Effect of Recent ChangesOn

Small Scale Pharma Retail Sector Murshidabad-WestBengal

Members: PGPM 2016-2018

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Atrayee Samal (08)Apurva Singh (06)Vitthal Sharma (35)Rumeli Kanjilal (22)

Small Scale Healthcare Retail Industry

Overview

The Indian Pharma sector is a regulated, unconcentrated with HHI below 1500 and unorganized market where there are licensed individuals who independently perform authorized drug trades. The market is heavily fragmented. As per report by All India Organization of Chemists and Druggists (AIOCD), the Indian pharmaceutical market posted annual sales of Rs 53.69 billion in fiscal 2011-2012. There are approximately 700,000 pharma retail outlets, out of these only 20 to 30 per cent is from all the organized retail companies and rest is dominated by traditional/local chemists [1]

India is a low-middle income country as per the World Bank classification. In fact, the growth in expenditure on total healthcare in India has been decreased from what it was a decade ago (from 4.3 per cent to 4.05 per cent).In a talk at Harvard School of Public Health (HSPH) in 2012, it was noted that India spent about $40 per person annually on health care where as the United States spent $8,500 [2]

The organized retail pharmacies provide many value added services like availing medicines in air-conditioned surroundings, 24x7 operations, door delivery, credit-card acceptance, insurance cover, nurse station and online pharmacy. Are the unorganized retail pharmacies willing to show the shift towards providing value added services? For a vast country like India, population demographics of different cities and towns are very different. This would be a game changer since most of the unorganized retail outlets develop in areas where it is difficult for high investment pharmacy retailers to extend their coverage. With proper value added system it can be a threat to the organized medium scale retail outlets.

Findings from Indian Pharmaceutical Industry Research for Nov’16 issue of IBEF [ 3 ]

The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent between the same period.

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India has also maintained its lead over China in pharmaceutical exports with a year-on-year growth of 11.44 per cent to US$ 12.91 billion in FY 2015-16, according to data from the Ministry of Commerce and Industry. Imports of pharmaceutical products rose marginally by 0.80 per cent year-on-year to US$ 1,641.15 million. India’s third largest drug maker Lupin Limited plans to file its first biosimilar Etanercept for approval in Japan, world’s second largest drug market, in 2017. India is expected to rank among the top five global pharmaceutical innovation hubs by 2020, based on Government of India's decision to allow 50 per cent public funding in the pharmaceuticals sector through its Public Private Partnership (PPP) model

Executive Summary

BACKGROUND

The unorganized phrama retail in West Bengal is a regulated sector as it is controlled & monitored by the State Director of Drugs Control & Licensing Authority. The personnel of this department conducts inspection of the premises of the firm applying for license & if found suitable & after due compliance of statutory norms & submission of fees wholesale or retails license to sale homeopathic & allopathic medicines are granted [1]. It is divided into 25 districts with 62 organized and unorganized medicine outlets. Retailing is the largest private industry in India and second largest employer after agriculture. The sector contributes to around 10 per cent of GDP and 6-7 per cent of employment. With over 15 million retail outlets, India has the highest retail outlet density in the world. The retailing sector in India has undergone significant transformation in the past 10 years. Traditionally, Indian retail sector has been characterized by the presence of a large number of small-unorganized retailers. However, in the past decade there has been development of organized retailing, which has encouraged large private sector player to invest in this sector. Many foreign players have also entered India through different routes such as test marketing, franchising, wholesale cash-and-carry operation.

METHODS

The team will adopt a collaborative approach where in each member will personally involved in day-to-day research activities like, plan and design survey questioners, personally visit and interview small scale retailers and study other secondary resources regarding recent trends that affect the small scale retail industry, within the targeted market region. Here, the team will follow both primary and secondary research techniques so as to cover all aspects of market scenario in order to understand the impact of changes on target respondents and on the industry as a whole.

Sampling UnitShopkeepers, their distributors, consumers

Sampling Technique:

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METHOD REASONConvenience Sampling

Not all shopkeepers will be willing to take part in surveys

Stratified Sampling Entire population can be divided as shopkeepers from Kirana, marts or road side vegetable seller

Simple Random Sample

As there is a defined target population

Sample Size:A sample of 78 shops has been taken for the research

Fig1: Flowchart of sampling method. Sample size is 30

1. Introduction and Objective

1.1 Background to the study We have conducted the research keeping in mind the existing changes in pharma sector within WestBengal. We have taken Murshidabad as our survey location taking proximity and ease of reach into consideration.

1.2 West Bengal demography, health system and access to medicines situation

List of villages and towns in Raghunathganj under Murshidabad is attached below.[Source: 2011 census of India]. It is found that  North Twenty Four Parganas is the most populous districts with 1,00,82,852 people living followed by south Twenty Four Parganas 81,53,176 and Barddhaman 77,23,663. Murshidabad counts 71,02,430.

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Bengali is the language of most of the people, with Hindi, Urdu, Nepali, and English as minority languages. English, however, is the language of administration and lingua franca for business purposes. Agriculture plays a pivotal role in the state's income, and nearly three out of four persons in the state are directly or indirectly dependent on agricultural activities [1]

The healthcare infrastructure in West Bengal is a mix of public, private and nongovernment organization (NGO) facilities. Patients do not have to pay for drugs dispensed from public hospitals. It is estimated that around 70% of the population avail public healthcare services and therefore have access to essential drugs. The health department spends about 7% of the total health budget on drugs – the health budget constitutes 3.9% of the government's total budget [Source: Draft State Drug Policy - West Bengal, 2004]

Census 2011 report.

Pricing of drugs is regulated to a limited extent by the Government of India through its Drug Prices Control Order (DPCO). The state Drug Control Authority is entrusted with the regulatory mandates of the Drugs and Cosmetics Act of 1940, the National Pharmaceutical Policy 2002 and the successive DPCOs. However, with an operating strength of only about 50% of its sanctioned strength of 148 drug inspectors at [2] the state drug control is not in a position to monitor medicine availability and pricing on a regular, or even occasional, basis. This vital job therefore must be undertaken from other quarters.

Murshidabad is one of the big districts in the state, having 5 sub-divisions, 26 blocks and 27 numbers of Police Stations. Area wise, the biggest sub-division is Jangipur which has seven blocks and the smallest and lately formed sub-division is Domkal which has four blocks only. Sub-divisions are headed by the Sub-divisional Officers under whom the Block Development Officers function in Blocks. The District Magistrate & DEO discharges duties through the Addl. District Magistrates and Deputy Magistrates [3]. The research study is performed for retailers in the district of Murshidabad (in bold). The administrative set up is shown as below.

Subdivision Block FARAKKA

RAGHUNATHGANJ IRAGHUNATHGANJ II

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JANGIPURSAGARDIGHISAMSHERGANJSUTI ISUTI-II

SADAR

BELDANGA IBELDANGA IIBAHARAMPURHARIHARPARANOWDA

KANDI

KANDI

BHARATPUR IBHARATPUR IIBURWANKANDIKHARGRAM

LALBAGHBHAGAWANGOLA IBHAGAWANGOLA IILALGOLAMURSHIDABAD JIAGANJNABAGRAM

DOMKALDOMKALJALANGIRANINAGAR IRANINAGAR II

[Source: District Administration of Murshidabad]

1.3 Objectives

Analysis of change in the market scenario of retail industries and build a marketing strategy towards industry growth.

2. Methods

2.1 Survey planning and preparationTo meet the objectives of the project, an exploratory, experience survey design was used for collecting and analyzing data. Data were collected using personal interview recorded from subjects.

Survey Administration: Survey procedures included four phases- determining survey location, estimating the time to record the response, and approaching the retail stores at suitable time for interview. A pilot test was conducted to determine the feasibility of these proposed methods.We have taken individual interviews of retailers to collect massive information which will help us building a concrete conclusion. We prepared questionnaires keeping current market changes in considerations. In cases where respondents were unaware of the recent changes we had taken necessary resources (online data/ newspaper clip outs in regional language).

2.2 Sampling

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A list was prepared from the reference of local people: a random sample of 19 pharmacists at Raghunathganj and another random sample of 9 pharmacists at Omarpur, another random sample of 44 pharmacists at Berhampur, another random sample of 6 pharmacists at Jangipur so the final sample would contain between 25% and 30% of the population. From the list, we randomly selected a sample of 21 stores.Sampling Technique:

METHOD REASONConvenience Sampling

Not all shopkeepers will be willing to take part in surveys

Stratified Sampling Entire population can be divided as shopkeepers from Kirana, marts or road side vegetable seller

Simple Random Sample

As there is a defined target population

2.3 Data collectionWe enlisted the small scale pharmacies retailers in the Raghunathganj,Behrampore,Omarpur and Jangipur area is approximately 78.We approached 59 of them and conducted in depth interview with the owner.We first tried to encourage participants to provide accurate details when talking on crucial topics and bringing them to the light by informing the importance of their responses in our analysisWe started with specific and direct questions and moved to open ended questions.Each interview consumed approx 45mins.

2.4 Data analysisA survey was processed for data entry. Data was extracted from the database which was recorded from data collection step and analyzed for the report using open-ended answers. Data are presented in this report in a manner that allows findings what are the changes and the effect of demonetization.

Pilot Test Results

 A pilot test was conducted to determine the feasibility of the proposed methods. From our sample of 78, a random sample of 15 pharmacists was chosen to receive the questionnaire using the steps described above. We received responses from 6 of the 8 subjects assumed to be contacted (47.0% response rate). No wording changes were made to the final survey based on the pilot test. One procedure was modified approaching to the respondent at different time when store owner is not busy in his work and took appointment from them by pre notifying them. Because when we approached store owner on random basis without considering the fact that they are engage with the customer regarding sales or they are busy with their work they denied to give us time.Main Survey Administration Based on the pilot test results the following procedures were used for personal interview : 1. Pre appointment from store owner 2. Approaching store owner when they are free.

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3. Results

3.1 Effect of Online Pharma Retail Trends of E-retailing in 2016 the retail market is expected to reach a whooping Rs. 47 lakh crore by 2016-17, as it expands at a compounded  annual growth rate of 15 per cent, accordingly to the ‘Yes Bank - Assocham’ study. [1]Snapdeal that sold medicines online without prescription had discouraged online pharma retail in India for a while. This created a scandal with effect of which the Maharashtra FDA had initiated action against the commercial giant, Snapdeal. Retailers are hyper about the presence of online pharma services. Indian law does not regulate e-pharmacies [2] India's Drugs and Act does not differentiate between drugs sold online or through brick-and-mortar retail stores. This has led to several conflicts between chemists and online drug sellers, with the chemist lobby group All India Organization of Chemists and Druggists (AIOCD) approaching 10 Cosmetics high courts over the continued operation of e-pharmacies earlier this month. [3]From the interview with pharma retailers it can be understood that they are ready to provide value added service to retain their customer base. Technologies like whatsapp which is in popular use can be an help to complete delivery with prescription details and address shared online.In e-retail customers will be charged less as compared to traditional retail outlet because the later has an inefficient supply chain system which adds to price that customers have to pay. This might pull customers to avail e-services.

3.2 Private and Government HospitalThe Private hospitals have adverse effect on small retailers as they have the control over pricing. As such they can either waive or hike prices ultimately creating waves in the price structure in open market. As observed

DriversHypothe

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from the research there is certain numbers of private hospitals like Akshadeep nursing home and diagnostic centre, Sathi Nursing Home and Jeevan Deep. However, on further interviews from general public it is seen that due to high prices of medicines they prefer to buy it from outside. Public prefer visiting private hospitals because of ease of treatment (emergency situation).The Government hospitals give away free prescribed medicines and have high trust factor because of doctors’ references. Under the region of research there are more government hospitals than private.From public opinion it is observed that most of the prescribed medicines are not available in Government hospitals and hence they have to move out to retail outlets. This is because of Medical practitioner’s self interest in making commission. On the contrary, retailers completely denied of accepting any such collaborations.

3.3 Fair Price Medicine Shop (FPMS)This market model has been introduced to curb the cause of price difference created by the public hospitals. Poor patients are denied the availability of medicines and are indirectly forced to but the same at higher price in open market. This price difference is shared by the corrupt stockholders. Introduction of FPMS would provide quality medicines and other medial aids at a heavily discounted price compared to the maximum retail price. Many small retailers have agreed to follow the FPMS during its inception in 2012.Effect: It has been observed that FPMS is of no help, neither to customers nor to suppliers. Thus, making its impact negligible on other small retailers. It has been seen that Essential medicines like Albendazole Tabs. & Susp., Metronidazole Tabs. Amoxicillin Caps. 250mg, Ciprofloxacin Tabs. 250 mg, Diazepam Tabs., Metformin 500 mg Tabs. Are frequently in short-Supply whereas here in West Bengal, pharma outlets properly manage inventories and hence are not short of essential meds. Ofloxacin and Domperidone Pantoparazole which are the most wanted medicines are always in stock with the retailers.FPMS will have no effect on sales of retailer because from present situation it is understood that people are willing to pay extra for good quality medicines and won’t risk their health.

There will not be any shift toward FPMS practice.

3.4 Emerging Large scale Retail -Towards organized sector1. Entry of corporate: 2. Value-added services

3.5 Difference in Profit MarginPharmaceutical industry traditionally provides 28-30% discount on MRP. In this 28–30%, 8–10% margin is for distributors and remaining 18–20%,they have to give to retailers. So the discount for distributors is around 10% and for retailers 20%.For food n nutrition items, the margin is extremely low due to 15% tax Government of India charges 14.5% VAT to the retailers when they purchase from Distributors/Wholesale. So, this reduces the retail margin to 15-16%.. Similarly, for refrigeration products margin is around 16% for retailers [1]As per the interview experience, not many retailers own the power to control the pricing. It is mostly decided by the wholesalers allowing just a minimum 12%-17% profit margin from the suppliers. If the wholesaler

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reduces supply these small retailers will have no choice but to sell under compulsive prices with minimum profit. There are many private retail stores that make bulky purchase and thus suppliers tend to sell all of their stock leading to less supply to small retailers.

3.6 Demonetization (2016) From the observations we interpreted that most retailers opted for no credit sales and hence customers were bound to make immediate payments. To prevent from adverse effect of demonetization retailers adopted this approach as a result there was reduced purchases. Ayushmati Scheme (2007)

Target Specifics Description Approach Financing Care and Changing Behavior

Contracting Consumer education Vouchers

Target geography RuralTarget Population Children under five WomenTarget income level Bottom 20%Health focus Maternal, newborn and child health Primary care

Objective behind this scheme revolve around healthy pre and postnatal treatment around the rural region. Awareness about this scheme and its implementation would avoid patients moving out of the place, looking for better delivery services. It has not been implemented in Jangipur yet but in Sadar (Berhampore), Lalbagh (Lalgola) and Domkal [X]. Faster it becomes operational, number of institutional deliveries will increase and so will the medication requirements. This can be a boost to the sales of retailers during the off time like –the winters.

4. Discussion

4.1 Implication of the results

Change ImpactOnline Pharma Retail Tendency towards offering value added services to keep up with market

competitionPrivate Hospital Impact negligible on other small retailersGovernment Hospital Good sales from Doctors referenceFair Price Medicine Shop (FPMS)

No effect on sales of retailer

Towards Organized Sector Progressive effectDifference in Profit Margin High penetration of private hospital will have adverse effect on sales

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Ayushmati Scheme (2007) Boost up sales of retailers during the off time like –the wintersDemonetization (2016) Reduced purchases

4.2 Limitations of the study

1. Geography: We covered three municipalities namely Behrampore, Jangipur and Murshidabad. Retail market is distributed over regions. It was difficult to locate medicine outlets.

2. Respondents: We mostly covered retailers out of which many were reluctant in taking the interview because of disinterest and other concern like leakage of sensitive information. We also conducted interview of few residents which was an impromptu interaction (audio recorded) where in they shared their ease in making transactions with these retail outlets. We were not able to conduct any interview with wholesalers because of their unavailability.

3. Language: People in and around the target geography speak less of Hindi and English. It was Challenging to communicate the meaning of questions as we had to break each of them into simpler ones that they could pick easily.

4. Time: Most of the retailers take a day off and thus it was difficult to match up days of availability. We had to plan our days of visit in accordance with their availability, which was again uncertain.

5. Data regarding number of outlets that came up recently was not available to further furnish the research work.

6. Negligence of respondents:

5. Conclusions

There have been changes in credit sales which has increased compared to cash sales. Rural market is moderately informed about recent schemes. This can affect their growth to urban market. Retailers have shown interest in adopting e-services to increase value added services in order to increase their customer base.

More discounted sales to attract more customers.

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6. References

1. http://www.onefivenine.com/india/Listing/Town/medicalshops/Murshidabad/ Raghunathganj_1aii2. http://www.business-standard.com/article/punditry/e-retail-vs-organised-retail-an-uncertain-battle-115101300768_1.html3. http://www.wbhealth.gov.in/nrhmwb/DocToDisclose/Aushmati%20Scheme.pdf

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