Retail pharmacy chain Goodlife Pharmacy is the biggest of its kind in East Africa, with over 70 outlets in Kenya and Uganda. During a recent conference hosted by the African Private Equity and Venture Capital Association, CEO Amaan Khalfan described the pharmaceutical retail industry in which Goodlife operates and highlighted some of the chain’s growth strategies.

The founding of Goodlife Pharmacy

In 2012, public health specialist Joshua Ruxin teamed up with investor Jeffrey McCormick to explore opportunities to invest in Africa’s health sector, in particular, a regional retail pharmacy chain. The duo soon brought in David Zapol – who had been leading the health practice at a global consulting firm – and formally launched Goodlife Pharmacy in 2014. The three co-founders used their personal funds, tapped into a few other private investors, and obtained an equity investment from regional private equity firm Catalyst Principal Partners.

Goodlife wanted to get into the Kenyan market quickly. Since building new stores and the necessary corporate infrastructure would be time consuming and capital intensive, the company focused instead on acquisitions. It secured the four-store Mimosa Pharmacy chain and built on the goodwill and relationships that Mimosa had created in the industry. Goodlife leveraged these shopping mall locations to gain an instant presence in the market.

In 2016, Catalyst sold its stake to another private equity fund manager, LeapFrog Investments, which has played an instrumental role in driving the company’s growth, both through its capital and expertise.

East Africa’s pharmaceutical industry

The East African pharmaceutical retail industry is highly fragmented and mostly informal. Of the thousands of pharmacies, less than 10% belong to an organised group. These stand-alone mom-and-pop outlets typically stock a narrow range of products, often of poor quality and sometimes past their expiry date. According to Khalfan, millions of people in East Africa still don’t have easy access to quality healthcare products.

Kenya’s pharmaceutical manufacturing industry is one of the more developed in Africa, although production costs are high because of steep utility outlays and other infrastructure constraints. While Goodlife buys from these local manufacturers, it continues to import a substantial volume of products. Khalfan adds that the production of high-quality pharmaceutical products is rising in Kenya. Over time, this will allow the company to reduce its imports.

Growth initiatives

Goodlife has implemented several initiatives to grow its store footprint and profitability. In the past three years, its store count has expanded four-fold and over 90% of these outlets are profitable. Owing to its greater scale, the chain has also been able to negotiate better prices with its suppliers.

Store segmentation

Part of Goodlife’s strategy is to target different socio-economic groups and it has divided its stores into four distinct formats, each aimed at a segment of the population:

• Flagship stores: Targeting middle- to high-income consumers; located in higher-end shopping malls
• Classic stores: Targeting lower-middle-income to middle-income consumers; located in strip malls and other stand-alone buildings
• Neighbourhood stores: Targeting low-income to lower-middle income consumers; small, no-frills outlets located at fuel stations and bus stops
• Express stores: A new offering targeted at low-income customers

“The reason we set up these different types of locations and formats is so that we could easily target the different groups with which we are dealing, with the types of products they need,” Khalfan reveals.

Better inventory management through technology

Private equity firm Leapfrog’s capital injection enabled Goodlife to implement IT systems that consolidated data from all its stores. “This centralised IT system provided better data so we could make decisions much quicker … We are able to see, at the touch of a button, each of the 70 stores. We can currently make a call on what stock to move from one store to another within seconds,” Khalfan explains.

More cost-efficient store roll-out

In recent years, Goodlife has been able to reduce the capex spending on its new stores by over 50%. By using tools introduced by its private equity partner, Goodlife has also improved in terms of site selection. The time it takes for a store to break even has been reduced from over a year to less than five months.

For its neighbourhood format outlets, it introduced a prefabricated store concept. This model offers a four-week build and installation period for new stores based on a simple design, compared to an eight to 12-week period in a standard greenfield model. A major benefit of this approach is that the chain can close or shift a store quickly and at a relatively low cost if it is performing poorly.

Becoming a health hub

Part of the company’s original vision was to become a ‘health hub’. It recognised that pharmacies are the first point of contact for many Kenyans seeking care and that offering select healthcare services would be a key differentiator in the market. In 2018, Goodlife began to build these services into its business model by developing partnerships with healthcare providers that had relevant services and expertise. Goodlife would offer the physical infrastructure; a private space within its pharmacies for the providers to deliver services.

E-commerce expansion

Goodlife has launched an e-commerce offering and accepts prescriptions online. This channel has seen a significant boost in sales as a result of Covid-19. “We realised many customers were staying at home, so we launched a delivery programme … through our e-pharmacy platform. We worked really fast to get most of our products on a system where consumers could order online and receive the delivery within two hours.”

Challenges

Khalfan highlighted several hurdles facing pharmacies in the region.

Regulatory delays

Approval processes for new pharmacies often take long, which leads to stores opening later than desired.

Uneven playing field

Within the East African pharmaceutical industry, there are unscrupulous players selling substandard products at lower prices. Some suppliers also import products through non-traditional channels to avoid duties and taxes. It is often difficult for those companies operating within the regulatory frameworks and paying their taxes to compete with these operators.

Stock theft

The pilferage of stock from retail outlets is also a major challenge in East Africa. However, according to Khalfan, Goodlife has implemented systems to significantly reduce stock losses. “We’ve been able to bring down our stock losses to less than 1%, which in the retail business is quite admirable.”

Looking ahead

Despite its strong growth in recent years, Goodlife currently has only 1% of the retail pharmacy market in Kenya and intends to increase its outlets to 250 in the coming years.

Khalfan says its growth prospects are buoyed by:

• The large populations in Kenya and Uganda (about 50 million and 42 million respectively)
• Strong economic growth in these countries (Kenya’s GDP grew by 5.4% in 2019 while Uganda’s expanded by 8%)
• Rapid urbanisation
• Rising incidences of non-communicable diseases
• A general desire for improved healthcare among the population.

Some of the information in this article is from an IFC case study on Goodlife Pharmacy.