MedPlus in Mumbai will be pitted against Wellness Forever and Apollo Pharmacy -the largest - along with numerous other mom and pop chemist shops.
India's second largest pharmacy retail chain MedPlus, which raised around Rs 200 crore from Wipro Chairman Azim Premji's family office PremjiInvest in April this year, is planning to enter the Mumbai market.
The pharmacy chain said it is planning to open 100 stores every year.
MedPlus operates about 1,700 stores but has largely focused on south India till now. Around 100 of these stores are run through franchisee model.
"In Mumbai, we will be setting up our own stores," said Madhukar Gangadi, founder and chief executive officer of MedPlus.
The Mumbai market
MedPlus, which already has a presence in Pune and Nagpur, will be adding around 30-40 pharmacy stores in Mumbai.
MedPlus in Mumbai will be pitted against Wellness Forever and Apollo Pharmacy -the largest - along with numerous other mom and pop chemist shops, but Gangadi says there is still room to grow.
"Mumbai is a great market," he said.
Typically it costs upwards of Rs 35-40 lakh to set up a medical store in Mumbai, and takes around six months to turn cash positive, and three to fours year to recover the investment.
MedPlus follows a hub and spoke model. It establishes a central warehouse, around which it puts up as many stores as possible. The cost of warehouse is amortized across the stores. The company uses technology extensively for better supply chain management, and to network the stores and warehouses.
Gangadi said the pharmacy chain plans to end FY20 with Rs 2600 - Rs 2700 crores, we should have an EBITDA of Rs 70-75 crore. Around 17-18 percent of overall business is generated through digital platform.
Gangadi said the low EBITDA margins is due to discounts they have to offer to retain business.
"We are offering 20 percent flat discount for customers who are buying medicines of Rs 1000 and above at our stores," Gangadi said.
Indian retail pharmacy is estimated to be worth $18 billion, and is expected to reach a size of $50 billion by by 2025, according to data from Department of Industrial Policy and Promotion.
The total number of retail pharmacies in India are estimated to be 850,000, less than 5 percent or around 6000 come under organized pharmacy stores.
While there is tremendous growth potential, retail pharmacy chains are seeing intense competition from e-pharmacy chains who don't have to invest on setting up brick and mortar stores and employ pharmacists and other staff, are able to pass on the cost saving to customers. Also many of them are flush with PE money are offering steep discounts of 20-30 percent to acquire customers.
But Gangadi says he see limitations in e-commerce model.
"The combined market share of the big four e-pharmacies isn't more than 2.4 percent. And that is on top of basically losing money like crazy, because they don't have any value proposition. Tell me how many times did you really suffer and struggle for medicines. You go there (to the chemist shop), or give a call they will come and give it to you. So what problem are you solving Now they are saying they are solving the discount problem, they can't go beyong 20 percent, which is what we are already giving," Gangadi said.
"Now they have started talking about omni channel, we are already an omni- channel," Gangadi said
Omni-channel refers to having both the online and offline front end presence.
MedPlus is trying to add new stream of revenues by selling white-labels, meaning store brands.
MedPlus is occasionally in news for divestment.
The company was in news for a possible stake sale to Amazon. Mint earlier reported that Gangadi secured Rs 750 crore of debt financing from Goldman Sachs to acquire the stake held by its then PE investors Mount Kellett Capital, TVS Capital and India Venture Advisors.
The restrictions around foreign direct investment (FDI) into multi-brand retail has become albatross around the necks of organised retail pharmacy chains in getting good valuations.
According to the FDI policy, a foreign retailer can take 51 per cent stake in a domestic firm under government approval route.MedPlus rival Apollo Pharmacy is also looking for possible unlocking of value.The Great Diwali Discount!
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