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Drug retailers set to compete with large pharma firms

July 19, 2010 13:39 IST

Over 550,000 small drug retailers in the country are transforming into producers and marketers of pharmaceutical products, readying to compete with companies such as Ranbaxy, Cipla, Sun Pharma and Lupin whose produce they sell.

All Indian Origin Chemists and Distributors Ltd, a company floated by the 35-year-old All India Organisation of Chemists and Druggists to face competition from large drug retail chains, has launched 100 private label generic-generic drugs under the brand name AIO.

Generics are non-patented drugs, and those without a brand name are referred to as generic-generics.

These common off-patent drugs and over-the-counter products are targeted at a wide variety of common ailments and lifestyle disorders. These address a domestic market worth about Rs 5,000 crore (Rs 50 billion) which is shared by the 3,000-plus manufacturers in the country.

The company will soon appoint a sales team to aggressively market its products. AIOCD Ltd, which has a current annual turnover of about Rs 12 crore (Rs 120 million), plans to earn Rs 60 crore (Rs 600 million) in 2010-11 and Rs 150 crore (Rs 1.50 billion) in 2011-12, said J S Shinde, chairman of AIOCD Ltd and president of AIOCD.

AIOCD's aggressive move comes at a time when drug retail chains such as Apollo Pharmacy, Guardian Lifecare, Medplus and Trust Pharmacy are trying to push their sales with private labels. Through private-label sales, the retailer can avoid middlemen in the supply chain.

Manufacturers fear private label drugs may hamper sales of their branded generics as retailers can influence the consumer with cheaper options.

Dominated by branded drugs, the size of India's pharmacy retail market is estimated at around Rs 21,000 crore (Rs 210 billion).

"Such private-label products are common in the West among drug retailer giants like CVC, Cardinal Health or Walmart. There is no harm in competing with your own clients when you are doing a business, as we need steady revenues to grow our company," Shinde said.

Initially, AIOCD Ltd will source these drugs from about a dozen manufacturers located in excise-free zones in North India. AIOCD Ltd has launched the products in a dozen states since Thursday, and will soon extend it to other states in North India.

In the third phase, the company will roll out it into the North-East region to gain a pan-India presence.

AIOCD claims to control 95 per cent of drug trade in India; it very often dictates terms with the manufacturers.

AIOCD Ltd already has seven state-level companies in Maharashtra, Bihar, Assam, Tamil Nadu, Gujarat, Himachal Pradesh and West Bengal. It plans to set up another eight or nine companies in other states.  Depending on the demand, the company will increase the number of products, Shinde said. 

The pan-India roll out will be supported by AIOCD Pharmasofttech AWACS, a nationwide IT infrastructure backbone created by the traders to streamline and monitor logistics and inventory. A private equity fund, Mumbai Angels, has invested in this IT firm, which also tracks monthly drug sales, stocks and offers online solutions to drug traders.

AIOCD Ltd, which has 13,000 shareholders, was formed three years ago by the retailers to take on competition from organised retail drug chains coming up in the country and to lend the many decade old traditional drug retailing a corporate face with value added services and products.

The initiatives in this transformation include rebranding of the chemists outlets under a common brand, patient counseling training, new storage practices, cold chain management and uniform logistics.

P B Jayakumar in Mumbai