Dawaai cannot undercut the shop on price, so it sells pharmacy as a supply chain

A pharmacy in Pakistan cannot win by selling the same box for less. The government sets both the retail price of a medicine and the margin a retailer may keep, so Dawaai, the Karachi online pharmacy, has had to compete on something else: what it stocks, who it buys from and whether a patient orders again next month. The company's figures from 2021 show how fast it grew while working that out, and it has published very little since.

Furquan Kidwai founded Dawaai in early 2014. It sells medicines, personal care products and medical equipment, and in June 2021 it announced an $8.5 million round led by 500 Startups, which took its total funding to $10.5 million. Alongside the round it said revenue had grown 3.5 times in a year. Compounded over twelve months, that is about 11 percent a month, which means revenue doubling roughly every seven months for a full year. For a business that must hold stock, keep it cool and deliver it, that pace is a strain as much as an achievement, because every doubling needs more shelves, more staff and more working capital.

A market where the state sets the margin

The market is large and thinly served. IQVIA puts Pakistan's pharmaceutical sector at about $3 billion, according to 500 Global, and an analysis of Pakistan Bureau of Statistics data by Pakistan Today found that medicines make up about 62 percent of healthcare spending. 500 Global counts only about 4,000 licensed pharmacies for a population above 200 million.

The pricing rules keep medicines affordable and squeeze everyone who handles them. Kidwai has said a wholesaler margin of 1 to 3 percent is not enough, and he links that thin margin to fake drugs.

“I suspect the wholesale stage of the supply chain is where counterfeiters are entering the market.”

With price and margin fixed, an online pharmacy has few levers. It cannot undercut the shop on the shelf price of a given pack. It can sell more of what a household needs in one delivery, and it can buy closer to the manufacturer, which would let it keep a slice that would otherwise go to a middleman. The saving Kidwai quotes, up to 70 percent, is a third kind of value. He told 500 Global that patients can save that much by choosing among brands, and that for every paracetamol there are about ten brands on the market. That is advice on which pack to buy, not a discount on the pack, and it is the only one of these levers that works entirely within the price controls.

Chronic patients first

In the same interview, published in February 2022, Kidwai said Dawaai's original core customers were chronic patients, such as people with diabetes, hypertension or cancer, because they need regular prescription refills. An early Dawaai survey found that a diabetic patient often had to visit two or three pharmacies to fill one prescription, since small shops stock only part of the range. He compared the full stack model to PillPack in the United States and PharmEasy in India.

The case for starting there is arithmetic. A refill is a repeat order, so the cost of finding and verifying a patient is paid once and recovered over many deliveries, while a customer with a one off fever is paid for once. The magazine's view is that this makes retention the number that decides the business, and Dawaai has never published it.

Paying for the physical layer

Medicines cannot be handled like parcels. Kidwai pointed out that summer temperatures in Pakistan average about 35 degrees, while many products must be stored at no more than 25 degrees, and he said Dawaai had 60 compliance staff in a team of 600. That is one employee in ten whose job is to keep the supply chain legal and the stock safe.

The June 2021 round was built for that physical layer. The company said the money would go into pharmaceutical supply chain infrastructure and technology. The round was equity and debt, with equity a significant majority, according to Dawaai, and it included secondary sales in which some early investors sold fully or partly. Planet N, which had invested in November 2015, was among those that exited, according to Profit. Debt matters here. Borrowing against warehouses and inventory has to be repaid out of margins that regulation caps, so the room for error is narrower than for an app selling an unregulated product.

What it had built by then was concrete. Dawaai said it served 98 cities, ran its own delivery fleet in some areas with two hour delivery in parts of Karachi and Lahore, and had grown from 15 people about two years earlier to 250. Its chief executive told Profit it had four warehouses and a fifth due within weeks.

Doctors, labs and nurses

Dawaai also built services around the medicine: video consultations with as many as 150 doctors, home nursing and physiotherapy, and booking for lab tests. Kidwai explained why.

“These services were launched because there was consumer demand.”

The magazine's reading is that the consultations also feed the core business, since a prescription written on the platform is one that Dawaai can fill without losing the patient to a shop. The company has not said how many consultations end in an order.

Its site now offers a Diabetes Care Program and an Obesity Care Program that patients can subscribe to, which turn the same refill logic into a package of medicine coverage, free doctor consultation vouchers and rewards.

What Dawaai has not said

Dawaai has not published revenue, gross margin, order counts or the share of orders that come from repeat customers. Without those, the 3.5 times figure says how fast the company was growing from a small base and nothing about whether a delivery makes money after warehouses, cold storage and compliance are paid for. The latest funding announcement we could find is the June 2021 round.

The current site lists dShops, which it marks as a new service, and promises medicines in Karachi within 60 minutes of order confirmation.