Downstream pharma sector is financially crippled: CEO Dawaai.pk Furquan Kidwai
Interview with Mr Furquan Kidwai, founder and CEO of Dawaai.pk and Well.pk. Dawaai.pk is an online pharmacy. It is an innovative idea which aims to cater to the ever growing Pakistani health market.
- (1888PressRelease) October 14, 2015 - Furquan Kidwai is the founder and CEO at Dawaai.pk and Well.pk at Dawaai Inc. A graduate from Cambridge University and Imperial College London, and a successful entrepreneur in his own right, Furquan started his career as an investment banker out of London and Wall Street where he worked for the last eight and half years before starting Dawaai Inc in Pakistan. His last assignment was working as the head of emerging market financing with Royal Bank of Scotland. BR Research recently sat down with Furquan in Karachi and discussed dynamics of pharma and e-commerce business in Pakistan and find out the story of his innovative idea of selling medicine online and over the phone. Following is an edited excerpt.
BR Research: Yours is a unique business in Pakistan. Tell us how you got into it?
Furquan Kidwai: I had been living outside of Pakistan for many years. So the idea was to come back and get into a business. I have always been a believer in the consumer business and consumer market, yet I was heavily involved in an institutional business (B2B) in my previous assignment.
A place like Pakistan has a natural advantage with 200 million people and still growing. Where else you would find that advantage with bulging middle class who has or will have money to spend? All the talk about the country is imploding and everything I don't believe it because the country has to stay and has to come out from its current situation. These 200 million people need to spend to live decently enough. That's what I had in my mind. So I wanted to get into something that is essential for consumers, where we don't have to convince the consumer to buy it.
BRR: But why cyber entrepreneurship?
FK: Food and clothing were done to death, but medicine was something that had not been done. So at first we thought to let's bring Boots or CVS to Pakistan but then when we looked into pharma sector we realised that it's not feasible due to the pricing issues and limited margin.
According to the law, the margins on pharma products have to be 15 percent at least. However, pharma companies don't give anything more than 15 percent because they have so far been unable to get any price increase from the government in the last fourteen years, so why should they pass it on to anyone else. That's why sitting on 15 percent margin and setting up a higher quality store is not feasible. You need air conditioning in the drugstore that hardly anyone has in Pakistan. You also need qualified pharmacists to deal with patients and manage medicines, according to the drug law of 1976, which is not the case with most drug stores in Pakistan. Then it is essential to have an elaborate system that keeps tracks of each and every batch of medicine along with its expiry date and who is buying it; again no one does that in Pakistan.
So keeping in mind all these cost we realize it's a volume game, and we have to open more than one store with each selling a large volume that we can't do. We have to take these medicines to a number of people from one base. Either, we opened a store at an ideal location and built a loyal consumer base over the years, or we do something innovative. So basically we turned the model upside down and base out of one place. Now we take ourselves to people's houses and that's how we started. How do we go to people houses? Well, we do this through taking orders by phone or via internet and with 35 million Facebook users in Pakistan along with over 80 percent mobile phone penetration so we thought the use of mobile and internet is right for disruption in the sector.
BRR: So what is the difference between your pharmacy and what's out there in the market?
FK: It's a nightmare to go and buy medicine. There are very few stores in Karachi, Lahore and Islamabad that (a) have all the drugs that consumer needs, and (b) hopefully genuine drugs and lastly you have to spend a considerable amount of time to get those drugs. All drugs are required to be kept at a certain temperature that's below 28 degrees in most cases, and the injectable drugs are needed to be kept in cold chambers at 2 to 8 degrees temperature. Now, most people don't do that without naming any pharmacy I have personally witnessed an oncology drug being kept at 40 degrees outside; it should be at 2 to 8 degree inside the cold chamber. So we maintain cold chambers door-to-door. When we send medicine out of Karachi, we use ice packs to maintain the temperature. We keep consumer records online including the batch numbers of the medicines that they bought. If a company recalls a batch, we are the first one to call the consumer because we keep all the record.
According to World Health Organisation, 40 percent of drug market is counterfeit or substandard. There are only 4000 registered Pakistanis pharmacies in Pakistan. We have opinions from a top law firm in Karachi, and we are up to the code, according to the Drug Act of 1976. Our whole service is on providing a quality product at the convenience of the customer, and that's why we procure directly from the manufacturers or the authorised distributors of the company. We do not go to the wholesale market. After studying the whole supply chain, we realised that most counterfeiting happens at the wholesale level, and that's why we don't go to the middleman. We know about the authenticity of our products, and this is the reason we don't carry "imported" drugs because they usually come in Pakistan through smuggling since you cannot just import a medicine into Pakistan!
BRR: What is your marketing strategy?
FK: Unfortunately, Facebook and Google have a policy that they do not let online pharmacies to market, and that issue has bitten us. Even though Dawaai.pk has both prescription items and over-the-counter items but we can't advertise our store online because we carry prescription items. So we ended up launching another portal called Well.pk, which deals with all the over-the-counter consumer items. We use Google and internet for marketing Well.pk.
Lots of people search for an ailment and drug therapy and our website come first. Dawaai.pk is mainly growing on word of mouth, though we do some offline marketing. We have loyal consumer base so once they have done business with us they stay with us, and that's why we have 98 percent customer retention. The problem is accruing the new customer, and that's why Dawaai.pk is not growing as fast as Well.pk is growing. We do target marketing with Well.pk where we target young Pakistanis.
BRR: Why fake medicine is so big in Pakistan?
FK: It's simply because of small margins. Once I understood the business I realised that the retailers and wholesalers are financially crippled because there are not given any margins. I do not agree with their practices, but we have to understand that they are there to make money, so they try to maximize the profits that's why mixing and counterfeiting is such a big issue. If not counterfeiting, they sell 'imported' medicines that are essentially smuggled, and the margin on that can be as high as they want.
If there is a sensible amount of price increase allowed by the government, then there is a likelihood of that some benefit will be passed on downstream. It will leave retailers and wholesalers for less of an incentive to do hanky-panky.
BRR: What's your revenue size?
FK: Well I can tell you we make revenues on a run rate basis at high six figure dollar annualized basis. In terms of realized earnings so far it's like in six-figure dollars, which means if we continue at the present rate we make high six figure dollar. This is with virtually nil marketing spend as we have so far been busy making ourselves operationally sound. Now we are gearing towards marketing and going all out.
BRR: Is there any precedence of similar business in India?
FK: India has 1mg.com and healthkart.com which have a very similar model like ours, and it is very successful. Like most Indian start-ups, they are very well funded by the likes of Sequoia Capital, Intel Capital, etc. Recently they have raised I think $30 million. Although, they are only three years older than, significant VC funding has helped them scale up fast.
BRR: A lot of players in the pharma business are out of the tax net; what are your practices?
FK: We are a private limited company, and we fully comply. When we started the business, we had huge arguments with company distributors with whom we deal in our company. Most distributors here I don't think they pay tax. They usually deal with mom and pop drug stores, and they take cash. By law as a retail pharmacy, we have to deduct one percent withholding tax and as a private limited company for audit purposes we don't want to deal in cash. Distributors did not want us to deduct 1 percent withholding tax we had arguments with them, but the issue has been settled with them now. So, we are all on board with tax.
BRR: Tell us about your expansion plans?
FK: We get 60 percent of our Well.pk orders from outside Karachi and we need at least a warehouse to cut our freight cost. For that we are exploring two cities in Punjab, may be Lahore because of the proximity and better infrastructure. Since in medicine business our focus is Karachi that's why we get 90 percent of our medicine orders from Karachi. You will soon see a lot more of us outside!
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