Catch-22: More customers mean less revenue for e-pharmacies

Similar to other online services, e-pharmacies too have seen increased customer acceptance during the pandemic but their revenues have declined during the period. This, despite a four-to-five-fold growth in traffic witnessed by them.

E-pharmacies became more popular during the lockdown as many firsttime buyers used them for buying both prescription and OTC drugs. These customers are sticking to e-pharmacy purchases even after the pandemic.

The average traffic per day had surged four-five times during the lockdown period, according to brokerage Motilal Oswal. In addition, customer conversion went up from 12-15 per cent pre-lockdown to 20-22 per cent after lockdown. But the average order value came down drastically from Rs 3,500 to Rs 800 post-lockdown. As a result, average revenues of e-pharmacy players declined during the pandemic.

Prior to the pandemic, 70 per cent of e-pharmacy business used to come from chronic therapies, such as diabetes, blood pressure and cholesterol. That trend shifted heavily towards Covid essentials post-lockdown and simultaneously chronic therapies' contribution came down to 40-45 per cent of total online revenues. This led to a decline in average revenues. While private label and substitution can improve profitability, substitution of prescribed brand for private label is a costly affair with slim chances of success.

"Currently all e-pharmacy players are burning cash and to breakeven at the Ebitda level, they need to have an average order value of Rs 3,000-3,500 and cut operational costs drastically, which is possible only with an omni-channel model," says Kartik Anantharaman, director of e-pharmacy and private label business at Medlife. According to him, the omni-channel model involves online players working with offline players, eliminating competition between the two and enabling collaboration by complementing each other's strengths. The omni-channel format also provides operating leverage, as e-pharmacy players can easily service more orders per day. Further, profitability is also dependent on the mix of bulk purchases and just-in-time purchases. To become profitable, the bulk purchases have to be at least 70 per cent and for this, companies need better clarity on demand and the prescription patterns of doctors.

The road to profitability looks quite long for e-pharmacies now.