There is a lot of excitement in the e-pharmacy space. If one looks at the big picture, it is clearly favourable, because that is where the economy is moving and that is where the trends are. But, is the action and excitement really justified? What are your thoughts?
I think the valuations are clearly an indication of the potential that investors see in this space. Healthcare today is largely fragmented, unorganised with a lot of pain points for consumers, it’s a very large market, still getting organised and getting organised digital first. It has brought a lot of enthusiasm and investors who have seen this play out in different parts of the world are naturally excited that India is going to see some large outpatient healthcare players come in the market and that is why they are so bullish on this sector and in some sense the valuations are a reflection of that enthusiasm.
Anything in the online space or the startup space is always subjected to a global parallel. What are the global parallels for the online pharma industry, if you could compare that so we can gauge potential?
I think one thing about this industry is that even the global parallels are happening at the same time as India. This is not a model that has clearly happened in different parts of the world. It is happening as we speak.
In India we are seeing the e-pharmacy sector mature. We have seen that over the last four-five years happen in China, US, UK, and different parts of Mainland Europe. So if you look at the Chinese example, for instance, Alibaba Health or JD Health; all these players have just come around or scaled up in the last four-five years. So, unlike a lot of other sectors where it is a very clear cut, copy-paste kind of environment, in this place I think we are all globally moving in the same direction pretty much neck-and-neck.
In America, with PillPack being acquired by Amazon, this industry suddenly came into focus and the industry as such is only five to seven years old. In that sense, I would say there are very good global emerging success stories but so are we in the Indian context.
Do you concur with the view that right now e-pharmacy is at a nascent stage and penetration into tier-2 and tier-3 cities, into the rural belt and just developing that infrastructure will exhaust growth for the next few years?
I totally believe that we are in infancy. The entire e-pharmacy industry is like 3% of the market, the entire organised sector – even if you take the chain pharmacies together – it is still single digit percentage of the market.
So, the overall opportunity is way large and I think Mr Mittal is absolutely right in saying that the tier-2, tier-3, tier-4 are highly underserved markets where there is a huge opportunity of actual market expansion. People do not get medicines they need, people do not often take medicines because they are too expensive and a big part of that is that supply chains have been inefficient for a while. So I think all these efficiency gains are going to grow the market, grow access. Most of the next decade would be about scaling up and making this more and more of an organised and sophisticated supply chain ecosystem.
Given that we are looking at such a large underpenetrated addressable market a) do you think there is scope for more consolidation and b) do you think there is room for many more players to actually enter it?
I would say both will happen. There is always scope for it. See, there is a huge local level micro market influence and trust building that is necessary in this market. So at a micro market level forging the right alliances, partnering with the right partners of the ecosystem is definitely going to happen. The space also is just getting started, I think we will see much more specialised, verticalised views and also specialised catering. We are already seeing elderly care focussed players coming in in some parts of the country, while some parts of the country are seeing specific diabetes care, chronic care. But, there is still a lot of scope. I would expect a lot more players to come in, mainly in the specialised verticals.
On the broad horizon I think we already have seven, eight fairly large players playing on a national scale, micro markets will continue to have their own strong players and we would have to be alert and also wary of how we can partner or create those alliances that help the business go forward.
The current model of e-pharmacy is discount-based. You are giving services which come heavily discounted, is that a model for now; where you are focussed solely on customer acquisition? Will you move to another one later?
I think right now the industry is in such a stage where we want people to try it out, we want people to see the various offerings and there are genuine efficiencies in the supply chain that we believe need to be passed on to the consumers.
Having said that, I don’t think discounting will be a sustainable way forward. I think the industry definitely has been pretty aggressively trying to build the ecosystem and change consumer behaviour but I don’t think it will be at discount. I think looking at healthcare pretty much all over the landscape the number one reason people to choose a healthcare partner is actually just trust. If they are comfortable and confident about the quality of the service and products they will continue with us. This is like in any other market – the first stage is generating the trial, getting people to try it out and get a feel for it and then over a period of time industries mature and reach to sustainable economic conditions.
I think that is where this industry has been at and I do accept that a lot of players in the ecosystem have been very aggressive with respect to discounting policies that part has definitely happened but that is the nature of the game.
One thing I would like to add is that, for this specific industry, COVID-19 actually acted as a great facilitator of behavioural change, which otherwise would have taken a lot many more years and a lot more capital and discounting models. Thanks to COVID-19 what has happened in this sector is that people got a flavour of the digital ecosystem in healthcare and we do believe that the industry will move to sustainable levels pretty soon.