MARKET FORCES TO CONSOLIDATE INDIAN DRUG RETAIL

India's retail drug market is now the world's 13th largest, and was worth some US$5.4bn in 2004. However, regulatory changes and competition factors should lead the sector to consolidate in the coming years.

In contrast to the US, where the seven largest pharmacy chains control 60% of the market, Indian drug retailing is dominated by small-scale private outlets. India has roughly 800,000 independent pharmacies, but the market shares of local leaders such as Medicine Shoppe and foreign majors are growing fast. Consumption has also risen in recent years; the average Indian family spends 20% of its disposable income on drugs, while this ratio was 10% in 1985.

Further, a significant regulatory change will be the enforcement of new rules obliging pharmacies to install air conditioning, as average temperatures can be as high as 40 degrees Celsius in India, some 5 degrees higher than the maximum temperature permitted for the storage of most pharmaceuticals. Many smaller operators are unlikely to be able to afford to make the necessary changes.

Meanwhile, the importance of Western-style branding is becoming more apparent in the drug retail sector. As 25% of all drugs sold in India are estimated to be counterfeit, consumers are increasingly turning to the larger chains, some of which are importing new equipment for on-site quality analysis.

In future, marketers of high-value ethical drugs will also be unlikely to prefer to launch new products through a plethora of small-scale, non-computerised stores. It is also expected that regulations preventing small retailers from employing pharmacists on a "freelance" basis will concentrate expertise within the larger chains.