This article first appeared in Corporate, The Edge Malaysia Weekly, on July 4 - 10, 2016.

UNDETERRED by the challenging retail scene and weak consumer confidence, RedCap Pharmacy Sdn Bhd, a new retail pharmacy chain, is eyeing continued expansion. It plans to open four or five new stores a month, which will help grow sales by 50% to 60% per year for the next three years.  RedCap’s store count in Malaysia is expected to be over 50  by end-September and to reach 70 by year end.

With the openings, RedCap is expected to emerge as one of the country's largest retail pharmacy chains after Guardian, Caring Pharmacy, Cosway and Watsons. The chain already has 36 RedCap stores in the country to date. It made its entry through the acquisition of D'Apotic Pharmacy — the largest independent retail pharmacy operator in Johor Baru with 14 stores — in April last year.

Still, competition in the retail pharmacy market is expected to heat up as new formats are introduced and new brands emerge. Last year, Hong Kong pharmaceutical and medical devices distributor Zuellig Pharma Group made its entry into the local market via the purchase of My Pharmacy (M) Sdn Bhd, which operates 15 stores. 

The year also saw the debut of US-based Symbion International LCC, which opened a warehouse-concept community pharmacy called The 

Super Pharmacy Megastore and MEDICO clinic here.

In March this year, Berjaya Corp Bhd entered into a joint venture with an Australian firm to operate a chain of pharmacies under the co-brand name of Chemist Warehouse Berjaya Asia or My Chemist. It also appears that Walgreens Boots Alliance plans to introduce the Boots brand into the country.

The growth of the local retail pharmacy industry comes amid weaker forecasts by Retail Group Malaysia (RGM) for all retail sub-sectors this year. RGM, which tabulates retail growth data, has revised its growth projection for 2016 to 3.5% from 4% previously. Further, the retail report shows sales in the fourth quarter of 2015 (4Q2015) in the pharmacy and personal care segment contracted 0.5% and in 1Q2016, it had dipped 7.2% compared with the same period a year ago.

Nevertheless, RedCap is sticking with its expansion plans. “We want to grow to 300 stores in three to five years,” CEO and managing director Ian Cruddas tells The Edge in an interview. He says it plans to be the No 1 community pharmacy chain in Malaysia in five years. 

Cruddas says the company's expansion will follow a two-pronged strategy — by acquisition of outlets or a small chain and through organic market penetration.

“[The retail] pharmacy business in general is more recession-proof than other businesses,” Crudass says, adding that RedCap’s target customers are not those who make discretionary purchases. “We are not a lifestyle store. We have limited beauty items and are very clearly positioned to be in health. RedCap is a serious pharmacy.”

According to Cruddas, the average cost to open a RedCap pharmacy, including stock and fit-out, is between RM500,000 and RM600,000. The store, typically measuring 1,400 sq ft, dedicates 30% to 40% of its space to consultation. This distinguishes RedCap from many other retail pharmacies where the pharmacist is not easily visible and the dispensary counter is tucked at the back of the store in a small area.

Cruddas also says RedCap plans to open stores in shoplots rather than in shopping centres.

"As a strategy, we are going to stay on the street, certainly for the next two or three years or until we have dominated the street. We are a need business. Most people do not go to a pharmacy unless there is something specifically wrong with them or there is something they want to ask someone about," he says.

RedCap’s aggressive expansion is supported by Malaysian private equity firm Creador, which has invested RM100 million in RedCap, including the purchase of D’Apotic Pharmacy.

A search with the Companies Commission of Malaysia (SSM) shows that RedCap Pharmacy is owned by Iris Pallida Sdn Bhd (90.16%), Rohana Yusof (2.95%), Mailvagannam S Kannusamy (3.93%) and Romalita Ramli (2.95%). Iris Pallida is 51% owned by Brahmal Vasudevan, founder and CEO of Creador, and 49% by Iris Pallida Ltd. Creador’s other consumer brand investments in Malaysia include OldTown Bhd, Bonia Corp Bhd and GHL Systems Bhd.

RedCap’s confidence in its ability to grow rapidly also stems from its people. “It is all about the people. It is about having a team who is sharper, bigger and quicker. We have hired people who have a wealth of experience. This enables them to hit the ground running,” Cruddas says.

According to Cruddas,"We are growing (through expansion) and even in like-for-like sales.” He indicates that same-store sales growth is above the inflation rate. “Even when the day-by-day fasting month this year is compared with the fasting month last year, business has grown.”

In the financial year ended Sept 30, 2015, D’Apotic Pharmacy, which then had 14 stores, recorded RM65 million in sales. In FY2016, it projects to hit RM100 million in sales. Currently, 25% of sales revenue comes from the dispensary while the remaining revenue contribution is from over-the-counter medication, personal care, health supplements and rehabilitation equipment such as wheelchairs and hospital beds.

Future plans may include larger stores that expand to two to three shoplots, longer trading hours, possibly around-the-clock at some locations, and the use of mobile applications.

RedCap’s stronghold is now in Johor and the Klang Valley. It plans to expand into Negeri Sembilan and Melaka next. Cruddas is of the view that in order to be a truly national company, it would need to cover the entire country.

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