Riding high on the healthcare wave, the Indian pharmaceutical industry seems to be turning to retail therapy for growth. The prescription, however, is not a broad-spectrum one: instead it is stand-alone branded outlets that several firms are turning to. Consider this. Mumbai-based Zandu Pharmaceuticals has five exclusive outlets nationally. By 2005, the company plans to have eight or ten more outlets. The Delhi-based Dr Morepen is waiting to launch Tango, its own retail chain, once it is able to put its financial problems behind it. This comes almost a year after the company had acquired Lifespring, a retail chain partly owned by an Australian retail major, that stocks an array of health and beauty products. Similarly, Bangalore-based Himalaya Drug Company, built 28 stand-alone stores in all of one year, starting August last year. There are talks of other pharma giants like Nicholas Piramal, Cadila group and IPCA Labs also setting up their own chain of exclusive retail stores this year.

So why are pharma companies taking the retail route for their OTC (over-the-counter) products? Anil Rajpal, manager, KSA Technopak, says it's a combination of awareness - and trust-building. "Internationally, it's a proven concept that people go from prescribed drugs to OTC because the cost of medication goes down by 20 per cent and the convenience factor increases. Indian pharma companies seem to be treading the same path," he adds.

As importantly, it could be a growth-enhancing opportunity ahead of changes in the patent regime in 2005 which will erode many Indian pharma companies' competitive advantage of copying patented drugs cheaply. "Currently, there seems to be only two ways to achieve growth - OTC and retail," says Rajpal.

But while retail might be the largest industry in the world today (estimated at $ 6.6 trillion), is pharma retail ready to take off in India? It's hard to say because the concept is still so new. But the early experiences of several companies could provide some clues.

One lesson is that it takes time - and even then the results can be sub-optimal. For instance, the Rs 120-crore Zandu claims to have set up its first exclusive retail store in Mumbai's Kalbhadevi area more than 20 years ago. And today, it owns a total of five stores -one each in Kolkata, Kanpur and Raipur and two in Mumbai.

Despite being the pioneer in pharma retailing, Zandu's strategy seems to have bombed. Why? Principally because standalone retail stores need money. Says Sachin D Parikh, senior manager (sales and marketing), Zandu Pharmaceutical Works, "When we set up our own stores, we had plans like having a vaid (Ayurvedic doctor) in the store. But we had cost constraints."

Pharma consultant R K Srivastave says it can cost Rs 5-8 lakh to set up a retail shop. For Zandu, having a vaid meant pushing costs up by another 10-15 per cent. Also, the old retailing rule of location, location, location counts for pharma retail stores too. A classic case in point here is the Haji Ali outlet in Mumbai that Zandu set up two years ago. Just about everything went wrong. To begin with, it is located in a bylane rarely visited by the affluent - Zandu's target market. There is also no provision for parking.

Admits Parikh, "It was a mistake. We didn't realise all this while setting up the shop. We were essentially interested in a locale that could offer us a good hoarding value and the signage for the shop is big enough to pass off as a hoarding. In the process, we didn't pay much heed to the approach of the store."

The only upside is that the company pays a rent of Rs 65,000 for the outlet against the Rs 90,000 that it would have had to pay just for a hoarding in the same location. Also, the shop is a window for display of Zandu products. Says Parikh, "The sole objective was making it a hoarding-cum-shop. But we could not do justice to the shop."

The company also went wrong when it decided to stock only Zandu OTC products in its stores. Says Prashant Nair, assistant vice president (equity), Pranav Securities, "In pharma retail business, for a company to have a stand-alone store only makes sense if it stocks a plethora of products by other companies in addition to its own portfolio. Zandu failed to understand that."

"After all, why would a customer travel a distance hunting down a Zandu store to buy its products when all Zandu products are today available at all chemist stores?" he points out.

Then, Zandu's original plan of having vaids in its stores for free consultation could not work out because of the heavy costs involved. It has a vaid at only one outlet, at Kalbadevi in Mumbai.

As a result, Zandu's Haji Ali store today does not attract much crowds and remains shut most of the day. No surprise the company is contemplating shutting the store down. Says Parikh, "We will observe the store for another year and try to implement our vaid plan. Even after that, if it doesn't bear results, we might have to shut it down."

Despite this, Zandu plans to expand, perhaps taking the franchise route (its current stores are company-owned) because of the visibility these outlets offer for its product range. That is why Parikh is adamant about not having multi-brand outlets. "We do not want to promote competitive brands," he says. Retailing currently accounts for 10 to 15 per cent of Zandu's turnover.

The focus on exclusivity might suit Zandu simply because it does not see its outlets as a revenue-generating model. But it doesn't necessarily work for others. Dr Morepen, for instance, set up three exclusive Morepen Stores two years ago in the north and had to close them within a year. As Nair points out, "No pharma firm has a wide enough products range to be able to justify a solo store. Dr Morepen has never had that wide a portfolio of brands that it could sustain the model of stand-alone stores."

The company currently has nine OTC brands in its basket including C-Sip and Isabgol. Adds Srivastava, "Dr Morepen blindly followed and replicated Zandu's model which is why their stores were a failure."

But Dr Morepen was quick to realise the mistake and decided to experiment with a new concept in medical retailing - by acquiring Lifespring last year for Rs 12 crore from Total Care. Lifespring operates under the umbrella branding of Dr Morepen and the company retails through five Lifespring stores. These stores consist of three sections - personal care and beauty, OTC and prescription medicines and optical center. The pharmacy at the store offers a little more than a regular chemist, manned by trained and knowledgeable pharmacists to advise consumers on products and prescriptions. The stores also stock a large range of herbal medicines, vitamins, dietary supplements and health foods.

This experiment also proved to be a failure. As analysts put it, the concept of branded medicine stores cannot work in India because customers will always prefer going to their neighbourhood "general-cum-medicine-store". Morepen officials admit that they were weak on the sales and distribution front. Also, an official admits that "Lifespring wasn't reflecting our desired brand image."

Despite being twice bitten, Dr Morepen plans to enter the market once again with an all new exclusive chain of retail stores called Tango next year. Company officials say that by launching Tango, the company wants to graduate from being just a pharma brand to portraying an image of being young, hip and trendy.

Dr Morepen's Tango will seek to combine shopping with other health-related activities like a gym or a juice bar under one roof. The first five Tango stores will be rolled out in Delhi and Chandigarh. With an investment of Rs 3 crore in each store, Dr Morepen will have franchisees.

However, the company does not plan to phase out its Lifespring stores. Says an official, "Lifespring will not be phased out but may be re-branded or will co-exist with Tango." Though a final call is yet to be taken on this, company officials said the strategy was to convert Lifespring into a neighbourhood store, while Tango will be larger and offer the customer several services within the ambit of health and lifestyle.

Our retail business constitutes less than 5 per cent of the company's total turnover, but we plan to have a total of 50 such stores by the end of this year

The success story of Rs 300-crore Himalaya Drug Company suggests there is still hope in the pharma retailing business. The company launched its first exclusive outlet in August 2000, called Himalaya Herbal Healthcare in Bangalore. Today, it has 28 such outlets all over the country that serve as a one-stop-shop for the entire range of products from Himalaya including the therapeutic, personal care, consumer health and animal health range. Out of these, only four outlets are company-owned and the rest franchised.

Interestingly, these outlets are not multi-brand outlets. They stock only Himalaya's own range of products and are still successful. Himalaya's advantage is that it has a wide range of herbal products. The company claims to have over 100 stock keeping units.

Says Ravi Prasad, president and chief executive officer of Himalaya, "Currently, our retail business constitutes less than 5 per cent of the company's total turnover, but the percentage is increasing because we plan to have a total of 50 such stores by the end of this year.

Consultants point out that Himalaya had a relatively easier time of it in retailing because it also had fast moving healthcare goods such as shampoos, soaps in its portfolio. But companies such as Zandu and Dr Morepen need to learn the fact that a pharma company needs to have products that are contemporary and well researched in order to succeed in retailing.

In order to make a dent, the pharma retailing industry in India will have to take a cue from its international counterparts where the multi-brand concept is perceived as financially viable. It co-exists with the shop-in-shop concept, which has taken off in India in a small way as of now. And given that the Rs 17,000-crore pharma retail industry is growing at an annual rate of eight to ten per cent, pharma manufacturers may still find a cure for their retailing woes.