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Since the beginning of this year, chain drug stores have had a rather turbulent time.

Drugstore stocks suffered an unprecedented blow in the secondary market and were nearly halved.Dasanlin, ordinary people,IsshindoThe share prices of the three companies have fallen by more than 40% this year.Shuyu Common PeopleThe year-to-date decline is 49.54%.JianzhijiaThe decline was as high as 58.29%.

Now, another heavy blow has fallen on the common people.

On the evening of July 30, Laobaixing issued an announcement stating that the company's actual controller and chairman Xie Zilong was recently detained and investigated by the supervisory authority.

The announcement also emphasized that the matter involving Xie Zilong had nothing to do with the company. As of the date of the announcement, the company had not received any notification from the relevant authorities, nor had it been asked to assist in the investigation. It also stated that the company has a sound organizational structure and a standardized governance system, and other directors, supervisors and senior management personnel are performing their duties normally. This matter will not have a significant impact on the company's normal operations.

But the capital market did not accept this argument. After the opening of the market on July 31, the share price of Laobaixing Pharmacy once fell by 9.98%, approaching the limit; by the close of the day, the decline eased to 5.06%.

Public information shows that Laobaixing Pharmacy was founded by Xie Zilong in 2001. In 2023, the company's revenue was 22.437 billion yuan, a year-on-year increase of 11.21%; net profit attributable to the parent company was 929 million yuan, a year-on-year increase of 18.35%. As of the end of March this year, Laobaixing Pharmacy had 14,019 stores across the country, covering 18 provincial markets across the country.

If we lose our soul figure, where will the people go?

Ups and downs

In the pharmaceutical retail industry, Xie Zilong, 58, is a very representative figure. In 2001, he founded the first Laobaixing Pharmacy next to Xiangya Hospital in Changsha, Hunan.

At that time,Chinese MedicineThe retail market was budding. "Selling medicines was like selling household appliances. Low prices became a common method. After the fierce competition, everyone was working hard to expand the scale." Bai Yu, chairman of the Rehabilitation Home and vice president of the China Pharmaceutical Materials Association, once recalled that time.

During this period, Xie Zilon was regarded as one of the driving forces behind this nationwide wave of drug price cuts. He was the first to call out the slogan "45% lower than the average national approved drug retail price", defining the Laobaixing Pharmacy as an affordable drug supermarket.

Soon after the first store opened, Xie Zilon replicated the Laobaixing Pharmacy to other cities in Hunan Province, and at the end of 2002, he began to move out of Hunan and embarked on the road of a national chain.

In the competition with other chain drugstores, foreign capital, pharmaceutical industry and other enterprises, Laobaixing once became the leader. In 2004 and 2005, it took the top spot among national pharmaceutical retailers with sales of 1.82 billion yuan and 2.18 billion yuan respectively.

But the common people have not been able to secure the position of "number one".

In July 2014, Yixintang went public nine months before Laobaixing Pharmacy, earning the title of “the first A-share chain drugstore.” When the two companies announced their 2015 performance, Laobaixing’s revenue of 4.568 billion yuan was less than Yixintang’s 5.321 billion yuan, and the number of stores was less than half of the latter’s.

Three years later, Laobaixing made a comeback, and its revenue surpassed Yixintang for the first time after its listing (9.484 billion yuan vs. 9.176 billion yuan), becoming the top of the four listed chain drugstore companies (the other two are Dasanlin and Yifeng). But in 2020, Laobaixing was overtaken by Dasanlin; by 2023, its revenue scale slipped to third.

In terms of profitability, in the past four years, Laobaixing's net profit margin attributable to shareholders has been relatively low, and in three of those years it ranked last among the four major pharmacy chains.

The sentiment in the capital market has also turned pessimistic. In the past year, the share price of Laobaixing has fallen by more than 36%.

A series of problems also surfaced during this period. Public information shows that from 2020 to 2023, Laobaixing's stores in Shanghai, Shandong, Shaanxi, Tianjin and other places were punished by local regulatory authorities for selling substandard drugs, selling prescription drugs when licensed pharmacists were not on duty, illegally publishing prescription drug advertisements, bundling Lianhua Qingwen and driving up prices, and other violations.

In the minds of consumers, the company is also moving away from the low prices that it once relied on to make a fortune. A consumer from Loudi, Hunan, complained to China News Weekly: "The medicines at the Laobaixing Pharmacy are ridiculously expensive. I bought a bottle ofYunnan Baiyao, the price for Laobaixing Pharmacy is nearly 20 yuan more expensive than other pharmacies. "On platforms such as Heimao Complaints and Xiaohongshu, posts reflecting that Laobaixing Pharmacy's "drug prices are high" and "backstabbing consumers" are also common.

The industry is changing

In fact, Laobaixing is not the only chain drugstore that has run into a development bottleneck.

Looking at the secondary market, a number of drugstore stocks have suffered heavy losses this year, and many have even been cut in half. Among them, Dasanlin and Yixintang have fallen 48.49% and 42.48% respectively this year, Shuyu Pingmin has fallen 49.54% this year, and Jianzhijia has fallen as much as 58.29%.

Behind the sluggish stock price is the overall downturn in the pharmaceutical retail industry.

Although three of the four major listed drugstore chains maintained double-digit revenue growth last year, from a macro perspective, the size of the physical drugstore market is getting closer and closer to its ceiling.

According to statistics from MinEnet, last year, the sales volume of physical drug stores (including drugs and non-drugs) was 622.9 billion yuan, with a year-on-year growth rate of only 1.8%, the lowest in the past decade. According to statistics from Zhongkang CMH, from January to May this year, the national drug store retail market size was about 217.8 billion yuan, a year-on-year decline of 3.7%.

This is partly due to the influence of medical-related policies.

Since the beginning of this year, the National Medical Insurance Administration has first launched a special price control campaign for "four-way drugs" to push the prices of drugs with the same generic name, brand, dosage form, and specification back to a reasonable range, and then deployed a special campaign of "go online, check drug prices, compare data, and take control" to monitor and control unreasonable high drug prices. Subsequently, medical insurance departments in various places have successively launched the "drug price comparison" system, allowing users to see the sales prices of drugs in various channels at a glance.

"In the short term, the promotion of drug price comparison will affect or even restrict pharmacies' existing pricing strategies, thereby affecting their revenues, which puts the pharmaceutical retail industry under great pressure," chain industry expert Wen Zhihong told China Newsweek.

Li Weihua, a franchise expert and associate professor at the School of Business of China University of Political Science and Law, also mentioned that as the national drug procurement covers a wider and wider scope, and promotes the entry of procured drugs into pharmacies and encourages pharmacies to sell procured drugs at "zero price difference", it will also have an impact on the sales and profits of pharmacies.

On the other hand, it is also due to the impact of online drug retail. Compared with physical pharmacies, pharmaceutical e-commerce has the advantages of convenience, speed and low price. Now, with the opening of medical insurance payment to pharmaceutical e-commerce, the advantages of online are further magnified.

But as the industry gradually reaches its peak, more and more pharmacies are popping up on the streets.

Data from the National Medical Products Administration show that as of the end of last year, there were more than 380,000 drug retail chain stores and more than 280,000 stand-alone drug stores in the country, which means that the total number of drug stores in the country exceeded 660,000; at the end of 2020, this number was still 560,000. This means that in the past three years, an average of 91 new drug stores have been added every day in China.

This has directly led to a decrease in the average income of a single pharmacy. According to Zhongkang CMH data, the average sales of physical pharmacies nationwide in 2023 was 730,000 yuan, a decrease of 140,000 yuan from 2020; in the first half of 2024, the average sales of pharmacies fell again by 10.6% year-on-year.

If this trend continues, the leading chain drugstores, which are still expanding at an accelerated pace, will get closer and closer to the revenue ceiling, and their already low profit margins will be further squeezed.

However, in the view of many interviewees, the fact that the pharmacy business is not doing well does not mean that pharmacies are no longer a good business, but that pharmacies need to find a richer business model.

Wen Zhihong pointed out that compared with developed and mature pharmaceutical retail markets such as the United States and Japan, judging from the current chain rate, that is, industry concentration, there is still a lot of room for the development of China's pharmacy industry, especially chain pharmacies.

"In the long run, our domestic chain drugstores still need to diversify and combine their merchandise structure, for example, they can refer to the Japanese drugstores and the American drugstores' supermarket-like or hypermarket-like formats to promote the continued profitability of their stores."

Li Weihua also said that if pharmacies follow the traditional practices, profits are indeed low. However, if pharmacies can expand their products and services beyond just selling medicines, such as adding foods such as wolfberries and roses, and setting up Chinese medicine clinics, alternative hospitals and community hospitals to manage chronic diseases of the elderly, thereby increasing revenue and profits, it will be beneficial to the long-term sustainable development of pharmacies.

If you lose your soul

Amid the increasingly tense industry situation, the news that Xie Zilong was detained and under investigation has also caused the outside world to worry more about the prospects of ordinary people.

According to Meng Bo, a lawyer at Beijing Jingshi Law Firm, according to Article 22 of the Supervision Law, if the person under investigation is suspected of serious duty violations or duty crimes such as embezzlement, bribery, dereliction of duty, etc., the supervisory authority has already grasped some of his illegal and criminal facts and evidence, there are still important issues that need further investigation, and there is one of the circumstances of "the case is serious and complicated; he may escape or commit suicide; he may collude with others to give false testimony or forge, conceal or destroy evidence; he may engage in other acts that hinder the investigation", he may be detained in a specific place upon approval by the supervisory authority in accordance with the law; the supervisory authority may also take detention measures in accordance with the above provisions for those involved in the case suspected of bribery or joint duty crimes.

Yin Weiyao, an expert at Kant Think Tank and a lawyer at Shanghai Sunshine Zhuozhong Law Firm, further explained to China Newsweek that the filing of a case for investigation marks the basic identification of the illegal facts of the offending entity and the formal initiation of the investigation procedure. During the filing and investigation stage, the relevant authorities will take a series of measures to collect evidence, ascertain the facts, and make corresponding handling decisions based on the investigation results.

Even if the matters involving Xie Zilon have nothing to do with ordinary people, as the actual controller of the company, his detention may bring far more impact to ordinary people than just a negative impact on their reputation.

At present, this news has actually affected investors' confidence and caused a real drop in the company's stock price.

According to Yin Weiyao, because the actual controller usually plays an important role in the company, his detention will affect the company's decision-making and management to a certain extent; if the actual controller directly participates in the company's daily operations and management, it will have a direct impact on the company's business operations.

In addition, a situation like Xie Zilon's may also affect the company's relationship with suppliers, customers and other partners, and thus affect the company's business development and market competitiveness.

China Newsweek contacted Laobaixing to inquire about Xie Zilon's previous level of involvement in daily operations and management, the impact of his sudden detention and investigation on the company's decision-making, and how the company plans to stabilize its business and capital markets in Xie Zilon's absence. However, no response was received as of press time.

In the sixth year of founding Laobaixing, Xie Zilong planned to retire by 2016 at the latest. At that time, he told the media: "It is unrealistic to run a business by yourself. Even if you leave this world, Laobaixing still needs to operate normally."

In the blink of an eye, 18 years have passed. Now that he may be about to leave the stage hastily, the outside world still does not know whether he has really made all preparations for the people.

References:

“Xie Zilong: China’s No. 1 drug retailer says he will retire at the age of 45,” China Business Times, December 26, 2006

"Pharmaceutical New Retail", July 2021, Wang Hao and Liu Xiaodong

Author: Shi Hanxu

Editor: Yu Yuan