Tata 1mg plans rapid offline foray by end of year

Tata 1mg, over 60 percent of which is now owned by Tata, competes with Reliance’s Netmeds, Temasek-funded PharmEasy, NSE-listed Medplus and several others, in a market that is growing at an annualised rate of 12.3 percent.

Tata 1mg, the online pharmacy startup, is charting out plans to expand its offline presence, and increase its store count by 4-6 times in six months, the company’s chief operating officer, Tanmay Saksena, told Moneycontrol in an interaction.

The company plans to have about 200-300 stores by the end of this calendar year, in cities such as Bengaluru, Hyderabad and Mumbai, he added. Over the past year, Tata 1mg has been piloting its offline store strategy with a total of 50 stores in cities such as Gurugram, Jaipur, Delhi, Noida and Kolkata, with a bulk of them — about 35 shops — going live only between December last year and January 2023. The omnichannel play has become particularly important for online-only startups after the pandemic ebbed and shoppers returned to offline stores to make purchases.

Each of the company’s stores will typically be about 400-500 square feet in size. While those are not very large, they’re bigger than the typical mom-and-pop pharmacies, which are typically just 150-200 square feet in size. Now, and even in the future, Tata 1mg will operate all its offline stores and does not plan to give out franchises.

The company’s stores will go beyond traditional pharmacies. “Ours will be fully holistic stores, with diagnostic services, digital consultations, care plans, disease management plans and other offerings under one roof, which will help create an integrated healthcare ecosystem,” Saksena told Moneycontrol.

“The results from our pilot have been very promising, and in about a quarter’s time we’ll decide how many stores to exactly open, and in which cities. Then we’ll go all out on our omnichannel play,” he added.

Lifting offline AOV

Tata 1mg’s approach of offering add-on services at its offline stores is already helping it push up average order value (AOV). The company’s offline AOV was around Rs 600, nearly double the AOV of traditional pharmacies, in the Rs 325-350 range.

“Our AOVs are higher because of our premium positioning. We spend about Rs 10-15 lakh on setting up each store, which is much more than what other players would spend on a store,” he added. It costs around Rs 6,50,000 on an average to set up an offline store, depending on the city and location.

Tata 1mg’s AOVs were also higher because it sells special membership and subscription plans for offline-only customers. The company might eventually end up merging its online and offline subscription plans, depending on how the omnichannel strategy works out, per the company’s current thinking.

As is the case for other players in the industry, even for Tata 1mg, the online AOV is much higher at Rs 1,200-1,300 versus the Rs 600 AOV through offline channels.

Tata 1mg currently delivers orders through a mix of its own fleet and partnerships with logistics companies such as Xpressbees and Delhivery. The company has even tied up with Zomato to fulfill last-mile orders, but less than 2 percent of its total orders are delivered by Zomato.

“Zomato has been able to help with last-mile deliveries, but we’re looking at more partnerships that are not full of uncertainties, because in Zomato’s case, our order timelines might get affected by a spike in food orders,” Saksena said. The company was also discussing similar arrangements with startups such as Swiggy, he added.

1mg, over 60 percent of which is now owned by Tata, competes with Reliance’s Netmeds, Temasek-funded PharmEasy, NSE-listed Medplus and several others, in a market that is growing at an annualised rate of 12.3 percent, per a joint report by KPMG-FICCI, published last year.

The Indian pharmaceutical industry is likely to reach $130 billion by 2030, up from over $50 billion in 2020-21, the report added.

Path to profitability

Saksena said Tata 1mg will not need to raise additional capital to fund its offline venture as its cash burn has halved on a year-on-year (YoY) basis to single-digit millions now, and the existing capital pool was sufficient for its growth.

At the same time, the company is growing 70-80 percent YoY, according to Saksena, who did not reveal exact numbers. “We’re well positioned now and will turn profitable in the next two years. If we do it well, it may even come in a year’s time,” he added.

The Tata group had acquired a majority in 1mg in June 2021 for about $250 million, as per reports. The company, which counts Kae Capital, Bill & Melinda Gates Foundation and several other entities among its backers, is now valued at $1.25 billion, according to data from Tracxn, a market intelligence data provider.