Why Is Competition In The Online Pharmacy Space Heating Up?

Everyone, right from the largest Indian conglomerates to small start-ups, is fighting for a piece of the online pharmacy markets in India.

In 2021, Pharmeasy became the first unicorn in the pharmacy space, while the Tata Group acquired a majority stake in 1mg, a healthcare platform.

In August 2020, Reliance had acquired a stake in Netmeds’ parent company. In the same month, Amazon declared that it would be entering the e-pharmacy space with “Amazon Pharmacy”.

More recently, Walmart-backed Flipkart has decided to acquire Sastasundar Marketplace, which operates a pharmacy business.

Growing Adoption Of Online Channels

Over the last few years, the digitization trend has grown, as more people began adopting online channels to meet a greater part of their consumption needs.

The Indian market, that earlier had generic e-commerce companies, has seen a prominent rise of specialised e-commerce companies. These platforms focus on particular segments, as opposed to becoming a one-stop-shop for various goods across segments.

The pandemic has accelerated the trend, and has encouraged users to adopt these online channels.

The pharmacy sector has around 8.5 lakh outlets that contribute to 90 per cent of the sector’s sales, according to the National Investment Promotion and Facilitation Agency.

According to FICCI, the adoption of online pharmacies had been fairly low in the pre-Covid era (financial year 2020) when just 35 lakh households used the service.

However, within just four months of the lockdown, 90 lakh households had begun using e-pharmacies. Further, an Ernst and Young report pointed out that the United States has 10 retail chains that dominate 74 per cent of the market.

In contrast, India is quite fragmented on both the wholesale and retail levels, with chains contributing to only 5 to 6 per cent of sales.

The pace of growth and the opportunity to disrupt an essential goods market has attracted some of the largest conglomerates into the business. According to the Ernst and Young report, during the pandemic, Med Life and 1mg saw a 50 per cent increase in delivery orders, while PharmEasy saw a 40 per cent rise in orders.

How Are These Platforms Enticing Customers?

All of the players in the segment are well-funded, allowing them to offer large discounts to customers — almost to the tune of 15 to 20 per cent on some products.

The discounts serve as a means to attract customer onto the platform. Another strategy used by these platforms has been bundling several healthcare services into a single platform. For instance, several players such as Netmeds, 1mg, and Medlife offer tele-consultations to their users.

Pharmeasy has bought the majority stake in diagnostics company Thyrocare for Rs 4,546 crore, allowing the company to expand its footprint in the healthcare space.

As a result, the company could become a one-stop-shop that offers everything, right from consultations, to diagnostics, and the delivery of medicines.

Moving Beyond Digital

However, these companies understand the importance of having a physical presence as well. Pharmeasy, despite its e-commerce roots, is building a franchise network to run its physical stores.

These stores hold the medicines required by its users, while simultaneously catering to customers who prefer the physical channel. Others, such as Medplus and Apollo Pharmacies, started off with physical stores, and moved into e-commerce deliveries.

While opening stores can be capital-heavy, it allows these companies to familiarise themselves with the area and while catering to both online and offline demand.

A dense store network could help these companies make faster deliveries as well.

Adopting The Right Business Model

The competition remains quite intense, and business models remain divergent even among the largest players. Usually, companies operate on three models — a marketplace model, a franchisee model, and a inventory-led model.

The marketplace model solely acts as a middleman, focusing on connecting buyers with sellers and providing a logistics network. The franchisee model focuses on on-boarding franchisees to run physical stores from where medicines are dispatched for both online and offline customers.

The last model focuses on building inventory in warehouses. The orders are then transported to the user by the logistics services. However, the inventory-led model could also be a marketplace hybrid, where along with maintaining inventory stocks in warehouses, players also partner with local pharmacy partners.

Pharmeasy acts as a middleman and is working with existing wholesalers and retailers. It acts as a supplier for retail stores, while also helping retail stores connect with customers online.

In contrast, 1mg, Netmeds, and MedPlus are focusing on directly buying from companies and selling directly to consumers and eliminating middlemen.

So far, Pharmeasy has remained the top player in the space with 87,000 partner pharmacies and a gross merchandise value of over a billion dollars.

Investor Enthusiasm Remains High

Investors appear to be quite enthusiastic about the space. For instance, Sastasundar Ventures saw its shares more than triple over the last one year following the news of Flipkart’s acquisition.

Pharmeasy saw a valuation jump and became an unicorn, while 1mg was acquired by the Tata Group. Pharmeasy has already filed papers for an Initial Public Offering, and given its dominant position in the sector, the IPO could see a strong response.