The Perfect Prescription

By Shreyasi Singh

Photograph by Subhojit Paul

Ashutosh Garg, founder and CEO of Guardian Lifecare, about his start-up days. "It was the biggest adjustment I had to make." Few people can pull off a statement like that without sounding overbearingly arrogant. But, it's easy to see Garg is just being honest.

"I didn't know if I'd be able to fly economy again. I hadn't done it for so long," says Ashutosh Garg, founder and CEO of Guardian Lifecare, about his start-up days. "It was the biggest adjustment I had to make." Few people can pull off a statement like that without sounding overbearingly arrogant. But, it's easy to see Garg is just being honest.

Over 25 year of an extremely successful corporate career with blue-chips like ITC Limited and Hughes Network Systems, Garg had gotten used to the trappings of a top executive's life – luxuries like platinum frequent flyer cards and suite upgrades at the world's best hotels were privileges he took for granted.

But, after he quit corporate life in 2003, and founded Guardian, a retail chain of pharmacy, health and wellness stores, he had to give up more than just enviable travel comforts. Disbelief, ridicule and mild amusement accompanied him as friends and former colleagues wondered why somebody like him would want to become a "chemist wallah." "There was I, at the age of 46, risking my life savings and my professional reputation," says Garg, with his trademark honesty.

It didn't help that his first pharmacy—a 250 sq. ft. corner shop tucked inside Galleria market in Gurgaon—was minutes away from his residence, and neighbours often spotted him "sweeping the floor and fiddling with bottles on the shelves". "For the first three months, I ran the store myself. I stood behind the counter, opened the lock in the morning, shut it at night," he recalls, adding he'll never forget his first sale of Rs 30. "It was a lady. She bought a strip of Crocin from us."

The slumming-it-out has certainly been worth it. In less than eight years, Garg has grown Guardian into one of India's fastest-growing pharmacy chains with a network of 230-plus stores across 26 cities and seven states, 7.5 million customers annually, and a top line that recently breached Rs 170 crore. Up ahead are ambitious plans—of adding up to 200 hundred stores in the next two year, and becoming an Rs 300-crore company by April 2013. "That should be a good time for us to go public," he says.

Splitting the pill open
Garg has clearly perfected the art of reinvention, moving from hotels to financial services to space and satellite in his working life. So, it isn't surprising that he has nurtured Guardian to such good health.

But, for somebody who cut his managerial teeth at ITC's famous hotel divisions, and set up the conglomerate's first international subsidiary in Singapore—becoming its youngest managing director at just 35 years—the somewhat unglamorous, small-ticket game of selling medicines seems to be an unlikely business to be hooked on to.

When Garg quit Hughes Network Systems on April 1, 2003—mainly, because, he and his wife, Vera, didn't want to leave India to take up a new role at the company's US headquarters—there was no super business plan ready to be put into action. "I just wanted to be my own boss. Overtime, I had honed a set of skills building businesses. Nothing special really, just people management and common sense," says the avid reader modestly.

A few months before putting in his papers, he had pitched in with some money to help a cardiologist friend set up a small hospital in Gurgaon called Umkal. It was here that the brisk turnover and daily cash flow of the pharmacy trade had caught his eye.

"I found out pharmacies in India handled revenues in excess of Rs 95,000 crore. And, it was highly fragmented." A firm believer in what he calls global conventional wisdom, Garg knew organised retail in pharmacy was an idea whose time had come in India. "Some of the biggest retail players in the world are pharmacy chains," he reasons, pointing to giants like CVS, Boots, and Walgreens.

There is, of course, no doubting that diagnosis. A Technopak Advisors report says pharmacies are a $6 billion market in India, with 800,000 plus chemist stores across the country. Fortified with this knowledge, Garg set to work, scouting for locations, tying up with stockists and putting together the beginnings of a brand. He split his savings, keeping aside "drop-dead" money for his family, and taking out an Rs 5-crore chunk to build the business.

Having built global operations, Garg knew there had to be something in his service that would attract the moth to the flame. Right from the very first store in Gurgaon, which notched up sales upwards of Rs 5,000 daily from the word go, he took care to differentiate his brand from others, moving away from the clutter and chaos of the normal chemist shop to a neatly arranged, well-lit and cheerful space that promised to take away the gloom of buying medicines. Another critical differentiator of his stores was an in-store pharmacist and a 100 per cent reliability guarantee. "That assurance really helped the brand. A qualified pharmacist is still our biggest differentiator," says Gautam Gupta, Vice President, Marketing.

Within the first year, Garg expanded to stores in gated communities like South City and Laburnum, also in Gurgaon. He experimented vigorously with different formats and locations over the next couple of years, opening up two stores inside Crossroads, a supermarket, inside IBM Daksh, a BPO, and even at fuel stations. The result was a healthy Rs 7 crore turnover by March 2005.

"My property agency tells me I have become a sniffer dog," laughs Tariq Ali, who has led Guardian's expansion into the above locations for nearly five years now. But, this has been a hard-earned talent. "We have closed nearly 30 stores," Garg confesses.

Location wasn't the only challenge he met with. Like most retailers, setting up a working supply chain was, and continues to be, an acutely painful area. Each store is stocked with 7,000-plus active store keeping units, or SKUs, and managing that movement is an almost unending anxiety.

In fact, their foray into rural and semi urban centres with Aushadhi, a second vertical, had to be rolled back after the first three stores because of these challenges. "We couldn't service these stores because of their distance from our distribution centres," says Garg.

Closures are expensive because store expansion is a money-guzzler. Each store takes at least ten months to break even, and costs approximately Rs 25 lakh to set up. Garg tossed more money into the pot, taking his own investment; put together with help from friends, family and angel investors to Rs 12 crore. By the end of 2006, his retail network had spread to 40 pharmacies. In March 2007, Guardian closed its books with Rs 40 crore in turnover.

Still, the road ahead seemed uncertain. Between 2004 and 2006, a number of retail biggies like Subiksha, Spencer's and Reliance Wellness were bullish about their foray into the pharmacy space. Reliance Wellness wanted to launch 1,000 plus stores. People were sceptical about Guardian's ability to survive the onslaught. "There were rumours I was broke, that I couldn't pay my distributors. I'd hear that I'd run away," recalls Garg bemusedly. The story, however, turned the other way. Reliance Wellness and Subhiksha shut down, and Spencer pharmacies never really got off the ground.

The head of retail operations at Guardian, Himanshu Goel, who has worked with Apollo Pharmacy, Medicine Shoppe and Reliance Wellness before, isn't surprised that Garg succeeded where big money went down the pit. "The pharmacy business model is such that it can be run well by entrepreneurs. The business is capital intensive and one needs to be aware of the minute operational details. There is active involvement required."

Along with other players like Apollo Healthcare and Religare, Guardian has, in fact, contributed to enlarging the pie for organised retail in pharmaceuticals. But even then the number, 2000 stores all put together, is a miniscule three per cent of the total medicine sales, says Nitin Bidikar, Associate Director of Markets, at KPMG. "It's a really nascent market," adds Bidikar.

But, the opportunities lie in the tremendous possibilities. The pharmacy retail market grew around 18 per cent per annum over the last few years. "Out of this, the organized retail pharmacy market has been growing at an average of 25 per cent. And over the next 10 years, it is expected to grow 35 to 40 per cent," says Bidikar.

A nutritious growth
Although Garg is proud of the fact that his chain has "never had a quarter that was less than the previous one", Guardian began hitting real developmental milestones only after 2007. Two crucial things played a catalyst to this growth. Garg opened the brand's first hospital pharmacy in Banaras Hindu University, which has today flourished into a massive 7,000-square-foot store with 16 check-out counters that serve more than 2,000 customers every day.

In 2008, Guardian also raised Rs 60 crore from Samara Capital, a private equity firm to fund expansion. This was a critical inflection point and the "crossing the hump" helped evolve a new prescription for the future. "Since then, the question in people's mind has changed from will Guardian survive, to how fast it will grow, or how big it can be," adds Garg.

The mission is to now hit the big road and become a brand as successful as Boots, the giant UK-based wellness chain. Such lofty ambitions might sound overtly ambitious, but Garg is charged up.

Over the last two years, he has toiled harder, and smarter, to get closer there. The hospital pharmacy business has been a real booster shot. Guardian today runs 47 hospital stores, including a spanking new pharmacy at Naresh Trehan's Medanta Medicity. Up to 55 per cent of the company's turnover and bottom line comes from hospital outlets.

"That's been a smart move. It guarantees them volume and a captive customer base," says Purnendu Kumar, Vice President, Retail & Consumer Goods, Technopak Advisors.

For retail customers, Guardian innovated with various loyalty schemes like an advantage card that entitled customers to discounts, free medical camps and features like a prescription reminder order, where the in-store pharmacist called them to order their regular medicines in advance. In July, last year, the advantage card was christened XtraValue Card, and now has over 350,000 members.

"Over half our business comes from the loyalty cards," claims Goel. "Every other pharmacy chain treats the patient as a customer. We treat the customers as a patient first," adds he. Guardian claims their customer satisfactions ratings surpass 70 per cent. There are no independent verifications to back that number. But if an owner sets the culture, Garg gets full marks for responsiveness. Even on weekends, all emails and phone calls (including mine) are replied to within minutes.

The "sticking factor" to his brand also comes from the fact that Guardian pharmacies double up as wellness stores. Deals with GNC, American's largest selling nutritional supplements brand, and Yves Rocher, a French cosmetics brand, which are solely retailed through its stores, have helped as much to drive up the footfall at the stores, as has the extensive range of products offered under the Guardian label.

As of now, Guardian offers more than 200 products, which have recently been rebranded into six categories—Xtra Value, Xtra Slim, Xtra Protect, Xtra Vital, Xtra Care and Xtra Muscle. The company intends to introduce 50 new products every year under its private label, which takes up most of Garg's time now. "Every new product goes to market only after my sign off."

"It helps us bring in footfall, foster loyalty and increase our margins," adds Gupta, Vice President, Marketing. "No other organised pharmacy chain has such a well-developed range of its own products."

That might well be the fact, says KPMG's Bidikar. "But, there is no competition between organized players right now. The real challenge is still the local, stand alone pharmacy, which builds personal relationships with the customer. They can also pass on discounts because they do not have to make huge business investments."

Garg agrees, adding it's precisely those reasons which make the private label such a compelling need. Nine to 10 per cent of Guardian's total turnover comes from private label sales right now. Guardian wants to take that number to around 15 per cent by March 2012, which will shore up the bottom line. "When we started, pharmacy was a margin business of 16 per cent. We are around 30 per cent, but want to take it to 35 per cent, which will mostly come from the private label," explains Garg. Most organised retail chains in pharma work with a 25 per cent margin, he adds.

The path to wellness
Garg says he regularly tells his people that it takes rare talent to mess up a pharmacy. "Customers won't leave you if they are happy, they are not looking for variety like when they are eating out, or shopping for clothes." Still, the chain faces long odds as it races up the path to 500 stores.

"We've gotten this far on brute strength," explains Garg. In late 2010, he closed a second tranche of Rs 40 crore from Samara Capital. Another round is scheduled sometime in the next 12 months. He wants to open roughly 100 new stores every year, for the next four years. Plus, the company has zero debt, and profitability is on the rise. Over the next two years, his retail stores will give him an EBITDA margin of 10 per cent, claims Garg confidently.

For accelerating the expansion plan, Garg knows he has to travel the franchisee route, a model which had bombed three years ago. Nearly half of the stores planned for the next year are based on this plan. As of now, Guardian has only ten franchises, all in the national capital region. "We just weren't ready to support them then," Garg quickly pitches in before he can be asked why the franchisee model flopped.

"We have been getting a lot of queries about starting franchisee units. We are an attractive proposition. Our brand, products and supplies are in place," says Ali, who manages all such relationships. Ideally, Garg would like the franchisees to take Guardian beyond its current North India focus, and capitalise on their growing presence in centres like Mumbai, Bengaluru, Pune and Chennai.

Technopak's Kumar, however, advises caution there. "Being a primarily North India player has helped them manage supply chain and logistics issues." In any case, all these plans depend on what Garg knows is the "most painful" part about his company's next growth spurt—testing the processes and systems that are currently being established. To reach this goal, Garg is aware he needs best-of-the-breed talent like Goel and Gupta, who comes with several years of experience in firms like Reckitt & Benser and ITC.

But, the wins in this leg of the journey are slow and arduous. "People are uncomfortable when you try and put systems. You have to keep at it till they see results coming from small interventions," explains Gupta.

Moreover, crippling attrition upwards of 7 per cent ails all of Indian retail, says Sonia Sarihan, who heads the company's human resource function. Guardian, with its 1,000-plus employees, isn't insulated from that churn although Sarihan bravely claims they are stable.

Training and acquisition of talent has been a gnawing concern too. "Hiring is ongoing. We have interviews every day," Sarihan says. Most of the hiring is focussed on attracting pharmacology students and trained pharmacists to retain that unique edge.

Unfortunately, attrition isn't limited to the lower rungs. In February, this year, the chief operating officer, Sumeet Khanna, suddenly resigned. Khanna had been with the company for more than four and a half years, and his resignation was painful, Garg admits. "On the positive side, I was amazed at our resilience. He left within days. In spite of such a major change, the management didn't bat an eyelid. We have just carried on," says he.

It's this positivity that his colleagues try and absorbed as part of their daily intake. As Gupta puts it, "We are fire-fighting every day. It's like being in the trenches, dying new deaths and living new lives but he keeps saying, you can't give up, just go on." Whether or not Guardian maintains its robust growth is another matter, but that is certainly the best dose of nutrition a company can hope for.

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