EVOLVING TRENDS IN THE PHARMACY RETAIL INDUSTRY IN INDIA

Gradual transition towards modern formats (offline + online): Penetration of modern retail in pharmacy is
relatively lower than most other categories except food and grocery. However modern pharmacy retail is estimated
to grow at a rate of 25%, growing faster than other categories. Inclination towards modern pharmacy is being
witnessed on account of better customer experience, wider product range, value added services and transparent
discounts.

Rapid development of online channel: The e-commerce and omni-channel retail is expected to grow ata CAGR
of 44%, with pharmacy e-commerce expected to be one of the fastest growing segments after food and grocery.
B&M stores are in position to capitalise on this growth with their digitally-enabled platform linked with the
physical stores and warehouses which will allow them to grow at faster pace. While the offline sales of
omnichannel model are included in the B&M sales, the online sales of omnichannel players is included in the e-
commerce retail.

Organized Pharmacy Retail operates with better unit economics: Pharmacy retail operates on high inventory
turns and can take advantage of economies of scale due to a reduction in the cost of holding, improving sales per
square foot and working capital efficiency. The table below sets out the unit economics for various organized
retail segments operating modern retail formats:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pharmacy Eel Food Services
a Grocery Jewellery Retailing Apparel Retailing
Retailing Retailing (QSR)
Typical otvier 250-500 500-1000 20,000-1,00,000 2,000-3,000 500-550
Value (2)
Cia Area ~500 1,500-2,500 3,000-5,000 1,000-1,500 1,200-1,600
Typical store
Revenue per month 1-2 3-5 40-60 1.5-2.5 2.5-3.5
(% million)
Average Revenue 30,000-
per sq. ft. per year 50, 000 ~24,000 ~1,40,000 ~20,000 ~26,000
2) B
Inventory Cost (& w ,
pilliony 1-2 2.8-3 300-400 7 1-15
Inventory Turns 4-6 times 12-15 times 2 times 3-4 times 24
Promotional
expense as % of 1% 1-2% 1-3% 5-7% 4-5%
store revenue
Epa cecos as 3-5% 5-8% 1-2% 8-10% 9-12%
% of store revenue
Capex per store (@ z 8 _ ie 5
million) 0.4-0.8 3.2-3.5 30-40 3-3.5 15-25
Seer ce evate 5-10% 15-20% 100% Varies 100%
Labels
Number of SKUs | 5,000-15,000 | 4,000-5,000 1000-1500 500-600" 35-40"
Store-level Pay | 5 zi
Back Period 3 years 3 years 3-4 years 2-4 years 3-4 years
Sie etre) 45-50% 30-35% 20-25% 25-40% 25-35%
level ROCE
Omni-channel 7 5 A
Readiness High High Low Medium Medium

 

 

 

 

 

 

 

Sources: Secondary research, Primary Interviews, Technopak Research
“SKUs for clothing does not include size variants. Only colour and style options
** Combos/meals and Size variations are not included in the SKUs

Emergence of nutraceuticals: At present, the United States, Japan and Europe account for more than 90% of the
total global nutraceutical market, and globally, nutraceuticals have gained importance and become a part of the
consumer’s daily diet, particularly among the aspirational consumer segments across key markets. This is
primarily due to the increasing prevalence of lifestyle diseases and conscious shift towards preventive healthcare
measures. India accounts for almost 2% of the global nutraceutical market, and the Indian nutraceutical market is
estimated to be around 2 532.5 billion in financial year 2020, and estimated to be worth approximately = 1,290
billion by financial year 2025 at a CAGR of 19-20%. Organized B&M retailers have an advantage over online

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