Self-built M&A franchise alliance, pharmaceutical retail chain enterprises enter the "era of 10,000 stores"

A few days ago, four listed chain pharmacy enterprises (hereinafter referred to as the four major chain pharmacies) including Da Shenlin Pharmaceutical Group Co.
, Ltd.
(hereinafter referred to as Da Shenlin), Yifeng Pharmacy Chain Co.
, Ltd.
(hereinafter referred to as Yifeng Pharmacy), Laobai People's Pharmacy Chain Co.
, Ltd.
(hereinafter referred to as Laobai People's Pharmacy), and Yixintang Pharmaceutical Group Co.
, Ltd.
(hereinafter referred to as Yixintang) have successively released the company's semi-annual report
for 2022 。 The report shows that driven by factors such as the outflow of prescriptions and the resumption of sales of "four categories" of drugs, the overall business trend of the four major chain pharmacies in the first half of this year is good, and a variety of means have boosted the rapid growth of the number of stores, and a professional pharmaceutical service system is taking shape
.

 

Revenue capacity continues to increase

 

From January to June 2022, the operating income of the four major pharmacy chains grew steadily, maintaining double-digit growth compared with the same period in 2021 (see table for details).

Among them, the operating income of Da Shenlin continued to lead the listed chain pharmacy, with revenue of 9.
721 billion yuan
in the first half of the year.
However, Yixintang did not increase profits, and its operating profit fell
for the first time since its listing in 2014.

 

 

Specifically, in the first half of the year, the performance of Da Shenlin grew steadily, and the year-on-year growth rate of operating income, operating profit and revenue ranked first among the four major chain pharmacies, with 9.
721 billion yuan, 931 million yuan and 20.
68% respectively, an increase of 1.
666 billion yuan, 73 million yuan and 4.
63%
respectively over the same period in 2021.
Among them, the sales revenue of Chinese and Western proprietary medicines reached 6.
96 billion yuan, accounting for a slight increase in operating income, while the company's characteristic Chinese ginseng medicinal materials category achieved revenue of 1.
164 billion yuan, and the gross profit margin increased by 2.
16 percentage points over the same period of the previous year to 42.
21%.

 

During the reporting period, the operating income of People's Pharmacy was 8.
991 billion yuan, an increase of 20.
51% over the same period in 2021; The operating profit was 642 million yuan, a year-on-year increase of 12.
28%.

Among the main businesses, the revenue of "franchise, alliance and distribution business" increased the most year-on-year, 24.
83%, and its proportion in the total operating income rose to 14.
80%.

 

The performance growth of Yifeng Pharmacy was relatively stable, with an operating income of 8.
75 billion yuan, a year-on-year increase of 19.
11%; The operating profit was 850 million yuan, an increase of 14.
17%
over the same period in 2021.
Yifeng Pharmacy, which is known for its refined management, still maintained a high gross profit margin, reaching 40.
8%, much higher than the 31.
34% of the People's Pharmacy, 35.
59% of Yixintang and 37.
68%
of Da Shenlin.

 

Yixintang's operating income during the reporting period was 7.
965 billion yuan, a year-on-year increase of 18.
85%.

Among them, the category of "medical devices and family planning and disinfection supplies" performed well, with operating income recovering to 652 million yuan, an increase of 36.
77%
over the same period in 2021.
However, the company's operating costs increased by 27% from the same period last year, far outpacing the growth rate of operating income, which became one of
the main reasons for its profit decline.
In the first half of the year, Yixintang finally achieved a profit of 455 million yuan, a year-on-year decrease of 22.
69%.

 

The franchise model has boosted the number of stores to increase significantly

 

In the first half of this year, the number of four major chain pharmacies maintained rapid growth, among which the people's pharmacy took the lead in entering the "era of 10,000 stores"
.

 

Without considering the closure and relocation of old stores, Laobai People's Pharmacy, Yifeng Pharmacy, Da Shenlin and Yixintang added 1814, 1493, 807 and 578 stores
respectively in the first half of the year.
Among them, the People's Pharmacy adopts four modes of "self-construction, mergers and acquisitions, franchise and alliance" to achieve rapid growth in
the number of stores.
By the end of the reporting period, the number of people's pharmacy stores had reached 10,006
.
The number of stores of Yifeng Pharmacy, Yixintang and Da Shenlin is also close to 10,000 stores, rising to 9,200, 8,990 and 8,896 respectively, and chain pharmacies are gradually entering the "era of 10,000 stores"
.

 

The "2021 Statistical Analysis Report on the Operation of the Drug Circulation Industry" shows that in the past ten years, the chain rate of retail pharmacies in China has increased significantly, from 34.
3% in 2011 to 57.
2% in 2021, an increase of 22.
9 percentage points
.

 

The asset-light franchise expansion model is becoming a common choice
for the four major pharmacy chains.
Taking Da Shenlin as an example, as of the end of June 2022, there were a total of 1,376 franchised stores, far exceeding the 106 in the same period in 2020, and the proportion of franchised stores in retail pharmacies also reached 15.
47%, a significant increase of 13.
44 percentage points
over the same period in 2020.

 

The situation of the People's Pharmacy and Yifeng Pharmacy is also similar
to that of Da Shenlin.
By the end of June, the number of franchised stores of People's Pharmacy was 2,755, accounting for 27.
53% of the total stores, an increase of 1.
64%
year-on-year.
In the first half of the year, the number of franchised stores of People's Pharmacy increased by 609, accounting for about one-third
of the total number of new stores.
The number of franchised stores of Yifeng Pharmacy was 1,376, accounting for 6.
88%
of the total number of stores compared with the same period in 2020.

 

Although Yixintang did not disclose the relevant data of the specific franchised stores in the company's stores, it disclosed the franchise revenue
of 23.
6893 million yuan for the first time in the annual report for the first half of 2022.
Industry analysts at Huaan Securities believe that using brand effect to develop franchise chain operations is a more efficient way of
expansion.
The franchise model can introduce financial resources and human resources with relatively low risk and enhance the brand effect
.

 

In addition, mergers and acquisitions have also led to a rapid increase in the number of stores in the four major chain pharmacies, establishing regional advantages
.
In the first half of 2022, Yifeng Pharmacy and Da Shenlin acquired 363 and 172 stores respectively, accounting for more than 20%
of the new stores.
The People's Pharmacy completed the largest acquisition in the company's history - acquiring 71.
96% of the equity of Huairen Pharmacy with its own funds of 1.
637 billion yuan, and after the project landed, the People's Pharmacy has more than 3,000 stores in Hunan
.

 

Membership customers remain at the heart of pharmacy services

 

The unit price and sales of members are relatively stable, which is an important source of
retail pharmacy turnover.
Yixintang disclosed in its semi-annual report that the unit price of the company's member customers is significantly higher than that of non-members, which is 2.
73 times
that of non-member customers.
The 2022 half-year report of Yifeng Pharmacy also shows that the total number of members in the company's file exceeds 62 million, and the member turnover accounts for 73.
03%
of sales.

 

Compared with the same period in 2019, the number of members of the four major pharmacy chains has increased by more than 60%.

Among them, Yifeng Pharmacy members increased by 36 million, an increase of 138.
46%; The number of members increased by 33.
76 million, an increase of 95.
8%; Yixintang members increased by 13 million, an increase of 65%; The membership of People's Pharmacy increased by 24.
63 million, an increase of 62.
74%.

 

The "2021 Statistical Analysis Report on the Operation of the Drug Circulation Industry" believes that in the face of the personalized needs of consumers and the upgrading and development of big health services, retail pharmacies should use innovative means to broaden the service group, extend the service content, and provide customers with accurate, standard and intelligent services
.
Such a trend
can also be seen in the semi-annual reports of the four major chain pharmacies.

 

The customer relationship management system has become a common choice
for the four major pharmacies to improve service specialization and customer stickiness, and better maintain existing member customers.
At the same time, Yixintang also clearly stated in the semi-annual report that the O2O (online-to-offline) platform currently under construction will aim to meet the needs of members in terms of online health consultation, chronic disease management, patient communication, etc.
, provide precise services to members, guide members to carry out health management in various aspects, and improve members' online service experience
.

 

In addition, with the emergence of a large number of professional pharmacies such as DTP pharmacy, "Door Slow Gate" pharmacy, and dual-channel pharmacy, the value of team building of licensed pharmacists is highlighted, and the construction of licensed pharmacists has also become an important means for
the four major chain pharmacies to enhance member stickiness.
For example, according to the semi-annual report of Da Shenlin, the company's team of licensed pharmacists has expanded to 9,041 people, and will provide patients with professional pharmaceutical services
such as prescription review, health testing, consultation and guidance, and medication reminders.