José Ángel García Hinojosa
Marketing Vice President
View from the Top

Savvy Strategies for a Fragmented Market

Wed, 09/09/2015 - 16:08

Q: What are Loeffler’s main product lines and what is your approach to developing these?

A: Loeffler, part of the Grupo Loeffler Russek group, was created 15 years ago. The Loeffler brand focuses on generics and veterinary, Russek on manufacture, and Farmacenter as a distributor for the health sector. Since 2000, Loeffler has seen double-digit growth every year and our business doubles every three years. Our line of OTC products is our largest in terms of numbers but lowest in terms of value. The price for OTC generic products is comparatively low and our products sell 40% cheaper than the originals. While we sell a lot of these products, they represent just 8% of our profits, even though these products grow by about 25% per year. We work exclusively with salesmen, distributors, and pharmacies.

Q: To what extent are the changing dynamics within the point-of-sale area also impacting the market?

A: It is apparent that the market is shifting towards pharmacy chains but small pharmacies are still in demand by the general public. The market is constantly changing with old pharmacies closing and new ones opening, although the market is too large for pharmacy chains to completely overtake the competition and small pharmacies are creating alliances between themselves. There is strong competition coming from Chinese and Indian pharmaceuticals, which produce generics in high quantities and at low costs. While competition is fierce, this represents an opportunity to improve processes and infrastructure and offer products of superior quality.

Q: How would you characterize the local distribution market?

A: Distributors have different approaches depending on their size and clients. The two largest distributors work with the five largest wholesalers, and they work mostly with brands. Regional distributors work mostly with generics. There are about 800 regional distributors in Mexico and of those about 25 stand out from the rest. The commercialization process of generics is very different from branded medicines, and has been known as a “market of three.” A third of the utility is for pharmacies, another for distributors, and the remainder for manufacturers. This was how the generic market was conceived but it has gradually evolved and now pharmacies are obtaining larger discounts, sometimes up to 50-70%, transforming the market and lowering prices. Today it is unusual for pharmacies to operate under the “market of three” approach as selling products at the lowest possible price while generating the highest possible profit is the main aim.

Q: What do profit margins today look like in comparison to past structures and how do you choose your distribution avenues?

A: The sale of branded medicines may leave the producer with a 30% profit while the sale of generics may leave a 70% profit, but the prices of generics are low in comparison. Our laboratory sells products at a much smaller price than any branded medication, which fits within our goal to sell high quality products at an accessible cost. Additionally, some companies are starting to eschew distributors and prefer to negotiate directly with the point of sale. While our core business is through distributors, we have been approached directly by pharmacy chains. The market for distributors is still very large and strong however. Many new companies are starting to create small pharmacy chains with five to eight branch offices, mainly for generics. This area is quickly growing and starting to become our core business.

Q: In what way have you structured your sales strategy?

A: Sales to the government represent between 15-18% of our total sales. The rest goes to major retailers selling own brands. We also sell to pharmacy chains, to generics pharmacies, and manufacture for large laboratories. Producers approach us as they know that our plants follow strict safety and quality regulations. Manufacturing for international pharmaceuticals was our core business, but we have been slowly abandoning this, as it is more convenient for us to produce generics and OTC products. This was an internal strategic decision not brought about by market shifts. While many international pharmaceuticals are closing their manufacturing plants, more generics producers are entering the market. The generics market is growing enough that gradually generics are starting to resemble branded pharmaceuticals. For example one of our main products started selling at a rate of 70,000 units and now sells from 250,000-300,000 units. People recognize it and request it by name.