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Our reporter Hu Mengran (chinatimes.net.cn) and trainee reporter Huang Minxuan took photos in Shenzhen

This year, domestic chain drugstores have been expanding their territory. Companies including Laobaixing Pharmacy, Yifeng Pharmacy, Yixintang, and Dasanlin, which have already entered the "10,000-store scale", still plan to expand thousands of new stores this year. Data shows that the number of drugstores nationwide has increased from 530,000 in 2019 to nearly 700,000 in 2024.

However, behind the accelerated expansion of chain drugstores, the pharmaceutical retail market has experienced a sharp decline. According to statistics from the pharmaceutical information platform MinEnet, in the first five months of this year, the national physical drugstore retail scale (drugs + non-drugs) reached 249.9 billion yuan, a decrease of 4.1% over the same period last year.

Industry insiders analyzed that the optimistic expansion plans of chain drug stores are in conflict with the suddenly cooling market performance. The market may not be able to support such a large number of stores. How can the dilemma be resolved?

Cheng Mou, vice president of Guangzhou Biaodian Pharmaceutical Information Co., Ltd., said in an interview with the China Times: "Chain drug stores can provide high-profit, high-value services through innovation, or they can provide new business models in multiple fields through cross-border, or they can focus on a specific format or store type to become the leader in a niche field. There are many paths, and companies should jump out of the homogeneous involution and explore a path that suits them."

The chain trend is not over yet, and pharmaceutical companies hope to expand counter-cyclically

"Our pharmacy is located in a small town. There are already five or six pharmacies on this street alone. Starting this year, everyone's business has been difficult," a pharmacy practitioner in a coastal town told the China Times reporter.

In fact, since the epidemic brought about a surge in demand for medicines, the number of domestic pharmacies has increased dramatically, and "drugstore streets" have become a common phenomenon. In May this year, the "Annual Statistics on Drug Supervision and Administration (2023)" released by the State Drug Administration showed that by the end of December 2023, there were 385,600 retail chain stores and 281,400 single drug stores nationwide. In other words, by the end of 2023, the number of drugstores nationwide will exceed 660,000.

At present, domestic chain drugstores that have entered the "10,000-store scale" include Laobaixing Pharmacy, Yifeng Pharmacy, Yixintang, Dasanlin, etc. Although the pharmaceutical retail market showed a downward trend in the first half of the year, these large pharmaceutical companies have not stopped their expansion.

Yixintang opened 579 new stores in the first quarter. The company recently responded to investors' inquiries by saying, "The full-year expansion plan remains unchanged. We will continue to develop high-density stores in core areas, focus on the development of southwest and south China, and take into account the development of stores in some areas of north China, and continue to strengthen our competitiveness in core development areas."

Dasanlin's first quarter performance report shows that the company added 841 stores during the period. The report said that the company will continue to sink into the second and third-tier markets in the regions where it has been deployed, and simultaneously develop new markets in important regions through continuous opening of new stores, mergers and acquisitions, and new franchise expansion.

In addition, Laobaixing Pharmacy stated that it plans to open 3,500 stores in 2024; Yifong Pharmacy plans to open 3,900 stores in three years, not including franchise stores.

Against the backdrop of a declining market size and increasingly saturated store numbers, large pharmaceutical chain companies continue to expand. What’s the reason?

Cheng Mou said that this is determined by the nature of the two formats of "chain" and "retail". From the perspective of "chain", although the trend of "chains concentrating on the top 100 and the top 100 concentrating on the top" of retail pharmacies has evolved for many years, this process is far from over, whether compared with the competitive structure of mature markets, or compared with the planning goals of the Ministry of Commerce, and from the perspective of market laws. Even if there is a slowdown or even a pause in the middle, it will continue to evolve in this general direction in the future until it is relatively stable. From the perspective of "retail", its essence is to do traffic business. Unlike online e-commerce, offline physical pharmacies have a limited service coverage radius, and more stores are needed to achieve coverage of a larger customer base.

At the same time, at this stage, "scale empowerment" is still the most cost-effective way to improve the performance of chain drug stores. By breaking down the basic indicators of the profit and loss statement of chain drug stores, it can be found that covering more traffic can provide benefits to chain drug stores from both the revenue and cost and expense ends.

"Although chain drug stores face some difficulties in the short term due to a series of factors, the future prospects of chain drug stores are still worth looking forward to, judging from China's population structure, the public's concern for health, and new medical reform trends such as 'prescription outflow' and 'outpatient coordination' that are moving into deeper waters. The current scramble for land is necessary for current operations on the one hand, and occupying more market share also lays the foundation for a promising future on the other." Cheng Mou said that what retail companies need to note is that counter-cyclical expansion is a good opportunity to stand out, but they need to have a relatively conservative understanding of the cycle, while maintaining a healthy cash flow for a long time. If necessary, it is a beneficial choice to adopt more asset-light "franchising" and other methods to achieve expansion.

Performance pressure will continue in the short term, and value and product reconstruction needs to be explored

As the number of stores becomes increasingly saturated, the "scale empowerment" effect of chain drug stores is weakening. Judging from the performance in the first quarter and the first half of the year, the accelerated expansion of stores has not brought rapid growth to chain drug companies, but has put pressure on their performance.

Yixintang's first-half performance forecast shows that the company expects to achieve a net profit attributable to shareholders of 260 million to 340 million yuan in the first half of the year, a year-on-year decrease of 32.6% to 48.0%. Yixintang said that the increase in operating costs due to the opening of a large number of new stores in the first half of the year was one of the reasons for the decline in performance.

Dasanlin's operating income in the first quarter increased by 13.54% year-on-year, but its net profit decreased by 13.46% year-on-year. The operating costs of retail stores increased by 14.84% year-on-year.

From the perspective of the overall market, the retail sales of physical pharmacies in China (drugs + non-drugs) reached 249.9 billion yuan in the first five months of this year, down 4.1% from the same period last year. At the same time, the average number of people served by domestic pharmacies has dropped to around 2,000, and many stores have fallen below this critical point for survival.

"Judging from the first quarter and semi-annual performance forecasts of listed drugstore chain companies this year, it is an indisputable fact that drugstore chain performance is under pressure. Moreover, a series of recent situations such as price comparison and online medical insurance integration also indicate that this pessimistic situation may not end in the short term," said Cheng Mou.

Cheng Mou suggested that, on the one hand, chain drug companies should move from simply focusing on volume price to focusing on both volume value and volume price. The public's demand for health is multi-layered and three-dimensional. Chain drug stores can provide high-profit, high-value services through innovation, or they can provide new business models in multiple fields through cross-border, or they can focus on a specific format or store type to become the leader in a niche field. There are many paths, and companies should jump out of the homogeneous involution and explore a path that suits them.

On the other hand, chain drug companies should realize value reconstruction and product reconstruction. In terms of value reconstruction, in addition to selling goods, drugstores can also play a comparative advantage over other health service institutions and rethink the functional value that drugstores can play in national health, such as in health science education, prevention of disease and health care and rehabilitation, chronic disease management, and light consultation for common and frequent minor illnesses.

In terms of product reconstruction, drugstores have experienced an evolution from "product-centered" to "service-centered, with products as tools and carriers of services." In response to changes in the market environment and customer needs, drugstores need to reorganize the composition of their products, including seeking growth in "services," "non-drugs," and "young customer flow."

Editor-in-charge: Xu Yunqian Editor-in-chief: Gong Peijia