 2012. We will see the entry of new players , unprecedented growth of organised pharmacies, newer formats ( as small as 150 Sq. ft to as big as 5000 Sq.ft.) New look and offerings is going to be the main outcome of this First phase. With some small acquisitions happening & cash burnout for opening new stores to catch up store numbers, profits at the corporate level would be elusive for any chain .

Second phase: This phase will last for 3-4 years from 2012-2016. In all likelihood, FDI will be allowed within a year of the next general elections . This will see a lot of shake up in the industry. A few chains will be sold or merged . It will clearly indicate that only the market would be left for biggies with deep pockets or big numbers.. This phase will set the trend for the final picture with a few serious national players & many regional players left operating in the market. The stand alone chemists will decrease drastically by then.

Third phase : This phase will one of consolidation and stabilisation of retail pharmacy models. Industry will see the evolution of three models a) Neighbourhood pharmacy & rural pharmacy b) Pharmacy chains varying from 500 -5000 sq.ft c) Clinic cum pharmacy model. India is ideally a 'price driven value' model and in such a case , the best model is the 500 sq. feet model that will work. The next closest would be the pharmacy, clinic and path lab combined model that can drive this segment to a different level. No retail pharmacy model would be effective without being backed by a strong distribution network. In pharmacy business , no one loses money in selling . They only lose money in managing the business and not buying at a proper price. These two factors drive down the profits if not attended at an early stage

Speciality pharmacies : A new class of pharmacies will emerge like the diabetic pharmacy , Specialty pharmacy , Generic pharmacy etc..

The product mix of the existing and newer formats will undergo a lot of change . Today, most of the pharmacies sell 70-80 % medicines and 30-20 % non pharma. But over the next 5 years , this ratio is going to get skewed towards FMCG . The ratio may end up near to be 50:50 in the next 5 years and finally may end up being 40 % pharmaceuticals and 60 % non pharmaceuticals . With the consumer running short of time and asking for more categories for the sake of time management ( this will be limited to top 40-50 towns initially ), the pharmacies will end up stocking FMHG's ( Fast moving healthcare goods like food supplements , Low carb , fat free, low calorie foods, health aids ) Beauty products , food items . The extension of product lines is inevitable and may at one stage lead to stocking every day need items as well. This is the logical progression for pharmacy retailing.

The recent retail store census conducted by A C Nielsen in 15 cities indicate that the throughput from pharmacies has slipped by 5.9 % . Assuming , that the total domestic turnover of Indian pharmaceutical market is USD 5 Billion & there are 500,000 chemists, the average annual turnover is around USD 10,000. i.e. Rs 410000.00 The 80:20 principle holds good. This statistics clearly indicates few things, either the market is under reported or there is a huge sale of spurious / sub standard products that cannot be recorded ( Which corroborates with the cover story of Outlook - September 22, 2003- The spurious drugs market is about 25 %). If none of these is true, then it clearly shows one writing on the wall. Those chemists who don't adapt to the new system will definitely perish. And those who remain would be much better with higher sales and better offerings. Customer would ultimately win. Though, of late, some chemists have started upgrading to new systems and forming clusters and corporatising . But until they are backed by a standard system and brand it may become a case study. But it would be interesting to watch out the evolution of pharmaceutical retail.

(The author is vice-chairman of Heartline Telemedical Services Pte.Ltd.)