Pharma majors tap private labels biz

CHENNAI: Next time you step out to buy a lip balm, diaper or glucose; don���t forget to check the label. The over the counter product (OTC) category, dominated all along by MNCs and well-established brands, is seeing increasing interest from a new set of players ���pharmacy chains.

Remember Subhiksha, which triggered the discount war in the Rs 33,000-crore pharma retailing space?
While Apollo Pharmacy and Guardian Lifecare have started aggressively pushing their private label portfolio, others like Religare Wellness, Bangalore-based Trust Pharmacy and Hyderabad-based MedPlus Pharmacy too are seriously looking at in-house labels.

The category margins are phenomenal, even as high as 40-50% in some cases, vis-��-vis 9-20% in branded products.

At the retail end, private labels work out 20-25% cheaper than branded products ��� a win-win for pharmacy and consumer, an industry tracker told ET.

"The value chain has anywhere between 25-35% of margin; 60% of that is normally passed to retailers. Trade margins on the non-pharma side are marked to market and not any different from what other retail formats may receive," Religare Wellness CEO Rahul Chadha told ET.

Though it has no private labels at the moment, Religare is evaluating categories with low consumer purchase involvement.

But, scale is a vital factor for the model to click. For instance, India has 12 retail pharmacy chains and eight lakh retail pharmacy outlets. Apollo, with about 800 outlets, is the largest, followed by Guardian LifeCare, which has 180-plus outlets. Both are cashing in on their brand visibility.

The concept popularized by the US-based CVS pharmacy chain, which has 6900 outlets, seems to be catching on in India. While Guardian made the first move, Apollo started introducing its own labels a couple of months ago.

Last fiscal, Apollo���s pharmacy business revenues stood at Rs 335 crore. It is targeting Rs 470 crore for the current year, Apollo ED Suneeta Reddy said.

Guardian Lifecare MD Ashutosh Garg told ET that though it launched in-house OTC products two years ago, it is only during the last year or so that it has gone aggressive. It has 150 SKUs in its private label portfolio, constituting 8% of revenues, a figure it wants to raise to 20% in the next 18 months.

Fast moving categories of OTC products, accounting for 20% of a pharmacy���s turnover ��� like energy drinks and baby diapers are close clones to those available in the market. Packaged in a format akin to branded peers, customers can���t discern the difference between branded products and private labels, another analyst said.

Also, unlike cities, where brand consciousness is high, the chains see easy penetration in tier II locations. A hospital garners 25 to 30% of its revenues from pharmacy division. The generic category has proved to be a "moolah-raking" opportunity for pharma chains, he added.

Interestingly, the flurry in private label portfolios of pharmacy chains is akin to retail chains like Food Bazaar, More and Spencers stepping the gas on in-house brands late last year to cash in on the value-for-money segment, that has gained prominence since slowdown set in.

Though pharmacies harp on the "why pay more?" slogan, private brands do not always come cheap. For instance, baby diapers ��� a 10s pack of P&G Pampers brand could set you back by Rs 128; HUL���s Huggies cost Rs 106. But here is the catch. Guardian LifeCare "offer" of 10 (+2) large pack comes at Rs 155, while Spencers��� Smart Choice is priced at Rs 130 with "periodic offers" to attract customers.

A Trust Pharmacy official says a deliberate push for in-house labels could generate good results. Lip balm, for example, is a "virgin market" and with the December cold season in the offing, the scope for selling this product is enormous. Ditto is the case with baby diapers. The Rs 40-crore firm has 42 outlets in Bangalore.