The Government of India’s well-intentioned move to de-monetize currency notes of INR 500 and INR 1000, has been expected to cause near-term business disruptions across sectors. Within pharmaceuticals, this has implications for different stakeholders, ranging from pharmaceutical companies to distribution channel, patients & physicians. In an attempt to understand the effect of the announcement on the drug distribution network, QuintilesIMS conducted a survey across roughly 500+ chemists around the country. The objective was to understand short-term as well as potentially lingering effects of the demonetization move. Key points of investigation ranged from the immediate impact on individual chemist sales & patient footfall to value chain-related aspects such as credit cycles, supply levels, inventory stock levels, etc. as well as measures taken by retailers to manage the effect of the demonetization announcement. This document captures the essence of the study results

1. Demonetization: Impact on Drug Distribution @ Pharmacy
The Government of India’s well-intentioned move to de-monetize currency notes of INR 500 and INR 1000,
has been expected to cause near-term business disruptions across sectors. Within pharmaceuticals, this
has implications for different stakeholders, ranging from pharmaceutical companies to distribution channel,
patients & physicians. QuintilesIMS shared a report on 28th
November on the effect of demonetization @
distributors and stockists.
In an attempt to understand the effect of the announcement on the drug distribution network, QuintilesIMS’
conducted a survey across roughly 500+ chemists around the country. The objective was to understand
short-term as well as potentially lingering effects of the demonetization move. Key points of investigation
ranged from the immediate impact on individual chemist sales & patient footfall to value chain-related
aspects such as credit cycles, supply levels, inventory stock levels, etc. as well as measures taken by
retailers to manage the effect of the demonetization announcement.
This document captures the essence of the study results.
Impact on Chemists
Sales Impact: Overall
As expected, Demonetization has had a downward impact on overall chemist sales. Our team of field
auditors across the country carried out a quick survey where over 60% of all chemists reported a decrease
in month-on-month sales (End Nov vs End Oct). The impact was starker among smaller retailers, as 75%
of these have seen a fall in sales. This may be attributed to a larger share of cash transactions in their
business. Almost 50% large retailers, however, reported limited impact. The extent of sales decline varied,
going as high as 30% in some cases.
In an interesting development, as many as 46% corporate chain outlets saw an increase in sales,
although other outlets such as hospital pharmacies or standalone stores are have reflected decreased
revenues. Further investigation reveals that in general, corporate chains have seen the least pressure
on patient footfall (it actually increased for every third corporate chain outlet) as compared to other chemist
outlets.

2. Also, almost half the number of corporate chain outlets surveyed saw a surge in sales of chronic
therapy drugs (e.g. those targeting hypertension or other blood/heart-related ailments, diabetes,
depression & other neurological disorders). Typically, these drugs are for long-term/lifetime use, and it may
be inferred that offtake temporarily increased due to buyers stocking up on drug supply for future use, with
the available window of opportunity to buy drugs with older currency notes.
The ability of corporate chains to better cope with the after-effects of demonetization may also be a natural
consequence of their ability to offer cashless payment options. This is confirmed through a deeper analysis
carried out using survey results. An overwhelming majority of corporate chain outlets offer the option
of payment using cards, which would put them at a clear advantage in the situation that has emerged
post the demonetization announcement.

3. Geographical trends
It is worth note that patient footfall was most affected in North India (71% chemists reported a decline), with
the least impact seen in the West (29%), and wide variation between them.
This may be attributed to the reluctance of chemists in the North to offer extended credit, or accept old
notes. Only 23% retailers offered extended credit to buyers in North India, as opposed to 40% or more in
the East & West. Almost 50% retailers in the North did not accept old notes. Patients here may have thus
resorted to a drug purchase only when absolutely necessary, in the face of a cash crunch, resulting in a
clearer impact on footfall. Those in the West were particularly proactive on both fronts, and this may have
ensured that patients there were least likely to postpone/forgo discretionary, or “less serious” drug
purchases. This contrast is demonstrated in the exhibits below.

4. Effect on the value chain: credit cycles, supply continuity & inventory stock levels
Credit cycles
Demonetisation has, as expected, affected the credit cycles in the pharmaceutical value chain.
Responses from chemists indicate that some stockists have extended credit cycles to allow retailers to
settle payments, in a bid to protect revenue.
Supply continuity
A majority of retailers have indicated no impact of the demonetization move on stockist supply. This is true
especially in South India, where almost none of the retailers surveyed expressed a supply crunch. However,
North India again represents a contrast; 45% retailers have been experiencing supply issues.

5. Inventory stock levels - Retailers
In line with a largely undisturbed supply pattern, inventory levels of retailers have also not seen a large
impact. 75% retailers in the survey reported unchanged inventory levels.
Summary
In essence, a clear impact of demonetization is seen, specifically on sales, and also to some extent on the
pharmaceutical value chain.
Revenue-related events, such as overall decrease in sales after the demonetisation announcement, or
spurt in some pockets in sales of chronic drugs maybe assumed to be a passing phase, largely driven by
a cash crunch or as a means of dispensing available old notes, which will be restored in the long run.
The positive sales response seen by corporate chains is interesting, and equally intriguing would be the
market’s reaction to it. One key determinant of revenue growth for these chains has been availability of a
cashless payment option. It would be interesting to see if this encourages other retailers to adopt similar
trade practices.
As far as the value chain is concerned, supply patterns & inventory levels have been largely undisturbed.
Credit cycles have been disturbed, but this is also expected to be a transient occurrence; unlikely to last for
a long time.
If a cashless ecosystem is to materialize & sustain itself in the long term, both stakeholders in the
distribution system as well as consumers at the end of it need to first have the need for it, and then get
into the habit of using it. The demonetization move has certainly provided the need, however temporary. It
would now be interesting to see if the positive experience of those using cashless transactions inculcates
a habit, which might then sustain it in the long term.
Overall, the demonetization lever, while triggering a potentially short term sales revenue dip, has kick
started, albeit in a small way, some welcome practices in the direction of a cashless ecosystem. It would
be interesting to see if, within the drug distribution landscape, this vision of a cashless ecosystem
materializes in the wake of the bitter pill of demonetization.