Ule for retail pharmacy, a truly disruptive model

The IFC’s biennial conference on healthcare in emerging markets is next week in Barcelona, some thoughts on healthcare to lead up to the event.

2 of 5 part series of thoughts on developments in healthcare and technology

1. Consumer genomics – a poor value proposition
2. Ule for retail pharmacy – hurry up and exist
3. K-Clinics – a morally challenging solution to a global problem
4. Venture debt – an ecosystem designed to discourage
5. Blockchain for health and development – an actual silver bullet

I’ve been waiting for this company to exist

There’s a new type of company breaking a lot of staid business conventions in rural China. Everyone should know about it, and try to understand how what it’s doing applies to his or her industry.

In fact, the first company that sends me a message saying “We’re the Ule for retail pharmacy in country X,” and has a credible business plan, I’ll cash out whatever savings I’ve got in my bitcoin wallet to send right then.

Ule is the combination of an e-commerce platform, a delivery company, and a big data analytics venture. It is, in essence, an end-to-end service for inventory, sales, delivery, and CRM for independent retailers, and could very well represent a fundamental shift in the way that consolidation is viewed across retail verticals.

The use case for such a solution is even more compelling in emerging market retail pharmacy, where the need for specialized supply chains, such as cold-storage, and engaging with a myriad of small-scale distributors and wholesalers are efficiency killing everyday realities. Most independent pharmacies in emerging markets are papered systems, making inventory management of 1,000 SKUs, very close to the bare minimum, more of a learned art than science.

Consider India, a land with over 800,000 retail pharmacies and industry consolidation in the single digits. The growth of the market has been in CAGR double digits for 6+ years, with total sales well above $20b USD. The classic investor perspective salivates at the presumed inevitable consolidation of the industry. The question is whether we’re not being imaginative enough of what is possible in a tech-enabled world.

Should the Walgreen’s purchase of Rite-Aid go through, the US market’s consolidation will reach near-duopoly status. Is this the inevitable future of maturing markets? Traditional investors would like to think so, but this ignores the tech-enabled leapfrogging available today that companies with more than a century of legacy could never have utilized.

The presumed benefits of classic vertical integration are being challenged by the hyper-specialization technology is enabling at every level of value-chain. Technology is also allowing for these specialized players to create interoperable IT infrastructures that decrease the friction and transaction cost of doing business with third-party entities. Some believe that blockchain’s “trustless” platforms will further decrease this cost.

As Ule has shown, we’ve reached a stage where “virtual companies” are possible, reaping the benefits of classical vertical integration, but with each player in the value chain allowed to focus on its core business proposition.

With respect to retail pharmacy, the question that needs to be answered is whether mom-and-pop retailers have a natural edge at driving sales in their communities and whether this benefit has previously paled in comparison to the economies of scale and vertical integration of chains.

There are some indications that consumers generate special relationships with pharmacies, which could be a sign of the benefits of local specialization. One is that retail pharmacy is inherently a trust based industry, in many countries, the first point of contact for medical care or advice is a pharmacy. Another is the enduring desire of customers wanting to interact with a physical pharmacy, as an example, in the US some half of individuals enrolled in mail-order medication delivery services choose to pick it up from a store rather than have it sent to their homes.

From a policy perspective, the moment will soon be ripe for the uptake of technology as regulators in developing countries are attempting to impose greater accountability along domestic pharmaceutical supply chains. This is being spurred on by several factors: growing consumer awareness of how common counterfeit medications are in circulation, attempts to curtail off-prescription misuse, and increased concern towards the creation of antibiotic resistant bacteria. In some instances, such as India, newer-tech enabled business models that walk the line between innovation and regulatory arbitrage are forcing the regulator’s hand.

The explosion of online pharmacy models in India is leading to the creation of a nationwide database with mandatory reporting for prescription medications at the point of transaction. This system will begin with online pharmacies, and likely, will extend to physical pharmacies thereafter.

Perhaps the Indian Ule for retail pharmacy begins its life as a freemium SAAS model with a slick user-interface that’s initial use case is compliance management?

For the time being, I’ll keep checking my inbox.

Opinions expressed are of the author alone.