Overview

In the last ten years, the number of retail chemists has increased both in rural and urban areas. In the last three years, Chemists are almost becoming like normal grocery shops in terms of being at every corner of the neighborhood.

The growth can not exactly be tied to increased demand for medicine, but more to an entrepreneurial spirit. Among the reasons for the explosion is that there are now more casual conversations about how enticing the margins in the pharmaceutical industry are. This has attracted more people to the business.

Secondly is that entrepreneurs have become crafty and found ways to go around the major barrier that previously prevented many from getting into the business: professional qualifications and certifications. It used to be, and is still by law that for one to start a chemist they need to be registered with the Pharmacy and Poisons Board. This as we will see below is no longer a barrier per se. Related to this is the growth of colleges and universities in the last 13 years which have churned out more professionals in the ‘health industry’, not necessarily pharmacy.

Despite all the talk about how attractive the margins in the business are, the boom, if you look in the daily newspapers and online classifieds you will find a relatively high number of chemists for sale. In the Daily Nation for instance there is an average of two chemists up for sale every week. Sometimes, as high as five. This means just like any other business margins are not everything; you can still fail because of a variety of reasons which will gradually become clear as you read this guide.

Licenses

By law everybody dispensing medicine and supervising any pharmaceutical business is supposed to be a qualified and registered pharmacist or enrolled pharmaceutical technologist.

A very specific law is the Pharmacy and Poisons Act 244 of the laws of Kenya, which also establishes the Pharmacy and Poisons Board (PPB). PPB examines and registers pharmacists and enrolls pharmacist technologists. (Pharmacists are registered while Pharmaceutical Technologists are enrolled). It also falls on the board to register businesses involved in the manufacture, importation, distribution, wholesale and retail of medicines.

A pharmacist holds a Degree in pharmacy holder from a recognized university in Kenya or any other part of the world. A pharmaceutical technologist holds a Diploma in Pharmacy from a recognized Kenyan institution. Diplomas from other countries are not accepted . Whereas a pharmacist can start operating a retail chemist immediately after registration, a pharmaceutical technologist is required to work under the supervision of a pharmacist or enrolled pharmacist technologist for at least six years after obtaining their diploma. However, this is rarely adhered to. The technical term as used by the PPB is to “superintend over registered premises.”. This means the registered person will be the one in charge of the chemist.

Pharmacy and Poisons Board(PPB) Licenses

From the PPB you will require two licenses

1. License to operate (superintend) a retail chemist. The applicant for this license needs to be a pharmacist or pharmaceutical technologist.
2. Premises registration. The PPB inspects and registers the premises from which you will run the pharmacy.

So what to do if you are not a pharmacist or pharmaceutical technologist but you would still like to start a chemist? You can decide to do away with the registration and technically operate an illegal pharmacy, use fake documents or as is common nowadays partner with a pharmacist.

Inspectors work on a regional basis rather than county by county. This further strains them. So months could pass before they come to your location. And you will be in good company too. : There are hundreds of chemists operating without licenses. Though the statistics of the exact number of chemists operating illegally are not exact, one estimate puts it at slightly over 50 % of all the chemists in the country. Others estimate the registered chemists to be 4000, while the unregistered are 5000. We were not able to get the exact figures from the PPB. Without the PPB licenses you will be gambling and depending on your location the odds could be on your side. But beyond PPB officials from the ministry of health inspectorate or even county public health officials could carry out inspections too. And the PPB is trying to expand its capacity.

What happens when you are caught? You reason as some unregistered chemists do that PPB inspectors are human beings, and they are Kenyans, and so you can work something out. This means you can bribe them, let go and live to make money another day. But this is not always the case. The PPB can impound your entire stock, have you arrested and arraigned in court.

Your employee will be in trouble too.

While a person who operates in an unregistered premises liable to a fine not exceeding thirty thousand shillings or to imprisonment for a term not exceeding three years or to both. But there are other laws that could come haunting you like anti-counterfeit laws or even be accused of endangering lives.

Operating without a license also means that you will never go mainstream. You will remain ‘small, growing cautiously and even afraid to operate in central business districts of towns. If you do then you will be crossing your fingers hoping you are not arrested. Certainly there are unregistered chemists even in places such as Nairobi Central Business District (CBD), and they calculate their risk by saying the logic that PPB would never carry out inspections in the CBD because they will argue no one can be daring enough to operate an illegal chemist in the CBD, where they can easily be found. This is not necessarily the case. Beyond licenses the PPB also does inspections checking on quality and fake medicines. There is always a chance that you could be caught.

It is a fact that most of the unregistered chemists are in the estates, rising to a high level in low income, high population areas. Visit an estate like Kayole and you will see the number of

The other alternative is to use the fake documents, where you display fake registration certificates hoping when PPB inspect they won’t discover the documents are fake. Fake documents can be acquired in various juakali ways the specifics of which are beyond this guide. Though this could seem a little better version to being totally unregistered the risks and drawbacks are the same as if discovered and the consequences probably worse.

The last alternative is to “rent a license”: partner with a registered pharmacist or qualified pharmacist technologist so that he acquires the licenses on your behalf. The modalities of such agreements are not cast in stone and could take many forms. The basis of it is that the pharmacist or pharmaceutical technologist is qualified and registered, he can acquire the requested licenses on your behalf from the PPB, and you will compensate him or her for it. You are essentially hiring the licenses.

The form of compensation will depend on you and the pharmacist. The most common of these agreements is that once you have the license and your business is running you agree to pay the pharmacist a monthly fee. The amount of which you negotiate and agree. Often it ranges

between Kshs.20, 000 and Kshs.50, 000. Others request for a lump annual sum of between Kshs.100, 000 and Kshs.200, 000.

In a way you are employing this person. He is taking a risk of his own in a way. His or her name is the one that is on the license, and if the chemist finds itself on the wrong side of the law then he too will be responsible.

Still it could be lower or higher depending on the location, size and potential revenue for the business.

Other common arrangements the pharmacist becomes a shareholder of the chemist and gets a part of the revenue. In some cases the pharmacist gets a one off payment, but this is usually tricky since the licenses need to be renewed annually, and with a one off payment there might not be motivation to continue renewing the license. There are also pharmaceutical technologists who actively look for partnerships; they have the qualifications but lack the capitals.

There are no formal rules about this. Negotiate a deal that is good for you. One of the challenges of these arrangements is what happens if the pharmacist or pharmaceutical technologist decides to quit. You need have a plan for that, if you opt for the monthly payment try and ask for a grace period of a few months before you start making payments.

It is a fact that there are many successful chemists run by people who are not pharmacists or more appropriate registered by PPB. So the bureaucracy should not discourage you. Definitely you will have to employ pharmaceutical technologists or people with related skills to help you run the business. Actually it is a requirement that every chemist should have a resident pharmacist or pharmacist’s technologist running the chemist. Medicine has to be dispensed by skilled people.

Some of the most successful chemists have been started by entrepreneurs with no pharmacy or even health background.

Though the pharmacist is registering the company on your behalf you will pay the actual PPB license fees. The PPB has set some condition for you to meet before you register the premises. Among these is the chemist should have tiles, a sink, a toilet, mirrors, proper lighting and other such to do with ensuring the environment is healthy for handling medicine. The PPB inspector in the region comes to inspect the premises before issuance of the license. Licenses are sometimes issued without meeting all these conditions

Among some of the notable, though not always adhered to aspects of licensing as laid out by the board are:

“

• One person shall only be eligible to superintend over one registered premise. (There are pharmacists and technologists registered to superintend more than one premise)

• A reasonable distance shall be maintained between any two registered premises to discourage unfair competitive trade practices. (Looking at the shoulder to shoulder locations of chemists in some areas this rule is often disregarded)

• A body corporate/ limited liability company may apply to operate more than one premise (as branches). However the requirements stipulated under section 21 of the Pharmacy And Poisons Act must be adhered to including that in each set of premises there shall be a different superintendent .. “

Registration of premises is valid until 31^st of December, irrespective of when you acquired the licenses, and you have to renew them.

So where do you get a pharmacist or pharmaceutical technologist to help you register? There is no laid down formula for this. You have to use your networks. One of the best places to start is to ask the attendants at the local chemist whether they know someone who can help. If you can get someone to let us know and we will assist you find one.

Company Registration

You can run a chemist as a registered sole proprietorship, partnership or company. By the PPB guidelines a pharmaceutical technical technologist can only run a sole proprietorship or partnership but not a company. And where he is running a partnership then he must be the major shareholder. Again this rule is sometimes not followed so strictly.

In a registered company a pharmacist has to be involved company in the sense that he has to be the superintendent and part of the board. A company has the advantage in that you can use it to open branches using the original pharmacist license, though you will need to register each new premise and have a pharmacist or pharmacist technologist in charge. Registration of companies happens at the attorney general chambers. Although you can do it yourself it’s better to use a company registration lawyer to make sure you are doing it right and there are no loopholes. Lawyers will charge Kshs. 20,000 to Kshs. 40,000 for the registration process.

Single User Business Permit

This is issued by the county government to any business operating within the county. The cost will depend on the size of the premises, the county and location within the county. Budget ranges between Kshs.20, 000 to Ksh.40,000

Key Bodies in The Pharmaceutical Business

Major Legislations Which in one Way Regulate the Chemist Business:Public Health Act

Food, Drugs and Chemical Substances Act

Narcotic Drugs and Psychotropic Substances Act

Pharmacy and Poisons

Stocking

Now that you have the premises and licenses ready then next thing is to decide what to stock. One of the easiest ways for a novice to jump start is to use the Kenya Essential Medicines List. This is produced periodically by the government, World Health Organization, doctors, pharmacists and other players in the health sector. It captures the most essential medicines by priority considering ailments, need and demand in the country. The medicine is classified as Vital, Essential and Non Essential depending on how crucial they are.

The list, which we have attached and which can also be downloaded from the most of health websites, is good as only as a guide. Some of the medicines in the list are not applicable for chemists and are used in hospitals say for surgeries. It might not be possible and or even necessary to stock all the medicines on the list. Use it as an intelligent guide, to educate yourself and jog your mind on what to stock.

A more practical way to know what to stock is to go to a wholesaler in your locality, say you are starting a chemist, and request guidance on what to buy and stock. A good wholesaler will guide you.

However there are wholesalers who are not friendly enough to provide you with all the information. Some are understaffed, feel it’s too much work or doubt your commitment. Some are just rude, and tend to think you should have done your homework before getting into the business.

They want you to show a real commitment to buy before giving their prices. Also if you seem not to have any clue at all then some wholesalers will take advantage of you to sell medicine at a price higher than they usually do.

If you are a novice, at the start it’s not advisable for you to go buy the medicine alone without some professional, say pharmaceutical technologist, to assist you. And although some wholesales could act there are many good ones who can help you. A good wholesaler will guide not only the common essential medicine but those that are in demand in the area.

Then as you will see in the Wholesalers section below, it’s not always wise to buy all items from one wholesaler. A wholesaler could be having item A cheaper but item B more expensive. The reason it’s wise to shop from different wholesalers.

Yet there are tens and tens of medicines, and you can’t know all of them. So what to do; there are drugs which are applicable everywhere. You start with these, and then depending on your location you add the extras. Location is in terms of geography, income and lifestyle. There are diseases which tend to be more prevalent depending on the location and demographics.

And once you start requests from customers will help you fine tune what to stock.

Among the very basic medicines are various forms of painkillers both for adults and children, antibiotics both for children and adults, anti-allergies, antibacterials, antififungals, antiprotozoals, ulcers medicine, skin creams, disinfectants, antifungal, migraine medicines, disinfectants, contraceptives. In a chemist about 40% of sales will be over the counter medicine, with the rest being prescriptions.

There is also the issue of whether to buy generics or brand names commonly known as originals. Generics contain the same active ingredients as the brand name but could contain different inactive ingredients. Usually generics are produced after the patent of the original brand name drug expires. They tend to be cheaper because unlike the brand name which is produced just by one company during the period when the patent is active, generics are produced by several companies. This competition drives the prices down. Then the generic manufactures do not have to invest in years of expensive research to produce the drugs, there cost of production are thus lower implying they can afford to sell at lower prices than that of the original medicine.

The norm, and which makes business sense is to have a mix of both but a bias depending on the demographics. Relatively lower income consumers, even those falling in the middle class will have no problem with generics; most can’t even differentiate between generic and brand names. Price is also a major consideration among these groups. Still some of the middle class will at times insist on originals. Sometimes they want to know if there are significant price differences between the original and generics.

If you are targeting well exposed high income consumers it’s okay to have brand names and generics in almost equal measure. These consumers are more wary of generics which at times they associate with counterfeits.

This is more so for consumers with long term illnesses which requires the use of medicine every day, say high blood pressure and diabetes. For these it’s advisable to have sufficient amounts of both generics and brand names.

For such illness’ there are who customers prefer branded medicine as opposed to generics irrespective of the price differences. They are also more likely to stick with one brand of medicine, the brand that was prescribed the first time, and will be wary to change to another generic or otherwise. Also medicines for such diseases also tend to be well branded and marketed to, and customers are more loyal to the brand names. Medicines used for one-off short term treatment don’t have such brand loyalties.

Keep in mind that medicine for long term illness are do not move as fast unless you are in a high foot traffic urban center. You should stock them intelligently otherwise you will end up with lots of dead stock.

In some places where chemists are in good relationship with each other they borrow medicines from each other and ‘refund’ when they buy theirs. Say a customer comes and says he wants medicine A, which you don’t have but the chemist next door has you go ask the retailer to give you, then you sell to your customer. And when you buy yours you give back to the chemist who had ‘lent’ to you.

When stocking do also remember that medicines expire. Don’t trust the wholesalers 100% and take time to check the expiry date and if there is sufficient remaining shelf life. When starting and depending on your location it might not be wise to have stocks of drugs with a very short life, which have the possibility of expiring even before you have sold them. Small retailers sometimes stock medicines with short life, but slow moving, on order only.

If you are not skilled in the business you can hire a pharmaceutical technologist with practical experience in a retail chemist to help you stock. He should be able to help you identify the basic medicine and any that would be tied to the location. And since he has experience he will also hint to you on whether the prices you are offered are fair. For the first timer with no experience, pharmacy or health background, it’s very tricky and not advisable to make purchases on your own.

Capital

The above is just an estimate based on some case studies. There are chemists who have started with less stock or more stock. If you are in a busy area like parts of Nairobi and Mombasa CBD, a stock of Kshs.500, 000 will not be sufficient. Where the foot traffic is high not only do you need a wide variety of medicine but also sufficient quantities. If you are located in places like high end malls where you are likely to get customers in need of very specialized medicines then you might need stock of as much as Kshs.1,000,000.

Other chemists don’t register as companies, and start as simple sole proprietorship. If you are a pharmacist or pharmacist technologist you don’t need to pay someone to register the business on your behalf. Items like rent and county business license will also vary with the location.

Shelves and renovation could cost more depending on size and in what state the room is.

Revenue

The Bigger Picture

The chemist business is one with big price differences and thus margins variations at both the wholesale and retail level. At the retail level it’s not uncommon to find price differences of between Kshs.5 all the way to Kshs.300 for the same medicine. The differences at the wholesale level are at times equally significant.

An absolute rule of the thumb was that a manufacture was to get about 10% margins, a wholesaler 15%, and a retailer would get 33%. The rule has become absolute largely because of competition and the many suppliers of medicine. Retailers sometimes get 10% or even as high as 200%.

You can go to a chemist and find a dose of Amoxil going for Kshs. 50, and at another retailer, the same dose; the same brand and content going for Kshs. 70. The market is such. And why would one sell at Kshs. 50 and another Kshs. 70? One retailer could have sourced expensively. But more often the retailer is taking advantage on the lack of proper market information among consumers as to what amounts to fair prices. The consumer who buys at Kshs.50 and the other who buys at Kshs. 70 both think that is the right price.

Again if the chemist is located at a strategic place say where the competition is less, or in an institution such as college, supermarket or hospital then the prices could be higher. Eventually what happens is that consumers in a location consciously or subconsciously shops from different chemists until he forms an opinion on which is the cheapest and trusted. This information is gradually shared until it forms a general community opinion of which is the ‘best’ prices in the location. This is the reason that you will find one chemist dominating in an area. Sometimes there is no chemist that can be said to be wholly dominating, and in such areas, especially low income areas competition is stiff and often price based.

Sample Wholesale and Trade Prices

To give you an idea of the margins in the business below are some sample random wholesale and retail prices based on one wholesaler. The retail prices are what are referred are recommended trade prices; the prices with which a retailer should sell to consumers. They are just recommendations by the wholesaler, and not laws. Thus you will find some retailers selling at higher or lower prices.

Notes on Revenue

The wholesaler above buys from various importers and appointed distributors. Prices could be vary from wholesaler to wholesaler

The retail prices are also just recommendations. Some wholesalers will give attractive trade prices to entice you with the seemingly high margins.

Depending on the competition the retail prices could be way much below the recommended trade prices shown above thus reducing the margins significantly.

It’s a fact that the margins in the medicine business in Kenya are high. Sometimes obscenely high. But average margins are about 30%. However this does not always translate to success in business. For as in every business if you don’t sell you don’t make money irrespective of how attractive the margins are.

Another reality check is that the margins are not accrued in a single day. If 200 tablets of medicine A make a profit of Kshs. 1000, then it’s unlikely that you will sell all of them in a single day. Depending on location, it can take a week, five days, a month or even two. So the margins are not necessarily one off. Of course if you are in a very busy location you sell relatively more quantities compared to your competitor in a nondescript location.

Pricing

With margins sometimes big then how to price could become a problem for the newcomer. There are no fast hand rules but if you have no proper idea then go with the trade price. Then if you are operating in location with a few number of chemists, and where its relatively easy for the consumer to move from shop to another then you need to find the common prices, or the price range for the most commonly used medicines. Consumers use the prices of the common medicines to form an impression whether a chemist is cheaper than the other.

There are chemists which also allow customers to negotiate. Rather than just let the customer walk away because of price when you know you can still make reasonable margins then you agree to lower prices to within a range you are comfortable with. This is more so in rural and low income areas where consumers are price sensitive and most likely to negotiate. When serving consumers with high income then price is not their major consideration when purchasing rather than quality and reliability. There are many chemists who have no fixed prices and judge each consumer on his own. If they think the consumer by appearance , talk or body language can afford to pay more than they charge a high price and vice versa.

Consumers purchasing medicine for long-term treatment are more sensitive to prices. They are likely to move around seeking the best prices. Though such consumers will first go around seeking the best prices, and when they do consider other factors such as trust and service.

Such customers are good to keep.

Margins of 30% are standard and good enough. You can make more, and you should aim to make more. Be careful not to be blinded by greed or self doubt, and price yourself out of business. Competition in the business is increasing, and with it a lot of price based competition. But as you will see below, you should not over focus on competing on price only. ; There are other factors that can give you leeway to attract more customers at average or above average prices. Pure price based competition only works to some extent. As income raises consumers are less sensitive to price and consider other factors too.

Rural consumers are more sensitive to price. On average consumers in rural areas trust chemists more than their urban counterparts. Not that consumers in urban areas are insensitive to prices but they tamper that with other considerations.

Factors Influencing Revenue

1. Suppliers
2. Pricing
3. Management
4. Location
5. Variety
6. Trust

·        Trust

Price is not the only consideration when consumers are purchasing medicine. Consumers ask a lot of questions and want to trust the chemist as being as knowledgeable as a doctor. This is more so now that a big number of consumers go to chemists for diagnosis and self medication as a first measure.

A consumer will go say I have been having this pain in my stomach for the last two days, what could be the problem? And the chemist attendant will ask a couple of questions then suggest some medicine to cure. This moment when the consumer is interacting with the chemist attendant is the point of losing or building trust. Whereas the consumer could take the medicine she will be left with an impression of whether the attendant is knowledgeable enough or not. It’s the same even when dealing with prescription drugs, the presentation or alternatives that the chemist attendant gives builds or kills trust. Any hint of indecisiveness or doubt and the consumer might think the chemist owner is not sure of what he is doing.

Trying to push a sale more than necessary also affects trust negatively.

Trust also comes with the presentation of the attendants; how they talk, how they dress, how sober, friendly and confident they look. Cleanliness, arrangement, branding, you know and the general look of the chemist is enough to signal professionalism.

Trust also has to do with whether the consumer believes what you are selling is genuine and not fake or substandard. And that you won’t sell expired medicine. The consumer may not immediately realize whether the medicine is genuine or not, but eventually they do and even if not 100% sure, suspect it. And when they do they avoid the chemist and tell family and friends of their suspicions.

If consumers trust your chemist then it becomes the preferred choice and could others to your shop. And you have a chance to charge an above average price. Don’t underestimate the need to build trust. It will boost your sales and margins especially in smaller markets where consumers know all the chemists within.

·        Location

When deciding where to set up a chemist, consider the population and demographics .The higher the population the higher the possibility of getting more customers. But you have to look at the income and education of the population too. Lower income consumers will tend to bargain more and will be more price sensitive. On the other extremes higher income consumers will be more concerned with the quality of the drugs than the price. In between are the mid income level consumers. Price and stock appropriately considering the demographics in the area you locate.

Some of the relatively well known brands have been very focused in the way they have targeted their customers and thus the locations.

For instance Mimosa Pharmacy went for the high end market and thus located in malls, where the target customer clientele could easily be found. Haltons Pharmacy, owned by a group of investors and pharmacists have been going for high populated mid class areas, thus they have been location in areas of Nairobi Eastland’s like Doonholm, Pipeline,

Location is also about accessibility and visibility. Can consumers see your chemist and easily access it? Shopping for medicine is also about convenience. Keeping everything constant consumers don’t want to move from street to back street looking for chemists. And so you will be at a disadvantage if your chemist is not easy to locate and access. It doesn’t have to be at a very prime location but easy to see and reach.

You can’t also ignore competition in whatever location you are going to set up. Be wary of locations, especially small towns, where there are one or two dominant players. Not that you cannot penetrate in such a market but have a proper strategy on how to do it. Dominance is often a based on strategic location, price, variety and trust. Such dominance does not mean that you won’t make profit, but you might end up just surviving. Yet even the dominant players can only be dominant to an extent, they don’t control 100% of the market. Don’t join such a market hoping to dislodge them immediately but find a way to look different. Trust takes time to build. Consumers also take some time to form impressions about price.

·        Suppliers

As noted in the preceding sections there are significant differences in prices between different wholesalers. A chemist who sources in the best way possible will have bigger margins per sale. He will also have more room to play around with prices.

Sourcing at higher costs means that you will have lesser margins per sale, irrespective of how many sales you make in a day. So when there is an offer for genuine but cheaper medicines say through parallel imports and cargo should you use it? There are some risks, but you can take advantage of it. If your competition is buying cheap and you expensive then you will definitely be at a disadvantage. . Keeping everything constant you will make less profit and grow at a slower rate. Even when using the major legal wholesalers you will at one time or another be buying parallel or illegal imports. The things to keep off are counterfeits, not only because of the reputation you put your business but the danger you put your customers in.

·        Variety

If you have a wide variety of medicines then you will make more sales, since no customer will come to your shop and leave because there is no such and such medicine. This does not mean that you should stock each and every medicine but have as many of the crucial ones as possible. Look at the local demand and demographics. Then with most of the medicines there are a variety and equivalents of each at different pain points and composition.

Having a wide variety also gives you a reputation as a reliable chemist. A few chemists in midsized towns try to differentiate by stocking the more expensive and rare of the medicine say for diseases like diabetes and hypertension.

·        Related Items

To expand their revenue streams some chemists stock related items that could be needed by their customers. These include such items as cosmetics, baby items such as diapers and powders and even soft drinks. This helps. It’s a chance for an extra revenue stream and could eventually contribute significantly to your income. If a customer trusts you with medicine then they are likely to trust you with related items like cosmetics.

·        Management

It’s a well known fact that without there is a lot of potential and actual employee theft in the business. Without stock management systems your position as the owner becomes weaker. But beyond the software you need to be keen on how the chemist is running. It’s not the kind of business you leave to employees and only do monthly visits. This is more so if you don’t have a health background. If you can, visit the chemist daily. Medicine is such that as few as 8 small tablets could be worth thousands of shillings. Dishonest staff will run you to the ground. You might not be able to 100% prevent theft but you can try fight it.

But management is not just about theft but also the day to day running of the chemists from simple things like making sure staff are professional, restocking is done as need be, records are kept, opening and closing hours adhered to and so forth .

Poor management will lead to a lot of revenue leakages which could eventually make the business to close down. There are a number of chemists which have closed because of poor management.

Revenue Summary

From our sample standard chemists in urban centers, as opposed to big well established pharmacies, reported monthly gross profits of between Kshs.15, 000 and Kshs.200, 000 with an average of Kshs. 60,000. There were some which were making losses despite being in business for over one year. Daily sales range from Kshs. 1,000 to Kshs.20,000 a day, with an average of Kshs.6,000. Lower level of revenues was reported among small chemists in very low income estates. Chemists in downtown Nairobi reported some of the highest revenues, and also those dominating in peri urban towns

Reasons for Failure In The Chemist Business:

So with the attractive margins and the pedestrian reasoning “people always get sick” why do chemists fail?

• Lack of enough capital to sustain until breakeven point: Like any other business a chemist will not start making money on day one. It could take up to one year to get enough customers and understand the market proper to start making profits. If you don’t have enough money to keep the business going- pay salaries and rent then you will likely close down or sell your business.
• Location – Poor location means customers cannot see or access your chemist, there are not enough customers, there is so much cut throat competition resulting in downward price pressure or a big dominating player who attracts most of the customers, or customers don’t have enough purchasing power. For instance in very low income areas customers buy medicines sparingly; they negotiate hard and only go for the most common of medicine which might not be as profitable. This is coupled with the fact that there tends to be very many small chemists in such areas could make you struggle if you don’t have a proper strategy. On the other hand if you are targeting the high end customers in the more prestigious of malls and you don’t have enough variety and your quality is doubtful then it’s a recipe for failure.
• Poor Stocking – This could mean having the wrong type of medicine for the demographics in your location, not having the most essential of medicine, not having enough variety, under stocking vis a vis the location and immediate competition, having slow moving fast expiring medicines. The latter leads to direct losses and some low capitalized chemists are not able to recover from it.
• Poor Sourcing – If you buy medicine at high prices relative to your competitors then your margins will be less, your prices probably higher and you will grow slowly. If you are

tricked to buying counterfeits , medicine which is about to expire or substandard then it might backfire on you. You need to be very intelligent in sourcing otherwise errors could eventually cost you your business.

• Poor management – This includes not having honest stuff resulting to theft and revenue leakages, staff stocking and selling their own medicine , poor recording keeping, staff who don’t inspire confidence in the customers, staff who don’t have the basic customer service skills, a casual attitude which affects things like opening and closing hours and even cleanliness of the chemist. All the above factors are enough to drive a chemist out of business.
• Operating without the requisite licenses – If you don’t have the required licenses and PPB catches and impounds your stock, and perhaps takes you to court then you might never recover from that to reopen.

Break Even

The average breakeven point of standard chemists is 9 months. This was a from a sample of chemists in estates in Nairobi, Embu, Nakuru and Mombasa. Of course the duration could be slightly longer or less depending on other factors like location, competition and even management.

Competition and Survival

Competition Pointers

Like we mentioned at the start competition in the chemist retail business has been increasing for the last 15 years, and this can be attributed to a number of factors:

• Increase in the number of pharmaceutical personnel which means that there are now more professionals registered with the PPB, who can then engage in the business

-Competition at the wholesale level which then means that wholesalers are not so strict in ensuring retailers are legally registered. Neither do they have high minimum order quantities. There are also now more informal wholesalers who themselves are not registered or even with permanent premises. Other new retailers will buy from fellow retailers in a much simpler process.

• Entrepreneurs who are not pharmacists by training, but interested in the chemist business have found a way round the biggest barrier to entry which is the licensing. This is through partnerships with registered personnel, paying the registered pharmacists and technologists a retainer so as to acquire licenses on their behalf, faking documents and using other backdoor channels to acquire the license to operate a retail chemist.

• Chemists have grown at a faster rate than that of the capacity of the PPB. And so whereas the PPB will conduct inspections it’s now much easier to escape their attention especially if you are operating in small or rural towns. Also in urban areas better communication and networking among chemist owners has meant it’s easier to know when the inspection is about to be done, and thus close or take appropriate measures. It’s now common to hear a chemist owner say for the last two years they have in business they have not encountered PPB staff. This emboldens would be entrepreneurs in the business who would have shied away because of fear of enforcement.
• Urbanization has also increased the demand for medicine. Hawk eyed entrepreneurs have spotted the opportunities, and thus moved to establish chemists. Related to this is as mentioned that there is relatively more information available on margins in the chemist business, this has made the business more attractive to more people.

Competition in the chemist retail business will continue increasing. The business still remains one of the most attractive. In general there is not much product differentiation between the chemists.

At the national level some of the positive indicators in the last two years are reputable investment companies putting in money in the retail chemist business. Some of the well known are Fanisi Capital purchasing part of Haltons Pharmarcy for $ 3 million. And Catalyst Capital which is associated with Equity Bank buying a stake in Mimosa Capital.

On What Is Competition Based On

• Prices – There is already a lot of price based competition, which will continue being intense as the number of chemists increase. With margins being wide, price ranges will be big between the retailers. It will be tough for chemists within a locality to collaborate on price. This is because of lack of trust and each seeking survival. In urban areas price based competition is more intense with a lot of price undercutting. And with it bad mouthing by competition where if you are selling at very low prices then they will tell their customers that the quality of your drugs is suspicious.

Competing on price alone is not a very wise strategy. Price competition will not be of much long- term help if there is no trust then it means price competition is on shaky grounds and collapse at any time.

• Trust – This is by trying to give an image of professionalism, such that consumers trust you are selling the right medicine, you are knowledgeable and not a quack and you are pricing fairly. With trust it’s possible to charge consumers a premium price. Trust helps build a loyal customer base rather than one off customers. (See Revenue for more on Trust)
  • Branding – Now there are efforts among a number of chemists to brand. Branding is by having company colors, a chain and subtle marketing efforts. The purpose of such

branding is to build consumer trust and recognition which will help snatch market share from ‘weaker’ rivals.

• Variety – This is by having as a wide variety of medicines as possible. (See Revenue for more)
  • Location – See Revenue Above

Opening and Closing Hours – Chemists also compete by opening and closing hours. To stand out some chemists open early and close late. Sometimes as early as 7am and close as late as midnight. There are also a few 24 hour chemists.

Consumer Behavior

There are various medicines buying processes

Convenience – This is where a consumer chooses to buy from the most convenient chemist in terms of location. Perhaps the chemist is near where she parks her car, workplace or on the way home. The consumer is looking at convenience before anything else. If the chemist is insufficient in other ways the consumer could still buy but for a few times only before she figures out an alternative in terms of convenience.

On the business side such a chemist though deficient in other ways still gets enough foot traffic by virtue of its location, and will still make profit before a better alternative opens in the same location.

Referral – This is where the consumer is referred to a chemist by a colleague, friend or family member. The referring party has a positive experience with the chemist to an extent that she feels confident referring a friend. The good experience is based on service, price or just trusting the chemist.

Reputation – At times you find that a particular chemist in an area has developed a good reputation. The origin of the reputation is sometimes not clear, but at other times it can be tied to price, medicine availability and genuineness. The reputation becomes part of the community and the reputed chemists become the preferred in the area.

Trust Signals – Consumers are sometimes looking for trust signals. This, depends on the customer, and could mean anything to make the customer trust the chemist. It could be simple things as the size of the chemist, the branding, name, the appearance of the attendants, location and anything that could make her trust the chemist.

Though every consumer is concerned about price, low income consumers are more sensitive to price and is their first consideration. Mid income and high consumers worry about availability, the quality of the medicine, whether they are genuine. The high income consumers bargain less and price is not their number one consideration.

Consumers will have their preferred chemists but no absolute loyalties. If they don’t get better services or prices at another chemist they can shift. Also if they are unwell and need to buy medicine they could opt for the nearest chemist though not their preferred. From our survey among consumers the ideal chemist is one which offer fair prices, well stocked with variety, has genuine medicine and with knowledgeable friendly staff. These consumers want sometimes conflict with the business side of the chemist, and as the owner you have to find a balance that makes the customer happy while still earning you profits.

Manpower

By law a chemist should be manned by qualified staff specifically a pharmacist or pharmacist technologist. A retail chemist should have a supervising pharmacist who should be a qualified pharmacist or pharmaceutical technologist registered by the PPB. . The purpose of all this is to ensure that medicines are dispensed by qualified people, to avoid any fatalities.

However the truth is that small and midsized chemists cannot afford to employ full pharmacists. It’s very difficult to get a pharmacist willing to work for a normal retail shop. They go for more lucrative careers in manufacturing, distribution and as sales representatives of foreign pharmaceutical companies.

Again the smaller and new chemists cannot always afford or even find qualified and registered pharmacist technologists. The technologists are either working for bigger retailers and wholesalers if not running their own chemists. And those who are qualified and experienced will demand a high salary which the smaller pharmacists are afraid they cannot afford. If the technologist used his name and PPB enrollment, and you want him to run the business then he will charge you for the license and attending the chemist. However as you grow it is advisable to employ a pharmaceutical technologist. As more pharmaceutical technologists are trained and join the market it’s becoming comparatively easier to acquire their services at a fair price.

To manage expenses many new, small and medium chemists opt for unlicensed pharmaceutical technologists. Or personnel with related in training like nurse aides, lab tech, applied chemistry, clinical officer, applied biology, nurses and such other courses. The science or health background implies they can learn fast how to dispense medicine.

There are also a few chemists run by people with no pharmacy, science, or related training of sorts but who have learned on the job. Most chemists will at least have someone with a health-related background.

There is also personnel who have done certificates in pharmacy courses. This course is no longer recognized by the board, but a sizeable number of institutions offered it in the mid-20s. Such people still exist in the market and are even hired by some chemists. There are also those who have done Diplomas in Pharmacy but from colleges not recognized by the board. Such people cannot be registered. Still, they are employed to work in chemists, however illegal it is.

The number of staff you should have will depend on how busy the chemist is. The idea is to manage costs without keeping customers waiting for so long. Chemists in town centers tend to have higher foot traffic and thus have more employees.

If you can’t afford pharmaceutical technologists then you can opt for staff with related skills but PPB occasionally carries inspections to check the qualifications of the employees. The pharmacist superintendent, or basically the pharmacist in charge of a shop should be able to produce the papers of those that are employed in the chemist. Failure to prove qualifications leads to arrest of workers and closing of the chemist. It is usual for people to fake papers. Like we stated the PPB often lacks capacity to conduct these inspections but have a plan of what to do if and when they appear.

For those who have qualified pharmacy technologists as assistants turnover is relatively high. This is because most of the pharmacist technologists have their eyes set on opening new their own chemists. The salary ranges from Kshs, 15,000 to Kshs.50, 000 for the standard chemist. For those who are not pharmaceutical technologists pay tends to be lower. The reasoning is that they are not fully qualified and in a way they are putting the business is at risk.

A Note on Operations

Basically in a chemist a customer will come ask for a particular medicine or give a prescription, you retrieve the medicine and she makes payment. The exacts however depend on the particular chemist; the systems in place, the size in terms of turnover of the chemist. The key things considered are keeping track of stocks, keeping truck of sales, fiscal obligations like tax, preventing theft and being accountable.

Some small and medium size chemists manage everything manually and almost casually. When the customer buys they hand over the medicine from the shelves and that’s it. No records are kept. They will restock when they look at the shelves and see that a certain medicine is depleted. Just like most grocery shops they know they are making money but they have no clear what their profits or loss for that matter is.

Others have a slightly advanced version of this in that they keep records of sales, though they don’t issue receipts. Others will periodically take stock; say monthly or after two months. They keep records and are able to calculate profit and loss.

Chemists using slightly advanced systems will have a simple point of sale system which only issue receipts but is not linked to the stock, while others have a fully fledged point of sale system which keeps track of sales and stock.

In such chemists there is only one cashier, the customer is given the price, pays then medicine is fetched from the ‘store’. The store is managed by one or two people so there is accountability. This reduces the chances of staff theft by monitoring the flow of medicine. Sometimes in such chemists there are several computers all connected to the stock, so that customers can check what is available and prices, and are able to advice accordingly.

A point of sale system, though not a must for a start up chemist, is important and makes the management easier especially if you are not there to manage the chemist full time.