Home Standard Operating Procedures Marketing Dept. Reference Distribution Channels Distribution Channels: An Overview Distribution Channel: Pharmacies/Retail Stores

Distribution Channel: Pharmacies/Retail Stores

Updated 2 yrs ago | 10 minutes

Applicable product ranges: Pharmaceuticals, Medical Devices, Supplements

Why don’t pharmacies buy directly from AdvaCare?

Pharmacies are a major distribution channel for AdvaCare Pharma’s products. However, like hospitals and clinics, pharmacies are not the direct buyer of AdvaCare Pharma products, instead having to purchase our products from our distributors, for the following reasons:

● A single pharmacy usually does not have the demand or buying power to order large quantities of each product, meaning a single pharmacy cannot meet our MOQ (Minimum Order Quantity) per product. It is possible that a pharmacy chain could have the demand to meet some of our MOQs, but it is still not likely given that pharmacies usually do not deal with regulatory compliance for product registration or importation.

● Pharmacy procurement relies on on-demand fulfillment, meaning smaller quantities are ordered and delivered quickly because pharmacies, like hospitals, generally require a very wide range of products in smaller quantities.

Understanding Different Types of Pharmacies

There are different categories of pharmacies. Although all act as a point of sale for prescription Rx and OTC pharmaceuticals, mostly class I and II medical devices, and dietary supplements, each type of pharmacy has a slightly different purpose or ownership that affects how they operate, and in turn may require us to adjust our strategies and promotional materials to more effectively ensure the success of our distributors and ultimately our products.

Note that more developed markets will have a greater range of different types of pharmacies given more specialization, compared to developing markets in which pharmacies will more of a one-size-fits-all landscape for the pharmacy channel.

Some common types of pharmacies that our distributors supply our products to include:

TYPES OF PHARMACIES
Independent Pharmacies	These are small, privately owned drugstores that operate independently. They may specialize in certain products or services and often provide personalized customer care. Most common type of pharmacy in the developing markets. Independent pharmacies represent the majority of pharmacies that our distributors sell to.
Chain Pharmacies	These are large pharmacies owned by national or regional chains of drugstores. They may have a few stores in a specific city or hundreds of locations nationwide and offer a wide range of services. Less common type of pharmacy in developing markets, but still do exist. Most of the chain pharmacies in our target markets, which are developing countries, will be smaller chain stores with several locations. But some of our products are in larger pharmacy chains. Our goal is always to acquire distributors that have the capability to sell to chain pharmacies as the ordering quantities will be much larger and brand recognition vastly expanded which could lead to other distributors approaching us.
Hospital Pharmacies	These pharmacies operate within hospitals and healthcare facilities and provide medications and services to patients who are receiving care on-site. Important to understand that some products that might be used in a hospital, including pharmaceuticals and medical devices that are not for in-patient use, will be sold through the pharmacy channel that is within the hospital. Pharmacies within hospitals are unique in their ability to crossover both channels - doctors and nurses in the hospital get exposure to some of our products which they otherwise would not, and as the procurement for both might from the same centralized department, buying power can be increased.
Compound Pharmacies	These pharmacies specialize in preparing customized medications based on a patient's specific needs or requirements. They may create medications in different forms or doses than what is commercially available. These pharmacies still carry a majority of pre-packaged pharmaceuticals, but only have a very small lab inside the pharmacy to produce some limited products in-house. Therefore, these pharmacies are still our target secondary target audience.
Specialty Pharmacies	These pharmacies provide medications and services for patients with complex or chronic conditions, such as cancer, HIV/AIDS, or autoimmune disorders. They may offer specialized care and support services. Although our pharmaceutical range consists of generic pharmaceuticals, many are also administered for conditions that specialty pharmacies sell. Specialty pharmacies will usually also sell medical devices and supplements just as any other pharmacy would.
Online Pharmacies	These pharmacies operate through the internet and allow patients to order medications and other healthcare products online and have them delivered to their doorstep. It is possible that some of our products are sold online, but online pharmacies are less common in developing markets usually due to more regulation by country health authority and generally less sophistication of the supply chain to support such a distribution channel. Online pharmacies are likely to grow in developing markets and should be a type of pharmacy that we continue to develop for future growth.

Pharmacies vs Other Retail Stores

Pharmacies are our main retail channel, whereas other retail points of sale are a secondary channel. With an estimated more than 1 million pharmacies worldwide, it is one of the largest retail sectors globally. Other retail points of sale include supermarkets, convenient stores, medical supply stores and other retail outlets.

By default of selling products to the end consumer, pharmacies are also retail stores. The main difference of pharmacies is that these points of sale focus on a specific scope of products - pharmaceuticals and healthcare products. In addition, pharmacies possess a license to dispense controlled medications prescribed by a doctor or the attending pharmacist. While both have many differences, they also have similarities:

RETAIL DISTRIBUTION CHANNEL
PHARMACIES	OTHER RETAIL STORES
Only carry pharmaceuticals and healthcare products; much larger product range.	Carry small range of OTC pharmaceuticals and healthcare products.
Consumers go to pharmacies specifically to treat a health condition.	Consumers more likely to buy OTCs and healthcare products as a second thought.
Brand awareness and credibility more important given more competing products.	Availability and convenience more important given less competing products.
Pharmacists and staff are specialized and able to provide guidance on purchase decisions.	Products must sell themselves without presence of specialist store attendants.
Crossover stores that have a full-service pharmacy and other products do exist, but mostly in more developed markets. Middle-low income countries usually have the 2 channels separated and smaller in scale.

The Role of Doctors

The role that doctors play in driving pharmacy sales is an important secondary target audience that must be understood to successfully distribute our products. Pharmacies rely on 3 ways by which to sell products:

1. Prescription medication from doctors that need to be filled at a pharmacy.

2. Patient/consumer walk-ins that are seeking a prescribed or OTC medication, dietary supplement or medical device with the assistance of a pharmacist in the pharmacy.

3. Consumer walk-ins that will buy an OTC medication, dietary supplement or medical device off the shelf.

Method #1 above, relying on doctor prescriptions to purchase a medication, is a major driver of a pharmacy’s sales, accounting for an estimated 30-70% of total sales. Therefore, it is important that we are effectively able to convince doctors, by working closely with our distributors, of our products’ quality and efficacy. Product results are the best way in which to achieve this, but to be able to get a doctor to be willing to try our products, we need to make a strong first impression by means of:

● The presentation of our products

● Our web presence

● Promotional materials provided to our distributors

Online Pharmacies

Online pharmacies must be mentioned because while this type of pharmacy is still underdeveloped in developing countries, it is up and coming and will eventually come to developing countries. Although these types of pharmacies are limited or do not yet exist in low-income countries, in many middle-income countries online pharmacies are already established and the channel is growing. So while online pharmacies are still not a type of pharmacy that our pharmaceutical products are commonly sold in, it is a channel that we need to prepare for. And granted that AdvaCare is strong in our online capabilities (web presence and online lead generation, digital marketing, internal platforms such as ERP and SOPs), we are well positioned for such a channel.

It is important to note that online pharmacies might sell medical devices, but most focus on prescription and OTC pharmaceuticals.

Why are low and middle income countries slower to adopt online pharmacies?

1. Internet penetration rates: low/middle income countries have lower internet usage as a percentage of the population. By nature of less use of the internet, there will also be less demand for online purchasing (e-commerce), including pharmaceuticals.

2. Regulatory restrictions: Many low/middle income countries do not yet have the regulatory framework for online pharmacies as these would likely require special licensing in most countries.

3. Patient trust: In low/middle income countries, patients might be less trusting of getting sensitive products such as pharmaceuticals from unknown sources. Patients are more likely to be accustomed to buying from favored local pharmacies which they have purchased from in the past, or might have a relationship with the pharmacist which has build trust over years with patients. Also, fake products, including pharmaceuticals, can make the general population more skeptical in low/middle income countries.

A few facts to understand online pharmacies:

● In developed countries such as the USA, online pharmacies have a 10% market share. In Europe it is generally lower, closer to around 5% market share.

● Global online pharmacy market size is about $70 billion.

● Global online pharmacy market annual growth rate is estimated to be 15.5% from 2021 to 2028.

Challenges facing Pharmacies in Developing Countries

In estimated order of priority from most impactful challenges to least that our distributors face:

CHALLENGES OF PHARMACIES
Market Competition	The pharmacy market in developing countries can be highly competitive, with multiple distributors vying for market share. Distributors need to differentiate themselves, offer value-added services, and build strong relationships with pharmacies to gain a competitive edge.
Fragmented Market	The pharmacy market in developing countries can be fragmented with a large number of small, independent pharmacies. Managing relationships with numerous pharmacies, each with unique demands and requirements, can be challenging for distributors.
Financial Constraints	Pharmacies in developing countries may face financial constraints, leading to delayed or irregular payments to distributors. This can impact the cash flow of distributors and their ability to maintain sufficient stock levels and invest in infrastructure and logistics.
Counterfeit and Substandard Products	The presence of counterfeit and substandard medical and pharmaceutical products is a significant challenge in some developing countries. Distributors need to implement robust quality control measures and collaborate with regulatory authorities to ensure the authenticity and quality of the products they distribute.
Infrastructure and Logistics	Inadequate infrastructure, including poor road networks, lack of proper storage facilities, and limited transportation options, can pose significant challenges for distributors. This can lead to difficulties in ensuring timely and efficient delivery of products to pharmacies.
Demand Planning and Forecasting	Accurately forecasting demand for medical and pharmaceutical products in pharmacies can be challenging due to factors such as population dynamics, healthcare access, and local market conditions. Distributors must employ effective demand planning and forecasting techniques to avoid stockouts or excess inventory.
Health Information Systems	Inefficient health information systems and limited interoperability can hinder effective communication and coordination between pharmacies, healthcare providers, and distributors. Access to patient information, medication histories, and prescription records is crucial for providing optimal pharmaceutical care.
Pharmacist Workforce Shortages	Developing countries often face shortages of trained pharmacists and pharmacy staff. Insufficient staffing levels can lead to increased workloads, decreased patient counseling, and compromised medication management.
Regulatory Compliance	Compliance with regulatory requirements related to product registration, licensing, labeling, and documentation can be complex in developing countries. Distributors must stay updated on the evolving regulatory landscape and ensure adherence to these requirements.
Health Education and Awareness	Limited health literacy and lack of public awareness about proper medication use, potential side effects, and adherence to treatment regimens pose challenges for pharmacies in developing countries. Patient education and counseling are essential but may be hindered by resource constraints and time limitations.

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