Losing Traction: India's Online Pharmacy Retail Grapples with Post-Pandemic Slowdown

During the Covid-19 pandemic, the online pharmacy sector in India experienced a significant increase in demand and investment. However, it is now facing a slowdown as consumers revert to offline channels, discounts diminish, and competition becomes more intense. According to a report by Datum Intelligence, online sales of medicines through e-pharma platforms declined by over 4% in 2023, making it one of the sector's toughest years despite attracting substantial investments from conglomerates like the Tatas, Reliance, and Flipkart. It is important to note that the research firm PharmaTrack's report on the Indian pharma sector's growth in December 2023 did not cover online distribution. E-pharma penetration is predicted to be around 3-4%, with an annual market size of Rs 6,000-8,000 crore.

Decline in PharmEasy's Market Share Signalled Shift in Industry Dynamics

PharmEasy, once the leading player in the market, faced internal issues that resulted in visible signs of a slowdown. During its AGM in December 2023, API Holdings, the parent company, presented the performance for FY23. Disturbingly, the number of annual transacting users who placed orders on PharmEasy decreased to just under 4 million in FY23 from 6 million in FY22.?

The annual fulfilled orders also dropped significantly from 21.4 million to 14.3 million.

As PharmEasy lost market share, competitors like 1mg and Flipkart Health+ seized the opportunity. Interestingly, industry insiders believe that for the first time, the e-pharma market has lagged behind the offline sector. A senior executive from a health-tech company noted that such a shift from online to offline dominance hasn't been witnessed in recent memory.

Gone with the Wind: The Erosion of Discounts in the Online Pharmacy

The slump in the e-pharma industry is evident through the disappearance of steep discounts. Online players are now offering prices comparable to offline chemists. Flipkart Health+, the health-focused vertical of the Walmart-owned ecommerce company, is the latest player to scale back on deep discounting.

Industry insiders shed light on the e-pharma slowdown. One of the primary reasons is the failure of unsustainable discounts. In the past, online players offered discounts of up to 25-30%, significantly higher than the industry's average discount range of 12-17%. However, these steep discounts were not viable in the long run. An anonymous industry executive states, "With discounts falling, pharmacy shops have reverted back to their distributors."

Flipkart Health+ was among the platforms that aggressively offered discounts until December 2023. However, it has also started rationalising discounts in recent days.?

According to industry sources, Flipkart Health+ reduced discounts to align with industry standards and is no longer the discount leader. Previously, it offered discounts of more than 25-30%, but now it has set discounts at 15% across many products. This strategic move by Flipkart aims to reduce costs in its newer ventures. As a result, Flipkart Health+ has let go of several employees, some of whom are being absorbed by other divisions of the company. The exact number of affected employees is not disclosed. The health platform has a monthly gross merchandise value of approximately Rs 100 crore, based on industry sources.

SastaSundar Ventures, the parent company of the platform, reported losses of Rs 340 crore in FY23.

These developments highlight the changing dynamics and challenges faced by e-pharma players in India.

Battle for Dominance Heats Up in Online Pharmacy Industry

The online pharmacy sector in India is experiencing heightened competition as both new entrants and existing players vie for a share of the growing market. According to EY, India's online pharmacy sector is projected to reach approximately $2.7 billion by 2024, up from $360 million in 2019. The second wave of the Covid-19 pandemic, which led to an increased demand for medicines and healthcare products online, is also setting the stage for another year of robust growth. In April 2023, the industry witnessed a surge in orders ranging from 30-50%. However, these developments also brought forth challenges in terms of supply chain, regulation, and customer retention.

Key developments in the sector include:

1. Entry of Reliance, Tata, and Amazon: Driven by the potential of the online pharmacy sector, prominent names in the Indian business landscape have entered or are planning to enter the industry. In 2020, Reliance acquired a majority stake in Chennai-based Netmeds, while the Tata group is in talks to acquire a majority stake in 1mg. Amazon, which launched its online pharmacy service in Bengaluru in August 2020, is also looking to expand its presence in the sector and is considering investing nearly $100 million in Apollo Pharmacy, India's largest branded pharmacy chain. These players possess deep pockets, a large customer base, and a robust distribution network, posing a potential threat to existing online pharmacy players.
2. PharmEasy's Acquisition of Medlife: In a consolidation move, PharmEasy, backed by Singapore Temasek Holdings, LGT Group, and the Canadian pension fund CDPQ, acquired its smaller rival Medlife in August 2020. The deal, valued at around $240 million, provided PharmEasy with access to Medlife's customers, technology, and data. The combined entity is expected to capture a market share of approximately 60-70% in the online pharmacy space, according to industry estimates.
3. Regulatory Uncertainty: The online pharmacy sector in India is currently operating in a regulatory grey area, lacking a clear and comprehensive legal framework. Existing laws, such as the Drugs and Cosmetics Act, 1940, and the Pharmacy Act, 1948, do not explicitly cover the online sale of medicines, leading to conflicting interpretations by different authorities and courts. Although a draft e-pharmacy regulation was proposed by the government in 2018 to establish a level playing field, it has not been officially notified. The lack of clarity and uniformity in regulation has resulted in legal challenges and operational hurdles for online pharmacy players, who must navigate multiple authorities and comply with varying state-level norms

To Conclude: The Ebbing of ePharmacy in India

The emergence of the online pharmacy sector in India around 2015 disrupted the market and gained rapid traction. Currently, there are close to 50 e-pharmacies in India, with the market size estimated at $0.5Bn, accounting for approximately 2-3% of the total Indian pharmacy sales.

However, the sector is now experiencing a slowdown as the demand and investment boom induced by Covid-19 fades away. Consumers are switching back to offline channels, discounts are reducing, and competition is intensifying. The sector also faces regulatory uncertainty and legal challenges, which hinder its growth and innovation.

To survive and thrive in the post-pandemic era, online pharmacy players must adopt new strategies and business models. They need to focus on improving supply chain efficiency, enhancing customer loyalty, differentiating their products, and offering value-added services. Collaboration with offline players, regulators, and other stakeholders is crucial to creating a conducive and sustainable ecosystem for the online pharmacy sector in India.