Open Russian OTC Market Would Come With Challenges

Expanding nonprescription drug sales in Russia from pharmacies to grocery stores would open doors to new sales, but the huge emerging market presents significant hurdles to firms looking to capitalize fully on the opportunity.

The country's Ministry of Industry and Trade is considering allowing sales of OTC drug products by retailers other than pharmacies, the only current source for either Rx or nonprescription pharmaceuticals, according to the media relations staff at the Russian Embassy in Washington.

The ministry has not stated a timeline for deciding whether to open up OTC access, or said whether the change would be nationwide or tried in pilot programs in certain areas, the embassy staff said.

Opening nonprescription drug sales to more retailers would further enhance Russia's status as a jewel among emerging markets.

However, a regulatory expansion alone would not be enough to spur substantial growth in the nonprescription drug market, research analysts say.

"Opening non-pharmacy channels such as grocery stores will not increase the total dynamics of the market - this will only change channels of distribution of such products but will not influence demand for OTC drugs," said Monika Stefanczyk, head pharmaceutical market analyst for PMR Ltd., a market research firm and consultancy specializing in Central and Eastern Europe.

There also are cultural and geographic obstacles, observed Brendan Melck, an analyst in IHS Global Insight's Healthcare & Pharma Practice.

"The preference for pharmacies, where people can obtain pharmacists' advice, is likely to be a factor, especially for older people," Melck said, adding, "The difficulty in applying regulations in such a vast country is also worth considering."

Rural consumers probably will prefer to continue buying both Rx and nonprescription drugs from pharmacies while people in Russia's urban areas would more quickly adapt to OTC access, Melck pointed out.

According to a recent PMR report, in 2008 Russia accounted for nearly half - 45.5 percent - of total OTC sales in the Central and Eastern European region of 9.2 billion euros ($13.2 billion). PMR's report includes both OTC drugs and dietary supplements. Supplements already are sold in grocery stores in Russia.

OTC sales grew 26 percent in 2008 as the economy in the region - Russia, Poland, Ukraine, Bulgaria, Romania, Hungary, the Czech Republic, Slovakia, Slovenia and Croatia - continued expanding, Stefanczyk and her PMR colleagues reported. Growing affluence in the countries combined with increases in wages and changing lifestyles prompted consumers to spend more on health care, including self-care products.

However, as the impact of the global recession expands, Central and Eastern European consumers this year are cutting their spending, including on OTC drugs. The growth of the region's OTC market for 2009 could slow to 8 percent, although without Russia the overall sales likely would shrink, the PMR report says.

Should Russia allow wider access to nonprescription drugs, the country most likely would mirror other CEE markets in limiting actual OTC sales to "a closed list of products," Stefanczyk said in an e-mail.

"Those manufacturers which will manage to place their products on such lists will win," she said.

[This article first appeared in Health News Daily. You can read more about this topic in ¹ 'The Tan Sheet,' your source for nonprescription pharmaceutical and nutritional industry news. For more information call 1-800-332-2181.]

- Malcolm Spicer (² m.spicer@elsevier.com)