labels: pharmaceuticals
01 January 2000

Retail chains operate on a centralised purchase scheme which gives them more bargaining power compared to individual retailers. When Chennai''s Subiksha group started its operations, it first registered a set of stockists by entering into an agreement with them. The agreement required each stockist to keep a special delivery man and a van available for 24 hours. Further, 60 per cent of the stockist''s margin has to be passed on to the chain. The third condition is a two-month credit on all purchases.

According to a spokesperson of the Retail Druggists and Chemists Association, these chains did not charge sales tax to consumers. "Tamil Nadu state charges 6 per cent sales tax on drugs. Since it was not asking consumers to pay the sales tax, Subiksha was selling medicines 6 per cent cheaper than other chemists. They could do this (absorb the sales tax) because of the 60 per cent discount they demanded from stockists on bulk purchases, which they were passing on to consumers. Though consumers were the ultimate beneficiaries, individual chemists were getting affected in this price war," the spokesperson added.

Soon the 3,000-member trade community of Chennai put pressure on stockists to discontinue supply to Subiksha and supplies were discontinued. Subiksha then filed a suit in the Chennai High Court demanding resumption of supplies. The high court asked Subiksha not to exempt local sales tax and asked stockists to resume supplies. "The group then changed its name to Shree Subiksha, and continues to offer sales tax-free prices to consumers. So the trade had to go to court again," says an RDCA official..

Though this dramatic turn of events has united the rest of the trade, the Subiksha kind of practices are likely to be the future norm. In order to cope with the impending competition, the others are merging to form co-operatives to derive similar benefits from stockists.
for RDCA’s model co-operative plan.

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