Types Of Distributor And Wholesaler In Pharma Sector

Why Does the Pharma Industry Run on Distributors and Wholesalers?

Here arises the main question: if a pharma company makes the medicines, then why they don’t sell these medicines directly?

The answer for this question is simple. It cannot reach everyone on its own. In India, there are lakhs of retail chemist shops, thousands of hospitals, nursing homes, government dispensaries, and clinics in the urban areas, small towns, and remote villages. It is not possible for a single manufacturer to service all of them directly.

This is the space where distributors and wholesalers play an important role. The distributors and wholesalers are the engine behind the supply chain who purchase medicines in bulk, storing them correctly, and pushing them through a network until they reach the person who actually needs them.

The responsibilities of distributors and wholesalers go well beyond just moving boxes. Below are the main roles distributors and wholesalers play:

• Purchasing medicines in bulk directly from pharma companies.
• Storing products under temperature controlled and regulated conditions.
• Dispatching stocks to retailers, chemists, and hospitals.
• Actively promoting and marketing the brand of the company within their territory.
• Ensuring the full compliance with the drug laws and regulations in India.

Distributor vs. Wholesaler — What Is the Real Difference?

Let’s take away the confusion: who is distributor and who is wholesaler. It is often noticed that most people use distributor and wholesaler as if they mean the same thing. But the reality is different, the wholesalers and distributors are different. While both are middlemen in the supply chain, but their roles, relationships, and responsibilities are quite different from each other.

Let’s consider an example. A distributor is a brand ambassador with a territory and wholesaler is a volume trader who moves stock fast. Both play important roles on their places but they serve very different purposes in the chain.

The Main Types of Distributors and Wholesalers in the Pharma Sector

1. PCD Pharma Franchise Distributors and Wholesalers

One business model that has truly transformed pharma distribution in India is PCD (Propaganda Cum Distribution) Pharma Franchise.

The PCD model’s true strength lies in its ability to provide pharmaceutical manufacturers with pan-India distribution without the need for their own distribution and sales network. It provides a low-risk/high-margin entry into one of India’s rapidly growing sectors (the Pharma Distribution Sector) for the entrepreneurial spirit.

Typically there are two families of PCD pharma distributors and wholesalers, namely single party PCD distributors and multiple party PCD distributors.

A. Single Party PCD Pharma Distributors

Consider your typical 20 or 30 something year old pharmacist in a small city in either Punjab or Rajasthan who decides to go “out from behind the counter” and start their own distribution business. More often than not, that person will be a single party PCD pharma distributor (local distributor of medicines) — the backbone of the availability of medicine in India.

They are generally small-scale individually based operations. They have a much more agile method to operate and are well connected and trusted by the chemists and doctors to whom they supply product.

They are:

• The individual PCD franchise holders in Tiers 2 & 3 cities
• The medical shop owners who have grown their business to the point of adding a distribution component

Here’s an interesting point: While the volumes sold by these distributors are lower than the ones produced by their counterparts, their unit margins typically exceed theirs. Furthermore, they have the monopoly for their territory. This means that no one else who distributes the same manufacturer’s product can operate within their geographic area.

If you’re looking to get into a business that has a low cost of entry and significant growth potential, seriously consider a sole party PCD distribution business.

B. Multi-Party Pharmaceutical Distributors (WholeSalers)

Next, think about how this type of distributor would look if you significantly expanded it. Increase the size of the warehouse, have a sales force, create a network of sub-distributors throughout multiple regions (i.e., districts), and have contracts with multiple pharmaceutical manufacturers. The result would be a multi-party pharmaceutical distributor (wholesaler).

These companies are the big players in the distribution market. Pharmaceutical manufacturers will seek out these distributors to expand their product distribution quickly.

What companies are those?

• Large regional wholesale distributors
• State-level super wholesalers
• Deeply established pharmaceutical franchise holders with many years of experience distributing products throughout the marketplace

The distributors and wholesalers of pharmaceutical products are typically made up of representatives or agents for pharmacies, brokers for distribution, local small distributors, and pharmacy chain retailers. These organizations are bound by the marketing contract of their parent company and operated on a predetermined margin. While the per unit margin is smaller, they compensate for this by creating high volumes of sales.

For pharma companies, partnering with one of these multiple distributors across multiple states potentially opens all of the distributor’s states for access to their products overnight.

The primary categorization of pharma distributors and wholesalers is based on the functional role they provide within the system. This is where it starts to get real interesting!

2. Producer Pharma Distributors

These distributors operate closest to the manufacturer. They have been assigned to perform a specific function by the manufacturer and are only responsible for product/sales; however, they also play a role in helping establish the product/sales in their marketplace and to build the brand. They can be found in and around medical facilities by delivering product samples, demonstrating/creating new product launch activity and increasing the visibility of the manufacturer in and around the local area. The manufacturer will use this type of distributor to enter a new geographic market or launch a new product where establishing a name for themselves is more important than actual sales.

3. Pharmaceutical Merchant Distributors / Wholesalers

Merchant distributors are businesses that buy pharmaceutical products from wholesalers and resell them to retailers and other end-users for profit. Unlike producer distributors, merchant distributors are not tied to a single manufacturer and therefore have no loyalty to a specific brand; they will primarily buy products based on margin.

Merchant distributors are a good fit for:

• Higher volume generic drugs
• OTC products
• Markets where speed of stock movement is more important than marketing and promoting a brand

Merchant distributors typically require higher commission amounts, and they are also very strong negotiators. Therefore, if you are a pharmaceutical company looking for the quickest way to enter a market, as opposed to spending time on building a strong brand, a merchant distributor will help you achieve results quickly.

4. C&F Agents (Carrying and Forwarding Agents)

C&F agents are a distribution partner that do not get enough credit to operate successfully. Without C&F Agents to support a manufacturer’s logistics operation, the entire supply chain of pharmaceutical products would collapse.

C&F Agents do not own the medications; they are not buying and reselling products for profit. They operate as the manufacturer’s logistics support, receiving large quantities of products from the factory, storing the products in an appropriate warehouse, and then shipping the products to various distributors/stores in their region, based on the instructions given to them by the manufacturer.

C&F Agents and Pharma Brokers are fundamental for:

• Items needing to be maintained at a certain temperature(e.g. injectable medications, biologics).
• Medicines that have considerable rates of production requiring to be transported by air or freight to regional warehouse facilities.
• Companies who have distribution in multiple states and do not own any warehouse facilities.

C&F agents are compensated on a per-dispatched product basis; therefore their income is predictable and their operation run like businesses. If you ever had the question “how do the medicines produced in Himachal reach to stock folders in Kerala within days?” – the C&F agent is likely the answer.

5. Pharmaceuticals Brokers

Pharmaceutical Brokers connect buyers and sellers without having involved with the physical moving of the products; therefore there is no need for a warehouse or to hold products in stock. Rather, Brokers focus on their network of contacts and negotiation capabilities to connect buyers and sellers to get paid a commission for connecting those parties.

From the perspective of Pharmaceutical Brokers, Brokers typically utilise their services for the following:

• Movement of excess and slow moving pharmaceutical products.
• Clearing out products that are seasonal(e.g. antihistamines, antacids, and cold medicines) from the wholesaler’s warehouse.
• Finding buyers for niche products(e.g. eye drops, ear drops, and pediatric formulations) with limited sales volume.

Pharmaceutical Brokers operate independently; therefore they typically understand both side of a market place extensively. Their primary contribution to meet both buyers and sellers is through the established relationships they have created over time.

Strategy-Based Classification: How Pharma Companies Think About Distribution

Below are something that most guides miss. Here is the complete information for the pharma distributors. Pharma distributors are not just classified by who they are, but also by how they distribute. It is the strategy chosen by the company that shapes entire market positioning.

Pharma companies make many poor business decisions, especially when choosing the wrong distribution strategy. For example, distributing a specialty oncology drug through intensive distribution channels would be inappropriate. Conversely, by not distributing a common paracetamol product through intensive distribution channels, you could be missing out on making money.

Licensing: The Non-Negotiable Side of Pharma Distribution

There is one thing that everyone in pharma distribution cannot afford to ignore; you cannot legally distribute medicines in India without the appropriate license.

Every part of pharma distribution in India is governed by the Drugs and Cosmetics Act; 1940. If you do not comply with the Drugs & Cosmetics Act, you could incur both a fine and/or face criminal charges and have your business shut down.

The rule of thumb for purchasing pharmaceutical medicines and distributing them to other companies, pharmacies, hospitals, and so on is that businesses selling bulk (wholesale) must have a valid wholesaler drug license. There are no exceptions to this rule.

Single user PCD pharmaceutical distributors can operate with a retail drug license, which depends on state regulations and various factors surrounding how they conduct their business. Check with your drug regulatory consultant (a registered drug regulatory consultant) for more information if you’re unsure about how to start.

Why Pharma Distribution Offer Best Business Opportunities in India?

Reasons why pharma distribution may be one of the best business opportunities currently available in India:

1) The average pharma retailer’s margin on all branded (manufactured) medicines is 16%-22%.

2) The average gross margin of the sale of generic medicines is approximately 20%-50%.

3) The average gross margin of the sale of herbal or Ayurvedic medicines is greater than either of the above.

4) There are over 3,000 pharma companies and 10,000+ manufacturing units in India, and all are looking to establish partnerships with distributors.

5) The PCD Franchise Model has allowed for tremendous access to this market without having a factory (or research laboratory) or crores to invest. In order to gain access to this market one must find a good company to partner with and have a valid drug license. When you secure both of these resources, you must then begin to build a distributor-based network throughout your designated territory.

And, it couldn’t be a more opportunistic moment with the increasing investments in healthcare by India and government initiatives to promote generic medicines through schemes like Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP), increasing year over year demand for pharmaceuticals throughout all levels of supply chain.

Conclusion

The pharmaceutical distribution system in India is more than just a supply chain. It provides life saving medicine to every person at the lowest price; it is one of those invisible life systems that connects patients that require pharmaceuticals with manufacturers that develop them.

Each and every type of distributor and wholesaler plays a part within our supply chain, from a small single entity PCD franchisee operating from small town in Uttar Pradesh, to a large multi-entity wholesaler that manages a statewide network out of Maharashtra. Each and every entity has defined role, defined market to service, and defined contribution.

Understanding these distinctions, will help you not only satisfy your curiosity but give you real competitive advantage when you are sourcing your go to market strategy as either a manufacturer, evaluating a franchise as an investor, or starting your first distribution business from ground up.

The pharmaceutical industry will continue to grow. Where do you fit within this industry?

Frequently Asked Questions for Distributors and Wholesalers in Pharma Sector:

Q1. What are the types of distributors and wholesalers for the pharmaceutical sector?

Ans. There are basically six different kinds of wholesale or pharmaceutical distributors in the Indian Pharma distribution sector. They can be divided as follows:

• Single-party PCD pharma distributors
• Multiple-party wholesale distributors
• Producer distributors
• Merchant distributors
• C&F agents
• Pharma brokers

Each of these types of distributors serves a unique purpose based on scale, area and function within the supply chain of pharmaceuticals.

Q.2. What are the differences between distributors and wholesalers?

Ans. A pharma distributor has a direct, exclusive, contractual, promotional relationship with the manufacturer, as well as a direct relationship with the manufacturer that allows him to promote that manufacturer’s products within a specified area. On the contrary, a wholesaler buys medicine in bulk and primarily sells it to retailers or chemists, but generally does not concern himself/herself with building the manufacturer’s brand.

Q3. Does every pharma distributor in India require a wholesale drug license?

Ans. Not every pharma distributor in India is required to obtain a wholesale drug license. For example, a small single party PCD distributor may operate under a retail license. However, if a distributor sells pharmaceuticals in bulk to other pharmacies or if they are a large stockist who handles bulk quantities of drugs, they must obtain a wholesale drug license in accordance with the Drugs and Cosmetics Act of 1940.

Q4. What is a PCD franchise distributor?

Ans. A PCD franchise distributor is a distributor who has been granted the right by a pharmaceutical company to market its drug products in a specified territory (sometimes with exclusive rights). In return, the PCD distributor receives marketing support, monopoly rights within their assigned territory, and product samples, and is responsible for purchasing stock from the company and driving local sales.

Q5. Does a C&F agent in the pharma supply chain play an important role? If yes, then, what is the role of a C&F agent in the pharma supply chain?

A C&F agent, who is known as a Carrying and Forwarding agent manages warehousing regionally, dispatches medicines on behalf of the manufacturers to various distributors in the region. The C&F agent are to a degree like an employee of the manufacturer. They do not own the stock – rather they earn a pre-defined commission based on how they manage the storage of the stock and the timeliness in which the stock is dispatched.

Q6. I want to know which type of pharma distributor offers the highest profit margin in the pharma industry?

The highest per-unit margins are found among small-scale (or single-party) PCD franchise distributors. These distributors purchase stock from manufacturers, operate in a protected territory, and sell their products to local chemists or doctors. As a result, they have a very low cost structure and high margins.

Q7. I want to start a pharma distribution business with low investment as a first time entrepreneur. Can I do so?

Yes. The entry into a pharmaceutical distribution business using the PCD Pharma franchise model is designed for entrepreneurs with a low initial investment. A single-party distributor may need a small capital investment to acquire their stock and promotional materials from the manufacturer and slowly build their businesses in their assigned territories.

Q8. How can I understand the difference between exclusive and intensive pharma distribution?

Exclusive distributors carry one brand of product in one territory and there will never be another distributor from that company selling that product within that territory. A distributor that distributes a number of brands in an unlimited geographic area would be an example of an Intensive distributor. An example would be a retail Pharmacy who distributes products exclusively.