MedPlus Pharmacy grows to 4,250 stores across 10 States, eyes North-India expansion

Going forward, what is the strategy going to be for pharma stores to profitably operate in the country?

What used to be fragmented in India has become more consolidated. While the volumes have increased significantly so have the benefits of scaled businesses gone to the customers. What was sold at MRP earlier, infact medicines used to be sold at MRP added with VAT, now everyone are selling at discount. That is nothing but result of overall maturity of the industry, and doing business at scale.

But yet, aren’t mom and pop pharma stores dominating while selling branded expensive medicines?

Till now mom and pop stores are around 80 to 85 per cent. Online and offline retail chains have also significantly grown in the last few years. Lot of people are seeing benefits of scale so they are now setting up 10 to 15 chain of stores, that trend is also on the rise. If you look at single operator, I think that it will continue to go down as in competitive business ecosystem it is extremely difficult to make money only from one store. So, people are trying to put in multiple stores, get the benefit of buying medicines in bulk, and managing the entire chain of stores instead of single store. So we will continue to see that but till now mom and pop operators are dominating but it will change going ahead.

Which are the medicines that will be in focus of production for pharma companies?

Pharmaceutical industry will continue to grow as more people are now able to get themselves diagnosed or detection of all these diseases is easier, and people also have the money to go and buy medicines, where the government is also supporting through various means. Because of lifestyle changes people are getting more diseases. Earlier it would be infections now it is lifestyle disease. Result is that less of infections so people are living longer. This will result in increase in diseases of the aged, as we go forward. Cancer cases also seem to have increased a lot.

From a customer’s stand point, decode generic medicinesand its placement in the Indian market…

Everything in the country which is being sold today is generic only. Unless the maker of the product is the original inventor, we have to call the rest as generic. During the patented period no one can claim over it but after that period everyone else can also make the product. So no matter how big is the company if they are making that product then it is called as generic only. We are also generic that way because we are taking a product where the patent has expired. Now the only thing a customer has to look out for is the quality of the manufacturing plant based on which the quality of the product is dependent. If the drug is made in a bad quality plant where they do not take care of it then it will be filled with impurities, it could dissolve very quickly, it could be impure and have lot ofcontamination.

For patients, doctors would write a brand to make sure that generic product they are suggesting is brought from a good factory where the product is made. While people are buying medicines they have to look at the brand, now where is the cost-effectiveness? Big brands have over-head cost such as marketing and distribution. But, MedPlus has cut down those costs due to which we are able to sell medicines at discounted price. What people should not do is buy lesser priced medicines manufactured in a low-quality facility sold by not so familiar names.

But then, MedPlus brand of drugs are available only at your store. What about towns where counterfeit makes its way into markets easily?

Telangana and AP combined we have around 1,100 stores. We are there in places that have population of 10,000. Those places require stores like us because fake medicines make their way into rural and towns. So we see a need for that. But, where the supply chain permits us we will end up going there. MedPlus has always operated on hub and spoke model, wherein we set up a warehouse around which we do three to four stores or as many stores we can in two to three kilometer radius. Right now all are company-owned stores going ahead we will do a little bit of franchise model but not right now.

Are there any expansion plans charted out for MedPlus Pharmacy?

We will be opening around 600 new stores but I do not want to commit to that number right now, we will come back with the numbers later. But the current number of stores is around 4,250 across more than 600 cities in 10 States of Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal, Maharashtra, Orissa, and recently we entered Kerala, Madhya Pradesh and Chhattisgarh. For us all States are equal it is just that we are operating from Hyderabad so we will get into States that are continuous. Once we enter Maharashtra we will enter Gujarat or Chhattisgarh and Madhya Pradesh as we do not want to leave some gap in between and jump. Now the plan is to spread towards North but that will take a while. The location in a city is selected on the basis of density of the population there, and we go to neighborhoods where grocery and other stores are present.

MedPlus Pharmacy has managed to position itself second after Apollo Pharmacy. How has the journey been and how have you placed MedPlus against your competitor?

We definitely like to be number one in the market. Everything we have done they have followed us. We went online in 2014 they followed after us. We are now introducing our private label I am sure they will do after several months. So number does not matter. We are the pharmacy brand. We have our USP they have theirs. Our thing is generic medicine at best possible price while theirs is generic medicine at best possible profit. We started the company with just Rs 2.25 crore, we opened first 47 stores in Hyderabad in February 2006. It is 18 years since then. We raised money from several different investors, three sets of investors who came in and exited, followed by IPO. We have seen problems in the form of industry problem where people did not like the fact that we were giving medicines at a discount rate at our store and then there is the funding pressure. But overall it has been a smooth ride.

As the price of setting up a pharma store has gone up, does opening multiple company-owned stores drag the overall profits of the company down?

In 2006 setting up a store would cost around Rs 4 to 5 lakh, but now it has gone up to Rs 30 lakh. Not just because the cost of setting up a store has gone up but the sales per store has gone up so the amount of inventory that has to be stocked is significantly higher. So in the Rs 30 lakh, around Rs 15 to Rs 18 lakh goes into inventory, around Rs 3 – 4 lakh on rental deposit and balance on operating cost. We sell 80 per cent of pharma and 20 per cent of non-pharma products at these stores. Typically it takes 50 to 60 per cent of our stores three months to break even, after that they end-up going to 10 per cent store-level EBITDA in around two years. So roughly on an average a store does Rs 15 lakh per year after 30 months. We look at the portfolio. We look at stores that are above and below two years. So the more stores we add the more drag is seen at the bottom of the portfolio, but that is no reason for not putting up a store as eventually they will make money.

MedPlus Mart makes up a small percentage of your revenue while other players are betting big on online space?

We are there online because sooner or later more number of people will come online. I agree that it will take a while. We want to be present as people buying behaviour changes. Our presence is there, if you want to go online and buy then please do. The regulation for online players has been set right to some extent. We do not think that the market is so attractive that we should advertise a lot, lose a lot of money and try to bring people that are not comfortable buying online. But we definitely think that the market will eventually pick up at a point of time.

Nor is MedPlus done with its pilot in the diagnostic space…How is testing of this market going on? Any plans of entering cities beyond Hyderabad?

The diagnostic plan is a subscription-based model where people pay Rs 1,150 for a year and get 1150 worth of tests free and after that they get a discount on all tests. It is like an insurance where the 75 per cent discount can be seen as an insurance with a 25 per cent of co-payment. Diagnostics is right now B2C, we want to do B2B also. We want to see if we can get the 2.53 lakh members then we will be confident about going into other States. Right now we are at 1.25 lakh members in Hyderabad. We will continue to work on it. Once we are comfortable with the number we will figure out if we have to raise money and go to other States. Diagnostics is a capital intensive market. To put up 12 centres it costs us Rs 1.20 crore over all. But we see an opportunity as we are seeing very good response.

Coming to regulations, MedPlus had issued clarification on suspension of one of its store’s license. Have you worked on setting it right to evade such situations in the future?

Medical store license got suspended for few days, that is normal and not of any great consequence. As Sebi changed the rules recently, they said that irrespective of the materiality it has to be reported. There are some drugs which need particular prescription. For that we will set up and enhance the tech platform so that it will automatically flag it in the system and help the pharmacist. Drugs for H1 and some others come under this bracket.