Are small pharmacies in UAE facing survival issues?
After her doctor’s appointment, Raina walks into an Aster pharmacy which was located right next to the Aster clinic she visited. She hands over her doctor’s prescription to the pharmacist.
“Do you have insurance, ma’am?” the pharmacist asks. Raina nods, removes her Emirates ID (since the insurance policy is now updated on the Emirates ID itself) and gives it to her.
“Your total bill is AED 40/- for the following 4 medicines,” says the pharmacist. Raina pays for the same and leaves, allowing the next customer to purchase her medicines.
A few days later, her friend visits a small pharmacy located under her building to purchase the same medicines. While her original bill was AED 40/-, her pharmacist introduced her to a few more supplements which she could take to increase her immunity, which she purchased. As the supplements were not covered by insurance, she ended up paying AED 49 extra over the original bill.
Surprising enough, the cost of four medicines was AED 40 and the cost one supplement was AED 49. Thanks to insurance, customers now have to pay only a fraction of the total cost of the prescribed medicines to the pharmacies. While insurance companies take 60-90 days on an average to process insurance claims from the pharmacies, are pharmacies able to maintain a healthy cash flow during this period?
“We don’t feel the pressure because we focus on other elements,” says Dr Abeer Osman who heads Vita Pharmacy in Sharjah. “Since insurance claims take long, we try to provide a much more dedicated customer service so that we can have cash purchases. On a daily basis, our insurance bills account for 50% of our sales and the rest are cash transactions. That’s how we manage.”
Moreover, most of the suppliers of the medicines also offer a credit period between 60-90 days for payment, says Dr Abeer. So the insurance period coincides with the supplier payment period on an average for most medicines. However, as competition gets tougher, even that’s beginning to become a problem.
“A lot of vendors have stopped offering a long credit period,” says Dr Abeer. “Hence, we are unable to open an account with them and store their medicines in our pharmacy.” This is where the catch for most independent pharmacies comes to picture.
With group pharmacies, thanks to their brand value, goodwill and apparent understanding that they are not dependent on a few outlets to generate their income, they’re a better choice for suppliers. They’re also able to offer shorter credit periods to vendors who prefer to keep their medicines in their pharmacies. While the customer service of smaller pharmacies may attract people, but if the prescribed medicines aren’t available, they have no option but to go to bigger pharmacies to purchase the same.
Interestingly enough, pharmacies have been amongst the fastest growing categories in the local retail sector last year with a lot of mergers and acquisitions happening. Due to the benefits of better credibility, interdependency and more, smaller pharmacies are either being shut down or being taken over by large pharmaceutical groups. For instance, the Aster group today owns more than 150 pharmacies across the region at some of the most prominent locations like shopping malls, clinics, upcoming commercial and residential locations in the city. And more are on the way. To an extent, this indicates that the only mode of survival for independent pharmacies in the age is by joining a bigger group. But is that true?
“What you see from the outside is not what it on the inside,” says Jason Morais, Managing Director of Genese Group of Companies. “There are many group pharmacies which are struggling with funds. Right now, nobody is looking at profitability. Everyone is looking at organic growth and sustainability through increasing the number of outlets and the top line.” A serial entrepreneur, Jason is now stepping into the pharmacy business by launching a new brand ‘Aqua’ towards the end of the month for which he is already in the process of taking over a few pharmacies.
“We’re not going their way,” says Jason. “We’re very clear about what we need and hence we are only acquiring those pharmacies which have a great location, are generating a good revenue and have the potential to do better. We’re focused on ROI and profitability which is why we’re being very choosy about which pharmacy to take over.” Jason believes that each pharmacy should be sustainable in its own accord and it should not depend on another clinic’s revenue hoping it would pull the chariot for both riders.
This, however, brings us to the big question - which is a more sustainable business strategy: running an independent pharmacy or joining a bigger group?
“It all depends on where you are at the moment,” says Dr Abeer. “We are not facing any such threats and we’re able to manage our cash flow and business well.” Following Jason’s opinion, it can safely be concluded that one needs to be wise and intelligent before making the choice. Simply associating with a brand without understanding how its other branches are doing (specially the ones located outside popular retail outlets and commercial spots) would be detrimental to the business. On the other hand, for an independent pharmacy to survive which doesn’t at least have four to five branches, according to a report, can be difficult due to the ongoing credit shortages, insurance claims and so on. So even if smaller pharmacies are planning to expand, it would be wise enough to choose which pharmacy to acquire based on real time data, location and previous records. “It is a profitable business to do, provided you’re wise, well planned, and you know your goal,” concludes Dr Abeer.