E-Pharma vs Offline Pharmacy: Which Segment to Invest in?

E-Pharma vs Offline Pharmacy

Pharmacy business has emerged as one of the most profitable segments in the healthcare industry. Industry experts believe that India is soon becoming one of the top ten countries in terms of individual medical expenditure. Medicine spending in India is projected to grow 9-12 per cent over the next five years.

Therefore, given the projected growth, promising future and profits, everyone wants a slice of the pie. However, the dilemma occurs while deciding the medium of venturing into the pharmacy business. The pharmaceutical segment has largely been an unorganised market with a maximum number of independent businesses. Now, the organised players are becoming popular with increasing footprint through franchising. Also, with the emergence of e-commerce and increased penetration of the internet, another branch of pharmacy has evolved ­­– e-pharmacy.

With different formats available to the investor, it might get overwhelming to narrow down on one segment to invest their money in. But fret not; we have jotted down both the pros and cons of e-pharmacy and the offline business to help you make an informed decision before investing.

Ease of Business

Establishing an online pharmacy in India is a daunting task because of the laws associated with it. The owner will need to buy plenty of medical insurance in the case of a liability claim. The average cost of a pharmaceutical claim is more than $14,000, and those numbers will likely increase due to the still somewhat unregulated online healthcare space.

Apart from this, you will have to pay for a website developer, courier service, advertisement etc. Thus, the initial investment may be between 20 - 50 lakhs. In addition, the law only allows selling certain drugs online without prescription. You have to go through every small detail and then consult your lawyer before you start a store.

On the other hand, the offline pharmacy offers you the ease of setting up a business. With the franchising model rising in every sector, pharmacy franchises are emerging as the most preferred option. The pharmacy franchise calls for an initial investment starting from INR 8 – 10 lakhs, which includes licensing and documentation. The operational expenses may cost anything between INR 30,000-80,000. In addition, most of the franchisors take care of the marketing and advertising, sparing you from that expense.

Profit Margin

The profit margin in offline pharmacies typically ranges between 15-26% for branded medicines, which may go up to 40-50% in the case of generics. Even with offering 12-80% discounts to attract customers, franchisors ensure that their franchisees gain more than 15% margin.

On the other hand, cash burn in the e-pharma industry is a common problem because the discounts (up to 35% for some) exceed the margins in the chain (about 30-32%). While the race to scale up requires greater adoption and discounts which are an integral part of growth, profitability cannot be achieved only by operational efficiency and lowering of delivery costs; discounts have to come down to reasonable levels to achieve breakeven and any meaningful profitability.

Consumer Acceptance

Pharmacy business is all about serving the needs on time. This is the major reason why offline pharmacies are booming. Medicine and drugs are something that consumers need quickly; they won’t have the time to wait 3-4 days for their order to get delivered.  Consumers mostly prefer offline stores due to its hand-to-hand delivery of medicines and credibility, also a reputable brand name adds a brownie point for offline pharmacies.

Despite increasing downloads of the mobile applications, certain challenges like trust deficit (arising from the fear of receiving counterfeit medicines), customer support issues (linked to timely delivery and quick redressal), language barrier (lack of mobile apps in regional languages), access (unable to reach remote parts of cities) and data privacy (especially with health records and prescriptions) remains in the online space. E-pharmacy companies have to rely on innovative digital marketing strategies to increase their customer base, user engagement and transactions/user.