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zebra consumption shen tuo

when the number of pharmacies nationwide exceeded 700,000, whether every store could be fully utilized became a problem.

the overall growth of pharmaceutical sales has slowed down, but the number of pharmacies continues to increase, resulting in a situation where there are more people than supplies.

in the first half of this year, among the six leading chain drugstore companies in the a-share market, five saw a collective decline in performance, which sounded a loud alarm for the industry.

the time has come when adjustments must be made.

performance collectively declined

the performance of mainstream drugstore chains has collectively declined. this situation has never happened before.

the a-share mid-year report season has ended, and the performance of six leading listed drugstore chains has been put on the table. industry investors all want to know what went wrong.

yifeng pharmacy (603939.sh) is the only company that has achieved "double growth", which has preserved a touch of warmth in the cold. in the first half of this year, the company achieved operating income of 11.76 billion yuan, a year-on-year increase of 9.86%; net profit attributable to the parent company was 798 million yuan, a year-on-year increase of 13.13%. however, compared with the same period last year, the growth rate has also declined significantly.

people living in cities all have a common impression that drug stores are one of the most densely populated business formats around each community, and it is not uncommon to see multiple drug stores competing side by side.

this is the direct manifestation of the competition among chain drugstores to open stores at the terminal.

with the continuous expansion of stores, the top listed drugstore chains still achieved collective growth in revenue in the first half of this year, but the growth rate has declined to varying degrees compared with the same period last year. among them, dasanlin (603233.sh) and shuyu pingmin led the growth rate, at 11.29% and 13.08% respectively; the other four companies all grew in single digits, with laobaixing having the lowest growth rate of 1.19%.

as the growth rate slows down, there are still only three companies with revenue exceeding 10 billion yuan in half a year: dasanlin, laobaixing, and yifong pharmacy. the one closest to 10 billion yuan is yixintang with 9.305 billion yuan.

affected by multiple factors including declining consumer power, cultivation of new stores, and increased expenses, the profits of the five drugstore chains other than yifong pharmacy have collectively declined.

in terms of net profit attributable to shareholders of the parent company, laobaixing saw a slight decrease of 2.05%, which was basically stable; afterwards, dasanlin, yixintang, jianzhijia and shuyu pingmin all showed a cliff-like decline of -28.32%, -44.13%, -60.23% and -82.6% respectively.

shuyu pingmin (301017.sz), which had the largest performance decline, gave three explanations:

1. policy and market factors. in the first half of this year, policy changes such as the implementation of the outpatient coordination policy and the full implementation of the individual account reform affected terminal consumption behavior, resulting in a slowdown in overall revenue growth and a further decline in the profit margin of existing products;

2. changes in product category structure. in the first half of last year, affected by the market, users had strong demand for protective medical devices and "four categories" of drugs, resulting in a high base. this year, policy changes have affected users' drug purchasing channels and drug categories, and the company's original advantageous categories such as "four categories" of drugs and health products have seen a structural decline in their share.

3. the company's operating costs increased. this is mainly because the newly added logistics centers will start operating in the second half of 2023, with large initial investments and year-on-year operating costs.

lin jianning, a senior pharmaceutical industry expert, said in an interview with the media that the collective decline in performance of chain drugstores appears to be due to policy adjustments, but the deeper reason is that there are too many drugstores, resulting in disorderly competition, long-term over-reliance on medical insurance, and insufficient ability to adjust in a timely manner.

700,000 stores competing for market share

in the past few years, domestic chain drugstores have been listed in batches, obtaining huge amounts of funds from the capital market and starting a competition for expansion. they have either engaged in large-scale mergers and acquisitions, opened stores in batches, or expanded franchises, and have moved from regional to national markets, quickly entering the era of tens of thousands of stores.

as of the end of 2023, the number of pharmacies nationwide has reached 667,000, more than 200,000 more than milk tea shops.

due to severe homogeneous competition, china's pharmacy industry has seen a relatively obvious structural surplus.

if calculated based on a population of 1.41 billion, the average number of people served by each pharmacy in china is around 2,000, far lower than the single-store population coverage of around 6,000 in developed countries in europe and the united states.

as the overall growth of drug sales slows down and the number of pharmacies continues to grow, they are bound to face the problem of not having enough food.

public data shows that in 2023, the national retail drug sales volume will reach 923.3 billion yuan, a year-on-year increase of 5.8%, the lowest growth rate in history. in the first quarter of this year, the overall prescription drug market size declined slightly, and offline sales have shown negative growth.

the zhongkang industry research institute predicts that in 2024, the growth rate of all pharmaceutical terminals is expected to drop to 4.9%. the situation is even more severe for physical pharmacies, with an estimated growth rate of only 2.9%. all categories, including non-pharmaceuticals, will basically stop growing.

even so, the leading drugstore chains have not stopped their expansion. in the first half of this year, the net number of new stores of dasanlin, laobaixing, yixintang, and yifeng pharmacy exceeded 1,000, with dasanlin adding as many as 2,077.

driven by the giants, by the end of june this year, the number of pharmacies nationwide had exceeded 700,000.

the market growth cannot keep pace with the expansion in the number of pharmacies, and the resulting decline in operating efficiency is also evident in listed drugstore chain companies.

even yifong pharmacy, which has maintained stable performance growth, is no exception.

at the end of june last year, the company had 9,089 directly-operated stores with an average daily sales per square meter of 55.21 yuan per square meter; at the end of june this year, the number of directly-operated stores increased to 11,310, and the average daily sales per square meter dropped to 50.50 yuan per square meter.

the situation of shuyu pingmin, which has the most severe performance decline, is naturally not optimistic. in the first half of 2023, the company's average daily store efficiency and floor efficiency were 5,733 yuan and 49 yuan/㎡ respectively. in the first half of this year, they dropped to 5,480 yuan and 46 yuan/㎡ respectively.

if this is the case for chain giants, the tens of thousands of stand-alone pharmacies are probably having an even harder time.

china pharmacy has been tracking sample pharmacies for a long time. data shows that the same-store sales growth of sample companies has dropped from 10.46% in 2022 to 8.58% in 2023, the second lowest point in the past decade. in the current market environment, this year's growth may slow down further.

the market will eventually eliminate all competitors, and those that can’t keep operating will have to close down. this is the cruel choice of the market.

data from the zhongkang pharmacy system shows that the number of pharmacy closures has shown a clear upward trend since the beginning of this year, with 6,778 pharmacies closing in the first quarter and increasing to 8,792 in the second quarter.

gao yi, chairman of yifeng pharmacy, believes that 2024 will be the turning point for the high growth of drugstore stores. next, the overall downward trend in the number of drugstores will become more and more obvious.

some experts even predict that after adjustments, the number of pharmacies nationwide will fall back to around 400,000.

the leading chain drugstore companies will change their past blind pursuit of scale and instead implement refined operations, paying more attention to the sales and profit levels of single stores.

speed ​​reduction adjustment

the accelerated promotion and implementation of new policies such as outpatient coordination, individual account reform, drug price comparison, and online medical insurance drug purchase are forcing the pharmacy industry to quickly change its inherent business model of "living off policies."

a few months ago, the national healthcare security administration summoned some designated pharmacies under yixintang for illegal and irregular activities such as substituting drugs and prescribing excessive amounts of drugs, which caused losses to the medical insurance fund.

the national healthcare security administration's major move against leading pharmacy companies is a warning to others, and means that the national level will continue to strengthen the management of medical insurance funds.

this year, a number of listed drugstore chains have made it clear that they want to "slow down."

on august 30, laobaixing publicly stated at a semi-annual report interpretation meeting that the annual target for new stores would be reduced from 3,800 at the beginning of the year to 2,800.

for newly opened directly-operated stores, we focus on quality and efficiency, and select and expand stores in key prefecture-level cities to ensure that every new store is opened in high-quality business districts and optimal locations.

regarding external mergers and acquisitions, the company will avoid blind expansion, maintain a wait-and-see attitude, and wait for the valuation turning point, while also contacting and evaluating the merger and acquisition potential of single stores and small chains.

jianzhijia (605266.sh) also made it clear that due to the continued sluggish market environment and the slow progress of the medical insurance reform policy, the company has slowed down its q2 store expansion target and significantly reduced its annual expansion plan to about 400 stores in june, focusing more resources on improving the performance of existing stores. at the same time, it will follow up on store performance in multiple dimensions, and will stop losses in a timely manner and replace stores that are seriously losing money and have no hope of turning losses around in the short term.

at the same time, leading enterprises are seeking to break through through specialization, specialization and digitalization. in this concentrated transformation process, leading enterprises still have strong resource advantages, and the industry concentration is expected to further increase.

perhaps, as predicted by gao yi, chairman of yifong pharmacy, industry mergers and acquisitions will further accelerate.