Different strokes in organized retail

Two recent news items in the Business Standard within days of each other reveal an interesting divergence in outcomes in the same sector: organized retail in India.

On April 28, a front page story discussed the growing pains of organized pharmacy retail while today's article on consumer electronics paints a contrasting, rosy, picture. Two sectors pursuing the same concept in a nascent market yet displaying highly contrasting performance. Why the difference?

Both sectors are marked by fragmentation and the presence of owner-owned single stores - electronic shops on the one hand and standalone pharmacies on the other. Into this mileu have stepped in big money retail such as Croma (Tata), Reliance Digital, Next, and e-zone in consumer electronics and Fortis Healthworld, MedPlus, Lifeken, and Medicine Shoppe in pharmacy retail. In both cases, the focus of these new entrants have been the metros. While the former are said to be growing at 40% year on year, the latter is said to be shrinking, many of them shelving plans to expand. Some of the organized pharmacy retail groups now also speak of expanding into rural areas, something definitely not on the radar for the consumer electronics giants.

If the basic fundamentals propelling organized retail are the same - ie, better and bigger choice, attractive pricing, shopping ambience, and assurance - why are we seeing different outcomes? Pharmacy chains point to high lease cost in the metros and that may be part of the story as the average size of these new outlets are still quite small - about 500 to 750 sq feet compared to between 15,000 and 25,000 sq feet in the case of electronics. Furthermore, the average unit price of products sold pales in comparison to that sold at the electronics stores. But, arguably, the margins are much better. More importantly, pharmacy chains have an advantage that other retail chains do not have: they deal in healthcare, a non-seasonal and inflation-proof market. That would indicate there is great scope to engage the customer and forge long-term relationships that would outweigh low unit cost purchases. Besides, they have the opportunity to innovate on the retail front and go beyond peddling prescription medicine.

When the overall healthcare market in the country is stated to be growing at about 13-15% annually there is just no reason to believe organized pharmacy cannot hold its own and, in fact, grow with the market. There are too many inconveniences, absurdities, and downright questionable practices at standalone pharmacies that organized chains could easily exploit and make an impression with customers.