Case 4 - The Generics Pharmacy

THE GENERICS PHARMACY ANG. BALTORES. CANITES. FLORES. GO November 7, 2017

Consists of large chains and small pharmacies that provide retail drug prescriptions, over-the-counter medications, generic/branded medications, health and beauty products, and often, ofte n, many other general merchandise product categories. (i.e. Mercury Drugstore, South Star Drugstore, Rose Pharmacy, Pharmacy, Watsons Pharmacy, The Generics Pharmacy, Generika Generika Drugstore, Drugstore, Gamot Gamot Publiko Publiko Drugstore, Drugstore, etc.) etc.)

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Formerly Pacific Insular Co (est 1949) engaged in importing and wholesaling European-branded medicines in the Philippines, post World War II.

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Initially established by a group of German entrepreneurs; in 1960, Pacific Insular Co. was acquired by Liuson family.

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The original business model was to do wholesale trading to hospitals, clinics, and regional distributors

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in 1983, Benjamin Liuson shifted focus to generic medicine due to the need for affordable medicine.

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In 2001, the company ventured into retail, with its first branch in Quezon City.

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In 2007, TGP expanded through franchising, with its first franchise outlet in Pasay City.

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In 2012, the company grew to 1,400 stores nationwide, becoming the country’s largest drugstore chain in the country.

POLITICAL National Budget for Department of Health (O)

TECHNOLOGICAL Lack of technological advancement (T)

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ECONOMIC

ECOLOGICAL

Philippines is the third largest market in pharmaceuticals in  ASEAN (O)

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Climate change (T)

Disposable income (O)

SOCIAL Majority of the people belonged to Class D sector of the society. (O)

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LEGAL •

Cheaper Medicines Act (O)

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The Generics Act of 1998 (O)

FORCE

High/Low

Threat/Opportunity

Industry Rivalry

High

Threat

Bargaining Power of Buyers

High

Threat

Bargaining Power of Suppliers

Low

Opportunity

Threat of Substitutes

High

Threat

Threat of Entrants

High

Threat

Mercury Drusgtore is the leading drugstore in the Philippines, established in 1945, with an estimated 700 owned and franchised stores. Other competitors include South Star Drug, Rose Pharmacy - Berovan, and Watson’s Pharmacy, which retails both branded and generics drugs. Direct competitors: ●

Generika Pharmacy, a regional player with 140 stores, carries branded products, medical supplies & consumer goods. Additional services include free blood pressure checks, low-cost blood sugar tests, free cholesterol screening, patient counseling services, and generic awareness presentations to the public.

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Gamot Publiko Generic Drugstore, a regional player with approximately 30 stores and was similar in nearly all aspects to TGP.

Bargaining power of buyers is high given that buyers’ switching costs are low. Since there are available substitutes of generic pharmaceutical products, with minimal variations in pricing, buyers can easily switch to Generika Pharmacy, or even to other major players such as Mercury Drug, Watsons Pharmacy, South Star Drug, etc. depending on the level of need and level of medicine. Buyers have the liberty to choose between branded medicines and generic prescriptions, especially those who are price and quality conscious. TGP products are undifferentiated versus its existing competitors, which makes room for buyers to have more options in selecting a drug store.

Suppliers have little bargaining power in terms of changing the prices.  Aside from government-mandated price decrease of branded drugs, they also experience difficulty in terms of finding a retailer that will put them in a price advantage. Pharmacy industry has the upper hand in terms of forcing the suppliers (wholesalers and manufacturers) to cut down their prices or even allow them to purchase items in bulk  which would further stifle the supplier’s profit margin.  Another option for the players in this industry is to force these suppliers to claim that they can find another manufacturer whose product may be more known to the masses at the same time will be willing to comply with their terms and conditions.

There is a high threat of substitutes given that branded medicines, a substitute product of  the generic drugs offered by TGP, is readily available in the market. Also, consumers may also switch to alternative medicines should they decide to do so. Purchase of medicines has always been the prerogative of the consumers based on what is needed, what is prescribed, and based on the quality and price. Should there be cases that branded medicines may deemed be necessary to cure a certain illness, several substitutes to generic products are easily attainable due to presence of a lot branded medicines nationwide.  Aside from alternative medicines as a means of substitutes, convenience stores such as 7-11 who are selling over-the-counter drugs without the need of licensed pharmacist.

Threat of new entrants for TGP is high due to minimal product differentiation. Since TGP offers generic medicines, access to distribution channel is easy. Also, initial capital investment may not be that costly in setting up a pharmacy or a drug store on a small-scale level as it does not require heavily on research and development costs and other expensive technology. Business model is easily replicated, which makes it easier for new players to enter the market. Location is not an issue given the presence of several pharmacies nationwide, not necessarily as big as the major players. Finally, the government supports cheaper and affordable medicine for everyone. Thus, government policy is not an issue for possible new entrants in the industry.

THREATS ● ● ● ●

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Climate change and the increasing temperature  Absence of biotechnology to invent medicines  Arising competitors offering the same generic products Large retail players had started to sell generic or branded generic pharmaceutical products International drug firms that offered branded generic products may leverage their global supply chains Local government-owned and privately owned government-supplied drug stores were increasing in number

OPPORTUNITIES ● ●

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Increasing disposable income 90% of the Filipinos belong to class C, D, E. These classes prefer generic medicines versus branded because of affordability There is a continuous demand for pharmaceutical products and medicines Government’s continuous efforts to make medicine affordable for everyone.

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Inbound Logistics  –

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  Operations  –

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Pharmacist knowledge of product

Outbound Logistics  –

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 Accessible location (e.g. customer parking)

Product distribution is in good condition

Marketing and Sales  –

Infomercial about generic products.

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Promotional discount and coupons

  Service  –

Free check-up, blood pressure test, cholesterol screening

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Inexpensive blood sugar test

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Firm Infrastructure  –

Inventory management of products

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Operate one central warehouse, one company-owned retail store and one packaging and forwarding center.

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Outsourcing sales function in relation with marketing and promotion.  Aid new business owners with seed capital through consignment stocks. Standardization of delivery using single type of truck.

Technology Development  –

Point of sale system for order processing and financial compliance

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Human Resources  –

Hiring of pharmacists

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Hiring of medical staff for ancillary services

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Provision of training and supervision

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Employee engagement through franchising via seed capital and consignment stocks.

  Procurement  –

Procure products using local currency

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Contract with small to medium-sized local manufacturers and small number of international generic manufacturer representatives in the Philippines.

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Complete storage of single product per category of 90% of major diseases  Assign a single contractor to build all franchise outlets.

STRENGTHS ● ●

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Offers quality products with competitive prices at convenient locations Offers free medical check-up, blood pressure check and discounted blood sugar check  Positioned as an everyday low-cost provider

WEAKNESSES ● ●

Not all stores are air-conditioned Customer perception that generic drugs is less effective as branded.

 Vision To be the drugstore of choice for safe, quality and affordable generic medicines through the widest, most profitable franchise network nationwide; leveraging on complementary healthcare services, integrated technology and processes, and the strength of our people and culture.

Mission  A Filipino Deserves Nothing Less for Less Cost. We understand the value of a healthy Filipino in making a happy home and in nation building. We shall address the health needs of every Filipino by providing a complete range of safe, quality, and cost-effective generic medicines and healthcare products and services. As we profit in this mission, we ensure our growth is shared among our franchisees, partners and employees.

Slogan Mabisa na, Matipid pa.

The Generics Pharmacy acknowledges the need for quality medicines at affordable prices. Thus, TGP focuses on generic medicines to provide Filipinos a more affordable alternative without compromising the quality.

 As the demand grew, the company decided to adapt the franchising business model to make their products available and accessible nationwide, especially in the rural areas.

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Caters the need of two customers - (1) who wants an affordable medicine and (2) who wants to own a business.

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 Able to serve those who can’t afford to buy medicines and made it more accessible to

the underserved and unserved sector •

 Advertising on primetime television - may be indicator that they have large profits to spend

Market Target and Type of Competitive Advantage Being Pursued

Location/Accessibility and Product Variety

Relationship to Other Companies and Vertical Integration

 ACA 1: Increase market share and product accessibility by adding mores stores in prime areas as well as in location where the unserved and underserved segment are situated.  Advantage ●

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Expand its target market to middle- to higher-income individuals to cater more customers and gain market share from the top players in the industry More accessibility to serve the lowincome class Potential increase on the profit as a result of incremental revenues brought about by additional customers

Disadvantage ●

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Uncertainty of market reception and acceptance Difficulty in finding location to cater to the unserved market.

 ACA 2: Expand product diversification by adding more varieties in the product offering ranging from generic to branded medicines including nonpharmaceutical products.  Advantage

Disadvantage

● Enhance customers’ responsiveness by providing them wide array of products in the market ● Opportunity to capture customers from different segments ● Expand to higher-income individuals

● Low cost reputation will be compromised ● Increase in inventory level and purchasing costs of new products ● Increase in operating expenses due to marketing and advertising

 ACA 3: Explore backward integration through manufacturing generic medicines/products.  Advantage ● More control to other parts of the supply chain ● Cost control

Disadvantage ● Would require huge capital investment ● Learning curve might be costly due to lack of experience in manufacturing

Criteria

Weight

ACA1

ACA2

ACA3

30%

20%

20%

10%

20%

20%

20%

15%

Revenue Growth

25%

20%

20%

20%

Market Positioning

25%

20%

20%

25%

Total

100%

80%

80%

70%

Financial Capability  Alignment on the Vision/Mission

The group recommends ACA1 and ACA2: increase accessibility by adding more stores and explore product diversification by offering branded medicines and non-pharmaceutical products. TGP owes its success to their effective strategies related to: 1) offering good products 2) selling products at lower price 3) franchising 4) advertising. TGP should venture in areas where the underserved and unserved sectors are found. Cheap medicines are usually bought where it is most convenient and having stores in locations like these would augment company’s visibility and accessibility. TGP should also explore product diversification to address and cater the needs of individuals from various social classes.

THE GENERICS PHARMACY ANG. BALTORES. CANITES. FLORES. GO November 7, 2017