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Dear Pharma Veterans. This series of Blogs is to have a summary view of Pharma Business in Pakistan. It is a series spread over several parts covering the entire spectrum of Pharma business.
Pharma Business – DISTRIBUTION
After Marketing and Sales, we now look at Distribution.
Distribution is one of the 5Ps and has critical importance in Pharma business for the following reasons.
- Availability in the Retail Market. The drugs will finally be sold through a retail pharmacy. The retail pharmacies are not connected directly to the manufacturer, who do not even have license for retail sales. The distributor bridges this gap and connects the manufacturer with the retailer. Distribution network is seen all over the world, not just in Pharma but in all businesses, which are dependent on retail sales.
- Placement at Pharmacies. Given that the pharmacies have upgraded themselves to attract more customers and fulfill regulatory requirements, it is important for business that your products are placed and displayed properly. True, that Pharma is mostly prescription business and customer will not buy because of attractive display. Having said that, it is equally true that the patient feels better when a prescription drug comes out of a well-displayed shelf. Good placement has positive effect in other ways. Because the shelf is always ‘in-view’ by the staff also, they do not forget to reorder and keep the stocks adequately replenished. Imagine, if your stock is lying somewhere under the counter where it is not easily accessible either; you are likely to lose some sales.
- There has been an exponential increase in the number of retail pharmacies due to several reasons.
- Population increase. Like Food, medicine is also population related business. The more people there are, the more patients there will be. Our population growth is among the highest and our living conditions are getting poorer. The incidence of diseases in on the rise, hence the need for more pharmacies.
- Access to Healthcare. More doctors qualify every year and more of them go into private practice because it is a long, arduous, expensive process to do post-graduation. Many prefer to go back to their remote, native towns or start practice in remote places where there is less competition. Whatever the background, but it is resulting in greater access to healthcare. Several challenges still remain though. Wherever a doctor is, there is medicine, hence the need for retail pharmacy.
- Geographical Expansion. The cities and towns are expanding at an alarming rate due to reasons we may not discuss here. It has impact on the way healthcare is provided. A well-known consultant in Karachi once commented ‘Karachi is so big. I do not expect that patients will come to me from all corners of the city. I therefore practice at three different location to be accessible to more patients.’ If not multiple places, consultants are practicing in diverse places. Patients prefer not to go too far for consultation, and they also do not wish to go far to buy their medicines. This leads to opening up of new pharmacies.
- Lucrative business. Statistics says that retail sales in 2018 were about 400 billion rupees. There are an estimated 35,000-40,000 retail pharmacies in Pakistan. If 400 billion was divided equally among all retail pharmacies, it would be 10 million rupees per pharmacy per year. Do remember that the actual sales are higher than this and overall pharmacy sales are much higher because they sell lot of stuff other than drugs. By law, the pharmacy must get 15% margin on drugs. When you do maths, you understand why the retail pharmacy business is attracting more investors. You see ‘chain pharmacies’ and ‘franchise pharmacies’ coming up and the overall state of retail pharmacies has improved a lot.
- Sales Data. The distributors provide the much-needed sales data to company. With current software, the company can see individual pharmacy sale, an area sale, a med rep territory sale, and regional sales. You can see the trends and analyze the impact of promotion, so on and so forth. Presently, you are looking at real time data, updated daily. Probably this is the best time to work because all kind of information support is available.
- Stocking Hub. In a handbook of cardiology, it was mentioned that at all times 70% blood was there in the veins, 27% in arteries and 7% in heart. Veins are also called ‘Capacitance Vessels’ while arteries are ‘Resistance Vessels’. The doctors can infuse couple of liters of fluid in the veins because veins would hold it; arteries could not. Distributors, over a period of time, have become the ‘Capacitance Vessels’ for the manufacturers where they keep infusing more and more stock. It started from 15 days and has gone to 60 days or more. New products are additional. If a company’s average monthly sale is 300 million, the stock at distributors will be 600-700 million at all times. While, this may seem excessive, but it provides cash flow to the manufacturer to keep operations going, and it provides excellent safety in case of product shortages at the company.