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 ■ steve.cullen@aplcare.com

Indonesia is the world’s fourth priority, they could ultimately

most populous nation whose strangle Indonesia’s growth
economy for many years was as power cuts and traffic jams
long on promise and short damage the nation’s productivity.
on delivery. However, having However, the government
slowly but steadily recovered has recognized these serious
from the drastic political and shortcomings and the budgeted
economic upheavals of 1998 growth for 2012 will be
and the Asian crisis, Indonesia largely driven by planned
is now Southeast Asia’s biggest expenditure on improving the
economy, sixteenth in the world, level of infrastructure as well as
and has in the past three to four improving the investment climate.
years finally begun to realize One of the features of recent
some of its huge potential. economic growth is the pattern
Many industries have been of distribution of that growth
enjoying rapid growth, notably in the different provinces of the
coal, palm oil, steel, automobiles, country. The capital city Jakarta
construction, hospitality and, to a in particular and the island of
lesser extent, healthcare. In recent Java in general have for many
years, producers of televisions, years been the drivers of national
motorcycles and cars – as well as economic growth, being the
supporting industries such as tires political, commercial and wealth
and batteries – have significantly centers of the economy.
increased capacity to satisfy Government decentralization
extraordinary rises in demand. has increased the flow of funds
Some major pharmaceutical to provinces that were previously
manufacturers have also been being left behind, often in spite
increasing capacity. of the fact that some of those
There has been dramatic provinces were key sources of
growth in telecommunications, the nation’s wealth, such as coal,
retail (especially large oil and gas, timber and palm oil.
shopping malls), hotels, air Now these provinces are finally
travel, financial services and starting to benefit from having
the beginnings of a notable rise in the number of hospitals. Consequently, a greater share of government funds and this is being reflected in comparative
Indonesia has become a high-priority target for direct foreign investment. This growth figures.
year to date, economic growth is running at 6.5%, with inflation at 5.7% and, This trend is expected to continue as there will be greater development in the
for 2012, the government is projecting growth of 6.7% and inflation at 5.3%. regions outside Java from the 4,000 trillion rupiah (US$460 billion) Master Plan
Underdeveloped infrastructure is already hindering growth in some industry for the Acceleration and Expansion of Indonesian Economic Development. Part
sectors as railways, ports and, in particular, roads are currently woefully of this plan is focused on the creation of economic corridors across the nation,
inadequate. In parts of the country, the electricity supply is also falling behind spanning industries from agriculture to telecommunications, much of which
demand. Unless these fundamental issues are given urgent attention and high 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
Project Reach objectives
higher in the provinces as consumer purchasing power increases in those
ƒƒ Increased reach to outlets beyond the main primary and secondary cities
regions at a rate greater than in the major cities. In turn this will require greater
in Indonesia
attention to the provinces for achieving the desired availability of medicines and,
ƒƒ Expanded numeric distribution
in the case of consumer health products, more visibility.
ƒƒ Growth in transaction frequency and value with retail pharmacies and
drug stores
“Project Reach”
ƒƒ Increase in organic sales growth
In recognition of these trends, PT Anugerah Pharmindo Lestari (APL), Zuellig
ƒƒ Improved service to outlets, especially retail pharmacies and drug stores
Pharma’s distribution company in Indonesia, has initiated Project Reach.
ƒƒ Reduction of purchases from wholesalers/traders by pharmacies and drug
The objectives are to examine the macro-economic issues and their impact
stores. This will:
on healthcare market dynamics, with particular reference to how and where
–– Save principals’ spending on discounts
consumers are purchasing their medicines and other healthcare products.
–– Greatly improve market intelligence provided by APL to principals, with
With this analysis, APL can examine how these factors affect the way
more direct-to-retail transactions and less to untraceable wholesaler
the company does business, in particular how it can “reach” the relevant
trading
outlets – especially in rapidly growing areas in more remote places – to the
ƒƒ Enhanced penetration and customer contact which will enable APL to
satisfaction of consumers in those regions and the principals APL serves. This
advise principals on developing growth areas where they might consider
in turn will support APL’s aim to consolidate and improve its position in the
deploying their own sales teams or medical representatives
healthcare distribution industry as the market leader and preferred partner for
manufacturers of pharmaceuticals and consumer health products.

Major regions of Indonesia 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% 10%
Annual growth by region
 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 multi-
disciplinary 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.

East Java province – Malang area Outlets in Malang area

Sales source: APL internal data. Population and GDP: Government Statistics Office

GDP GDP APL annual sales

Regency/city Population

419
Rp Bio % Gr Rp Mio % Gr Pharmacies
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%

54
Hospitals
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%

398
Batu 189,604 2,656 13.0% 6,285 -2.7% OTC outlets
(toko obat)
Total 9,034,440 164,869 11.7% 165,236 19.1%

1 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.
 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.

North Sumatra province – Medan area Outlets in Medan area

Sales source: APL internal data. Population and GDP: Government Statistics Office

GDP GDP APL annual sales

Regency/city Population

718
Rp Bio % Gr Rp Mio % Gr Pharmacies
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%

105
Hospitals
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%

870
All other cities 5,653,334 80,062 OTC outlets
(toko obat)
Total 13,248,386 235,621 11.4% 373,361 19.5%