First it was the pressure from thinning margins. And now it is the lure of big money from FMCG players. With retailing picking up steam in India, the face of traditional formats is changing fast, and pharma retailers, sensing drugs alone can't keep them fiscally fit, are on an image makeover.
Chemists are now branching out to FMCG products, with confectionery, chocolate dispensers, branded snacks, hair colours, health supplements and cosmetic products vying with each other for shelf space.
Pharma companies acknowledge that the shelf space for prescription drugs is shrinking, along with increased competition in the OTC (over-the-counter) space. Says Alok Saksena, director, Elder Pharmaceuticals, "We have a number of OTC products like balms, cosmetic creams and others which compete for shelf space and consumers attention with a number of non-pharma products at the chemists."
And among drug retailers, the trend is clearly in favour of chain stores. For instance, Global Healthline, which runs the '98.4 degrees' drug stores, is on an expansion mode in the northern region. Then there are others like Apollo Pharmacies and CRS Healthcare.
Observers say it is the thin margins that is forcing pharma retailers to look at other avenues. While the wholesale margin for prescription drugs is 8%, the retailer earns 16%. Even in the OTC segment, the wholesaler gets 6-10% with retail fetching a margin of 14-20%.
Compare that with the 25-30% returns offered by FMCG companies, and the shift in preferences is justified. Besides, most FMCG players offer incentives for point-of-purchase displays, making them more attractive.
FMCG players have identified the chemist shops as Class-A retail units, owing to their influential reference value. The key advantage of a chemist shop is that it provides an opportunity to offer consultancy and advice for a wide range of personal care products. Besides, they say, drug stores provide a presentable set-up for impulse purchases unlike traditional kiranas.
Chemists have better and cleaner storage facilities because of the nature of products they sell. For instance, a lot of drugs require air-conditioning, while some others are to be kept away from direct sunlight. Such facilities come in handy for FMCG products, especially in the case of high-end beauty and cosmetic products that require similar treatment.
"A lot of products are moving into the beauty and wellness category that's growing sharply in recent times. The other point is that fierce competition in the market is forcing FMCG companies to tap every willing sales channel," says Piruz Kambhatta, CMD, Rasna.
The other factor for FMCG companies is the wider reach drug stores offer. There are about 8 lakh retail chemist stores in India, clocking annual sales of Rs 40,000 crore.