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F E A T U R E S T O R Y
Indonesia is finally starting to generate its market potential and Zuellig Pharma
is ready to maximize the fresh opportunities for healthcare distribution in the
fast-growing provinces to boost services for principals and consumers
By Steve Cullen, Vice President, Healthcare Service Innovations Division ■ [email protected]
Indonesia is the world’s fourth
most populous nation whose
economy for many years was
long on promise and short
on delivery. However, having
slowly but steadily recovered
from the drastic political and
economic upheavals of 1998
and the Asian crisis, Indonesia
is now Southeast Asia’s biggest
economy, sixteenth in the world,
and has in the past three to four
years finally begun to realize
some of its huge potential.
Many industries have been
enjoying rapid growth, notably
coal, palm oil, steel, automobiles,
construction, hospitality and, to a
lesser extent, healthcare. In recent
years, producers of televisions,
motorcycles and cars – as well as
supporting industries such as tires
and batteries – have significantly
increased capacity to satisfy
extraordinary rises in demand.
Some major pharmaceutical
manufacturers have also been
increasing capacity.
There has been dramatic
growth in telecommunications,
retail (especially large
shopping malls), hotels, air
travel, financial services and
the beginnings of a notable rise in the number of hospitals. Consequently,
Indonesia has become a high-priority target for direct foreign investment. This
year to date, economic growth is running at 6.5%, with inflation at 5.7% and,
for 2012, the government is projecting growth of 6.7% and inflation at 5.3%.
Underdeveloped infrastructure is already hindering growth in some industry
sectors as railways, ports and, in particular, roads are currently woefully
inadequate. In parts of the country, the electricity supply is also falling behind
demand. Unless these fundamental issues are given urgent attention and high
priority, they could ultimately
strangle Indonesia’s growth
as power cuts and traffic jams
damage the nation’s productivity.
However, the government
has recognized these serious
shortcomings and the budgeted
growth for 2012 will be
largely driven by planned
expenditure on improving the
level of infrastructure as well as
improving the investment climate.
One of the features of recent
economic growth is the pattern
of distribution of that growth
in the different provinces of the
country. The capital city Jakarta
in particular and the island of
Java in general have for many
years been the drivers of national
economic growth, being the
political, commercial and wealth
centers of the economy.
Government decentralization
has increased the flow of funds
to provinces that were previously
being left behind, often in spite
of the fact that some of those
provinces were key sources of
the nation’s wealth, such as coal,
oil and gas, timber and palm oil.
Now these provinces are finally
starting to benefit from having
a greater share of government funds and this is being reflected in comparative
growth figures.
This trend is expected to continue as there will be greater development in the
regions outside Java from the 4,000 trillion rupiah (US$460 billion) Master Plan
for the Acceleration and Expansion of Indonesian Economic Development. Part
of this plan is focused on the creation of economic corridors across the nation,
spanning industries from agriculture to telecommunications, much of which
will be outside Jakarta and Java.
Growth for healthcare in the provinces
The consequence for the healthcare sector is that growth will continue to be
higher in the provinces as consumer purchasing power increases in those
regions at a rate greater than in the major cities. In turn this will require greater
attention to the provinces for achieving the desired availability of medicines and,
in the case of consumer health products, more visibility.
“Project Reach”
In recognition of these trends, PT Anugerah Pharmindo Lestari (APL), Zuellig
Pharma’s distribution company in Indonesia, has initiated Project Reach.
The objectives are to examine the macro-economic issues and their impact
on healthcare market dynamics, with particular reference to how and where
consumers are purchasing their medicines and other healthcare products.
With this analysis, APL can examine how these factors affect the way
the company does business, in particular how it can “reach” the relevant
outlets – especially in rapidly growing areas in more remote places – to the
satisfaction of consumers in those regions and the principals APL serves. This
in turn will support APL’s aim to consolidate and improve its position in the
healthcare distribution industry as the market leader and preferred partner for
manufacturers of pharmaceuticals and consumer health products.
Major regions of Indonesia
Project Reach objectives
ƒƒ Increased reach to outlets beyond the main primary and secondary cities
in Indonesia
ƒƒ Expanded numeric distribution
ƒƒ Growth in transaction frequency and value with retail pharmacies and
drug stores
ƒƒ Increase in organic sales growth
ƒƒ Improved service to outlets, especially retail pharmacies and drug stores
ƒƒ Reduction of purchases from wholesalers/traders by pharmacies and drug
stores. This will:
–– Save principals’ spending on discounts
–– Greatly improve market intelligence provided by APL to principals, with
more direct-to-retail transactions and less to untraceable wholesaler
trading
ƒƒ Enhanced penetration and customer contact which will enable APL to
advise principals on developing growth areas where they might consider
deploying their own sales teams or medical representatives
Comparative regional growth
Source: Indonesian Government Statistics
Java
4.4%
Sulawesi
4.7%
Sumatra
7.7%
Bali/Lombok
9.4%
Kalimantan
9.4%
Nusa Tenggara Timur
10.1%
0
5%
Annual growth by region
10%
Since mid-2009, APL has been rolling out an appointed regional sub-distributor
strategy aimed at increasing penetration of the general trade, that is non-medical
retailers including provision stores, for its consumer health portfolio. Apart from
generating a much higher number of general trade retail outlets for its OTC/
consumer health products, this strategy has enabled APL to consider how best it
can improve its standing in the traditional, core channels for its business, namely
the modern retail chains (or modern key accounts) and medical channels,
particularly pharmacies and drug stores.1
Call center services expanded
In parallel with these initiatives, APL has reviewed the role of its call center
which, until recently, was purely for in-bound calls from registered customers
ordering products by telephone. The number of orders APL takes via its call
center has increased substantially in the past two years. It is expected that this
trend will continue, particularly from pharmacies who for a variety of reasons,
including low in-store stock levels, have high service demands in terms of speed
of delivery. In the major cities, for example, it is common for them to expect
three, sometimes even four, deliveries per day.
The call center is being expanded to include tele-sales and tele-marketing
services. A consequence of having this valuable resource is that the call center
can also supplement APL’s efforts to reach out to customers in areas that are less
accessible and make sales calls difficult, infrequent, or unproductive. The call
center is thus a significant element in Project Reach.
Market analysis
A key issue in the early stages of the project has been analysis of the market,
region by region, branch by branch, not only to establish the universe of relevant
retail outlets involved in selling healthcare products but also to view this in the
context of the number of consumers, local GDP, and growth trends. A multidisciplinary team led by Business Unit Manager, Dharmadi Layarda, has been
carrying out this detailed analysis since early 2011.
There is considerable variation in these trends from city to city, even within
one relatively small area. An example is the Malang area in East Java province.
Outlets in Malang area
East Java province – Malang area
Sales source: APL internal data. Population and GDP: Government Statistics Office
Regency/city
Population
GDP
Rp Bio
GDP
% Gr
APL annual sales
Rp Mio
% Gr
Malang
3,246,168
54,453
10.2%
116,090
26.7%
Kediri
1,724,471
67,552
13.1%
23,103
-0.1%
Tulung Agung
992,048
14,563
12.2%
10,095
-0.5%
Blitar
1,203,854
12,437
11.0%
5,745
29.3%
Nganjuk
1,002,530
9,319
11.0%
2,976
38.4%
Trenggalek
675,765
3,889
12.3%
943
15.8%
Batu
189,604
2,656
13.0%
6,285
-2.7%
Total
9,034,440
164,869
11.7%
165,236
19.1%
Pharmacies
Hospitals
1
OTC outlets
(toko obat)
In Indonesia, drug stores, or toko obat, are shops that sell medicines but are not licensed to sell products that require a doctor’s prescription.
419
54
398
The city of Malang is not well known outside Indonesia yet it has a
population of over 3.2 million. Even the fourth largest city in that area of East
Java, Nganjuk, has a population of over one million and there are two further
cities with over 0.5 million.
As Malang is regarded as a major city and it is approximately two hours away
by road from Surabaya, the capital city of East Java province, APL has already
had a branch there for many years. However, even with this branch, APL is
realistically only able to guarantee same-day delivery for pharmacies within the
city boundaries of Malang and not other surrounding cities and towns.
Other interesting aspects of this example are the city of Kediri has a higher
GDP than the largest city in the area and that all these cities are experiencing
double-digit growth. Such strong local growth is having an impact on local trade
which, in turn, affects the local retail landscape.
Happily, APL’s sales were even higher than overall growth in the area, but
there is nevertheless significant variation from city to city. Understanding the
underlying causes of such variations and keeping pace with the changes in the
retail landscape are vitally important to APL and to its principals. Other major
elements of Project Reach are therefore to:
• Validate APL’s current customer database and to ensure that this information
is at all times accurate and up to date; and
• Examine sales territories and how to optimize territory mapping and
subsequent changes to territories to capture the changes in market dynamics
at local levels.
The exercise also included benchmarking APL’s access to market, branch
locations, outlet coverage and delivery capabilities against all its major competitors.
This has already been accomplished for 19 of APL’s 28 branches with the remaining
nine to be completed by the end of 2011.
In the Malang area, the company was able to verify that APL coverage is
100% of pharmacy, hospital and drug store outlets. However, we discovered that
the distribution of sales people between the main APL branch in Malang and
sales stations in cities outside Malang could be adjusted to enhance sales force
effectiveness and overall productivity through improved access to outlets and
call frequencies.
In the sprawling area around Medan in North Sumatra, the results were
significantly different.
Given the developing economies in peripheral cities, APL sees an opportunity
to improve outlet coverage and productivity by re-configuring the North Sumatra
sales force. This would mean a small reduction in sales people in Medan city,
with more assigned to sales stations in peripheral cities. This conclusion was
reinforced by findings from outlet analyses.
These showed that outside Medan there were over 100 pharmacies that, for
a variety of reasons, were not routinely purchasing from APL, along with over
70 hospitals and 449 toko obat. In areas such as Medan, additional coverage can
be given through redeployment of existing sales teams to optimize customer
contacts and maximize sales. However, in other locations there will be a need to
expand sales teams.
The final pieces in the jigsaw of this strategy are to align sales force
activities with other initiatives being introduced by APL. One such initiative
is the addition of tele-sales and tele-marketing services through the call
center, as previously noted. This will enable supplementary calls on top of
sales visits and therefore increase customer contact and generate more sales
direct from APL.
Some outlets in remote places frequently purchase from APL but also often
“top-up” by buying from local wholesalers/traders. By increasing the use of the
call center for taking orders, sales teams’ time in stores can be used to engage in
more “demand creation” activities to support principals’ trade marketing and
merchandising efforts and in-store programs. Tying in outlets to APL’s newly
launched loyalty program will further drive direct purchases as well as improve
the timing of collections.
In 2012, APL will implement the changes in sales force deployment and in
some associated operations such as collections and call center tele-sales and
intends to closely monitor the rapid changes taking place in peripheral cities and
rural areas with the emergence of a middle-class consumer base as a result of
economic development. It appears exciting times lie ahead.
Outlets in Medan area
North Sumatra province – Medan area
Sales source: APL internal data. Population and GDP: Government Statistics Office
Regency/city
Population
GDP
Rp Bio
GDP
% Gr
APL annual sales
Rp Mio
% Gr
Medan
2,121,053
72,667
11.3%
323,584
22.9%
Deli Serdang
1,788,351
34,172
13.5%
5,666
61.7%
Langkat
1,057,768
14,787
11.7%
1.876
-12.6%
Labuhan Batu
1,049,766
18,416
10.6%
6,231
-6.4%
Simalungun
859,879
9.222
9.6%
in other area
-
Nias
718,235
6,295
14.0%
1,099
33.4%
All other cities
5,653,334
80,062
Total
13,248,386
235,621
Pharmacies
718
Hospitals
105
OTC outlets
(toko obat)
11.4%
373,361
19.5%
870