Planet Health

Issues in the case

• The product patent regime under the WTO agreement led to a significance change in the competitive situation

• The drug consumption in India was based more on cure than on prevention

• Traditionally pharma retail stores were family run, sized between 150-250 sq.ft. and not having necessary equipments to preserve the medicines

• Unethical practices were followed as businesses were run on cash basis

• Pharma retailing was one area that had made no progress as all the retailers were highly united and resisted change

• Pharmacist was not able to provide the information sought and this led to higher deaths due to negligence in the administration of drugs

• Very selective number of brands and products were available

Q1) Find out the profitability of each of the formats discussed in the chapter and suggest which one Planet

Health should adopt?

Operating Ratio

• It measures the relationship between operating cost and net sales

• Its used to determine the operational efficiency with which production and selling operations can be carried out

• Operating Ratio and operating profit ratio are complementary to each other

Q1 (Contd.)

ComputationOperating Ratio = Operating Cost * 100 Net Sales

Operating Cost = Start up cost (Capex)+ Gross expenses + Interest on FV Premises

Net Sales = Gross Sales – Sales Returns

Q1 (Contd.)

1 2 3 4 5 Average

Net Sales 5063 6539 8472 10555 13149

Operating Cost

3452 3692 4028 4448 4835

Operating Ratio

68.16 56.46 47.54 42.14 36.77 58.642

250 Square Feet

Q1 (Contd.)

1 2 3 4 5 Average

Net Sales 7170 9260 11957 14847 18559

Operating Cost

5790 6123 6592 7179 7716

Operating Ratio

80.75 66.12 55.13 48.35 41.57 58.384

500 Square Feet

Q1 (Contd.)

1 2 3 4 5 Average

Net Sales 8547 11038 14301 17815 22193

Operating Cost

9774 10154 10690 11364 11971

Operating Ratio

114.35

91.99 74.75 63.79 53.94 79.764

1000 Square Feet

Q1 (Contd.)

1 2 3 4 5 Average

Net Sales 11034 14295 18520 23071 28641

Operating Cost

16875 17346 18853 18853 19597

Operating Ratio

152.93

121.34 101.79 81.71 68.42 105.38

2000 Square Feet

Q1 (Contd.)

Interpretation

• The ratio indicates an average operating cost incurred on a sales of goods worth Rs 100

• Lower the ratio , greater is the operating profit to cover the non operating expenses , pay dividend and create reserves

• Therefore, Planet Heath should adopt 500 Sq feet format because the operating ratio over a period of time is lower than other formats

Q2. What values does Planet Health want to deliver? How does each format stand with regard to delivering these values?

The values intended to be delivered are:

• Providing qualified pharmacists acting as a link between patients and doctors•Provide air-conditioning and refrigeration facilities to preserve medicines properly assuring quality to the customers•Sell all merchandise on bills to avoid any unethical practices•Providing a valuable shopping experience to customers with a bigger store and multiple products and brands

Store Format and Location: •Stores located in residential areas to provide a good and efficient shopping experience to customers•Store to be prominently visible providing enough parking space•Proposed to open a set of “mother and daughter” combinations

Store Design and Layout:•Design based on building trust among the shoppers through purity, openness and transparency•Store looked to design like a lifestyle store•Provision to dispense medicines from a side window during late night hours for convenience

Q2 (Contd.)

Q3) How does each format relate to the location of the stores?

• Has to be near residential areas• Presence of doctors or hospitals in the area• Proximity to the educated middle and upper class

households• The trading area to be situated nearby• Parking availability• Prominent visibility• Nearness to complementary outlets ( Mother and

daughter store)

Q 4) What changes are required for each of the formats in regards to categories , layout and branding decision?

Categories

• SGI can remove the Food & Snack and Beauty Care product category as it goes against the identity of what “Planet Health” actually stands for

• It can also reduce the number of brands and products for easier management of inventory in turn increasing productivity and bringing down the costs

Q4 (Contd.)Branding

• Medishop would have been a better name since it would have better connected with the activity the Sagar Group was trying to do. In this case it was a pharma shop

• Ayurvedic products should not be stocked initially . They should only concentrate on allopathic drugs to build a loyal clientele of doctors as well customers

• Drugs which require refrigeration should be avoided initially. After certain doctors who prescribe are brought on board then only should it be stocked

• Bar Codes should not be started initially since the personnel are not trained. Only data entry should be introduced

Q4 (Contd.)

Layout• SGI should not separate the entry and the exit points

as it would cause inconvenience to the customers

• Also the information kiosk and a counter that provided information on the loyalty programmed near the exit point is not required as it would just add to the costs and not be of much use to Indian customers

THANK YOU