This Fledgling Online Market Too Is Facing Brick-And-Mortar Backlash In India
Ease and deep discounts have fuelled the growth of online pharmacies.
Suraj Srivastava, 45, didn’t get the right medicines when he placed an order for his father’s drugs on Medlife, an online pharmacy. He not only had to reorder but also wait for a couple of days to get the refund for the wrong dispatch.
That hasn’t deterred the Delhi resident from ordering drugs online. “Where I live, pharmacists don’t give more than 8 percent discount and sometimes the medicines are also not available,” Srivastava, who has been ordering medicines online for about two years now, told BloombergQuint over the phone. “There is an element of convenience when I buy online, and with an average discount of at least 20 percent, it is the most preferable option for chronic needs.”
Ease and deep discounts have fuelled the growth of online pharmacies as Indians turn to the internet to buy everything from mobile phones to groceries. There are as many as 245 e-pharmacy startups in the country, according to Tracxn data, with players Medlife, PharmEasy, Netmeds and 1Mg leading the pack.
India’s pharma market is estimated to swell from $20 billion currently to $35 billion by 2025 if the current growth trends continue, according to IQVIA. And the online business, according to Frost & Sullivan forecast, is expected to grow sevenfold to $3.7 billion by 2022.
That, however, will depend on how regulatory framework evolves. In December last year, the Delhi High Court ordered all e-pharmacies to stop online sale of medicines. But the Madras High Court later suspended the ban. Medicine delivery firms are now awaiting a notification from the government to regularise the industry. The drug regulator last month sent a letter to online startups, states and regulators citing the Delhi High Court order that suggested the ban, saying they are selling medicines without licence.
Dharmil Sheth, co-founder of PharmEasy, an online pharmacy said, they partner with licenced pharmacists and don’t have to worry. But the platforms are waiting for the government to release the final policy.
The final rules were expected by Jan. 31 this year but haven’t been notified yet as the lobby of more than 9 lakh brick-and-mortar pharmacies and suppliers is up in arms over discounts and losses. Much like how Indian retailers have been protesting against Amazon and Walmart-owned Flipkart.
“There is no doubt that this sector (online pharmacies) is poised to grow and is growing, but in the absence of any clarity on rules, there is a regulatory overhang,” Atul Pandey, partner at Khaitan & Co., said over the phone. “If anything changes and it (the policy) becomes stringent, so there is uncertainty,” he said. “Already, there have been two conflicting views of high courts.”
Anup Jain, managing partner at Orios Venture Partners and an investor in PharmEasy, admitted that such an uncertainty impacts sentiment. The government should bring a central policy so that states don’t interpret things differently, he said.
So far, global and domestic investors have continued their support to the fledgling market. In 2017, 12 online startups selling drugs raised about $60.4 million in external funding, according to data shared by Tracxn. In 2018, eight startups raised $155 million. This year, it’s grown more than three times to $506 million so far. PharmEasy raised the largest round by an e-pharmacy startup in the country last month.
Most of that is going into customer acquisition through discounts. Higher investments in advertising and promotions took the industry’s cash burn to around Rs 7-8 crore a month, according to CLSA.
Moreover, e-pharmacies comprise only 2-3 percent of India’s pharmaceutical market, leading to limited pricing power while sourcing from manufacturers, CLSA said.
And they mostly sell drugs for chronic ailments—such as cardiac and diabetes—where purchases can be planned, CLSA said. Online pharmacies have faced difficulties in penetrating the market for acute diseases.
But these problems fade in the face of resistance they face from pharmacy stores.
‘Fear Of Unknown’
India’s drug distribution is fragmented and unorganised, with over 80,000 distributors and around 8.5 lakh brick-and-mortar outlets, according to CLSA. And they are lobbying against online sellers.
“Small pharmacies like ours hardly offered any discounts but now we are forced to,” Anoop Khanna, a Noida-based pharmacist, said. “Customers compare the discounts they get online, and it is not at all possible for us to match that,” he said. Over the last couple of months, Khanna has seen a decline in demand for chronic medicines.
All India Organisation of Chemists and Druggists, a lobby of pharmacy stores, had threatened pan-India protests after draft policy to fomalise e-pharmacies came out.
Seth of PharmEasy called it the fear of the unknown. “We work with retailers and help them digitise the industry and provide medicines to the customers,” he said. “We are evaluating ways in which we can partner better with offline pharmacies.”
Pharmacy chains like MedPlus and Apollo Pharmacy have also started taking online orders. MedPlus is already doing 10,000 online shipments a day across seven cities it is present in, Madhukar Gangadi, its founder and chief executive officer, told BloombergQuint.
By comparison, Medlife, an online seller, does about 25,000 deliveries a day and its revenue is growing 8-percent month-on-month, according to its founder Ananth Narayanan.
And e-pharmacies are also eyeing e-consultation, e-diagnostics and electronic health records to expand their business.
Consumer experience will ultimately become the deciding factor. For gaining customer trust, according to CLSA, online stores need to focus on timely delivery, customer support and data privacy.
Delivering incorrect medicines like in Suraj Srivastava’s case or a delay in shipment or packing expired medicines have made some customers reconsider the option.
Mumbai-based Vikas Kumar said he ordered medicines for his father from Netmeds but the batch he received had expired. “Delay is fine, but expired medicines is not. I will move away to other platforms now.”
Netmeds, in an emailed response to BloombergQuint, denied delivering medicine out of shelf life. Responding to Srivastava’s case, Medlife said it gets “99.9999 percent of the orders right” and is working for “100 percent”.
There is little margin for error, according to Pradeep Dhadha, co-founder of Netmeds—which said it has 8.5 million customers. Every order goes through at least four checks before it is dispatched, he.
PharmEasy has hired around 350 pharmacists to digitise and verify prescriptions, founder Sheth said, adding that every order goes through seven checks. The biggest challenge, according to him, remains increasing the fill rate. “People want five medicines but only three are available,” he said.
Twitter is full of complaints from customers getting incomplete or wrong orders. While BloombergQuint couldn’t verify their claims independently, such posts on social media can potentially deter other possible customers.
Ankur Bisen, senior vice-president of retail and consumer products division at Technopak, said online players cannot afford any negligence. “Spurious trade exists and it is the hard fact for the industry,” he said. “While it gets hushed offline, but it could put a question on the practices of the entire online market as it’s more visible.”
That’s why Jitender Singh Minhas, 51, still prefers brick-and-mortar outlets. Minhas has tried online ordering to send medicines to his son who studies in Guwahati. Yet, the Noida resident still finds it easier to shop at the nearest pharmacy store. For him, personal interaction with the pharmacist is important to ensure that the medicine he buys is the right one.