Behind the sharp correction, we are still optimistic about the chain pharmacy track!

After the holiday, the A-share market soared and fell, and the stock prices of listed chain companies also adjusted back accordingly.

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Before starting the discussion, let's take a look at the growth of all-terminal pharmaceutical sales in 2020.

Chart 1: 2019-2020 growth and proportion of each terminal

Data source: Zhongkang CMH, Zhongkang Industrial Capital Research Center

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Chart 2: Pharmaceutical e-commerce retail sales and growth rate

Data source: Zhongkang CMH, Zhongkang Industrial Capital Research Center

Chart 3: Retail sales and growth rate of physical pharmacies

Data source: Zhongkang CMH, Zhongkang Industrial Capital Research Center

Let’s take a look at the retail market that has developed for nearly 20 years.

Chart 4: 2013-2019 online retail sales (100 million yuan) and penetration rate

Data source: National Bureau of Statistics, Zhongkang Industrial Capital Research Center

On the other hand, with reference to the newly promulgated medical security management measures for retail pharmacies, under the strong government supervision, the medical insurance payment of retail pharmacies has a greater advantage than medical e-commerce.

In January this year, the National Medical Insurance Bureau announced the "Interim Measures for the Management of Medical Security at Fixed Points in Medical Institutions" and "Interim Measures for the Management of Medical Security at Retail Pharmacies" (referred to as the "Two Measures"), and implemented policies on the above two measures.

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Compared with B2C, O2O's biggest advantage lies in its distribution efficiency.

The O2O platform delivery time has been shortened to less than one hour, realizing rapid delivery of medicines to the door, which can meet the urgent needs of patients for medication.

The advantage of O2O is also reflected in the localization pain points that can meet the supervision of medical insurance, drug supervision, and industry and commerce.
The traditional B2C model faces the whole country, and it is difficult to supervise.
Under the O2O model, drug supply, distribution and payment are still linked to physical stores, which is conducive to the integration of localized supervision.

At the same time, the O2O platform can also meet the needs of young consumer groups, and the online and offline marketing models are more flexible.
From the perspective of the age composition of consumers, the O2O population is dominated by young people, and the O2O channel is an effective solution for chain pharmacies to target young users’ preference for online drug purchases.
Combined with physical pharmacies, O2O's marketing model is more diversified, which can meet the needs of consumers of different levels and ages.

Chart 5: Age distribution of Meituan and Ele.
me customer groups

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The development of O2O has more advantages than disadvantages for leading chain pharmacies

Under the vigorous promotion of Meituan, JD Daojia, and Ele.
me, pharmaceutical retail O2O is growing rapidly, and the industry is worried that "platform empowerment will evolve into platform closure.
" However, big chains are embracing O2O one after another, opening up online and offline business.

Yifeng Pharmacy's new retail team has nearly 300 people, including B2C, O2O, Internet medical and other directions.
O2O has launched more than 3,000 stores.
As of the beginning of January this year, O2O accounted for 3% of revenue.
The first three quarters of 2020 , The company's entire 020 business growth rate is about 67%.

Yixintang realized an e-commerce business transaction volume of RMB 73.
43 million in 2019.
Among them, the transaction volume of the third-party sales platform was RMB 23,138,900.
In the past two years, the company has relied on its advantages in stores and its O2O business has accelerated its growth compared with 2018.
In 2019, sales increased by 222.
30% year-on-year in 2018, and the number of transactions increased by 396.
46%.

Chart 6: Proportion of B2C/O2O in Top 100 Chain Development (%)

Data source: Zhongkang Competitiveness Survey, only valid questionnaires

Note: B2C refers to the self-built platforms of pharmaceutical e-commerce companies such as Tmall and JD.
com, while O2O refers specifically to Meituan, Ele.
me, and JD Daojia.

The big chain pharmacies actively embrace O2O.
The deep reason behind this is that entrepreneurs have seen the opportunity of the rise of O2O for the head chain:

1) O2O has increased the service radius of pharmacies from 500 meters to 3 kilometers, so big brand stores and flagship stores will have more advantages, and industry concentration will accelerate.
In the process of cooperation between physical pharmacies and O2O, taking into account factors such as market share and negotiation costs, head chain pharmacies have more say in cooperation with O2O than small and medium pharmacies, and O2O platforms are also more inclined to cooperate with large chains ( Take Meituan as an example.
In some areas, it only cooperates with chains with more than 100 stores.
This is essentially the O2O platform business in disguised form to concentrate traffic from small and medium chains and single stores to large chains.

2) O2O helps physical stores gain more online consumers.
The consumer groups of physical stores and O2O platforms are different.
O2O users are mainly young people, while the original main customer groups of physical pharmacies are mainly middle-aged and old people.
In the past, the two overlapped less, and physical pharmacies suffered from online people.
Of access.
The cooperation with the O2O platform has instead added a new customer base.

3) With the increase in the market share of large chains, the occurrence of "choking" on physical chains by O2O platforms is unlikely.
We make an expectation that with the rapid expansion of domestic top chains, when its share in the country or region reaches an oligopoly position, the O2O platform's right to speak to the top chains will weaken because the top chains use their existing members and With the advantage of the supply chain, it is not difficult to develop the chain's own e-commerce platform.

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The industry structure is changing, and the growth of leading chain listed companies can be expected

In the past 10 years, the number of pharmacies in my country has shown an overall growth trend, and the chain rate of pharmacies has gradually increased.
According to statistics from China Health CMH, in 2019, the number of pharmacies in my country reached 524,000, including 29 million retail chain stores, with a chain rate of 55.
3%, an increase of 3.
2 percentage points from 2018.

Chart 7: 2010-2019 number of chain pharmacies and individual stores (10,000) and chain rate

Data source: Zhongkang CMH, Zhongkang Industrial Capital Research Center

The scale of the top 100 chain stores continues to expand, the market concentration is further enhanced, and the status of the top 100 chain industry continues to improve.
According to CMH, the overall sales scale of the top 100 chains in 2019 reached 186.
3 billion yuan, accounting for 40.
9% of the country's overall retail market, an increase of 3 percentage points from 2018.
In the stock market competition, the cost of chain expansion is rising, and the financing cost of listed chain companies is much lower than that of non-listed companies.
The advantages are obvious over non-listed small and medium-sized chain and single drugstores, and the stronger ones will become stronger in the future.

Chart 8: Top 100 chain scale (100 million yuan) and market concentration

Data source: Zhongkang CMH, Zhongkang Industrial Capital Research Center

Taking Yifeng as an example, Yifeng Pharmacy is rapidly expanding at a rate of over a thousand new stores every year through the "M&A + New Opening" model.
With the rapid increase in the number of stores, the company's operating income volume has also continued to increase, with a net increase of 1,141 stores in 2019, of which 381 stores were acquired, accounting for approximately 33% of the net increase in stores.
In the same year, Yifeng Pharmacy achieved operating income of 10.
3 billion yuan, a year-on-year increase of 49%.

However, compared with the United States and Japan, the market concentration of my country's pharmaceutical retail industry is still low.
In 2020, the number of pharmacies owned by the TOP 3 chain pharmacies in the United States will exceed 30%, contributing more than 80% of sales, and the sales of TOP 10 chain pharmacies in Japan will account for 70% of the industry's market share.
With reference to the history of the pharmaceutical retail industry in the United States and Japan, the concentration of China's retail industry is still very low.
In the future, mergers and acquisitions in the industry and an increase in the market share of leading companies will be an inevitable trend.

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From competition to cooperation, online + offline has become a new format of pharmaceutical retail

Different from investors who regard pharmaceutical e-commerce and retail pharmacies as competitors, the top chain’s attitude towards pharmaceutical e-commerce has changed in recent years, with leading domestic listed companies such as Yixintang, Lao People, Yifeng Pharmacy, Dashenlin, and Jianzhijia.
The chain actively cooperates with Internet companies.

A few days ago, Yixintang and JD Health signed a strategic cooperation agreement that has attracted widespread attention in the industry.
The two parties will conduct in-depth cooperation in the digital upgrade of pharmacy stores, JD Health & Yixintang alliance pharmacy, O2O, and traditional Chinese medicine industry chain, etc.
, to jointly create a new model of "Internet + pharmaceutical retail".

People’s Pharmacy signed a strategic cooperation agreement with Linzhi Tencent, and stated that they will use Tencent’s own advantages to fully empower the people’s pharmacy business development through smart retail, cloud computing, and cloud services, and help the development of the "new retail" strategy.

Consumers' needs are advancing with the times, becoming more diversified and individualized, and they have higher and higher requirements for professional services other than products.
For pharmaceutical retail, the quality of products, the abundance of categories, the convenience of consumption, and the professional medical and health services supporting the products will all be the key competitive elements to satisfy consumers.
New retail is not only the marketing and supply of online and offline products, but also the supply of all-round patient solutions for products and comprehensive services.

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Summary

As a new format, the development of pharmaceutical e-commerce will become a new growth point in the field of pharmaceutical retail.
However, all new things have a process of starting from nothing, growing from small to slowing down, and the same is true for online pharmaceutical retail.
But different from the traditional concept of competition, online consumption can better make up for the differences in consumer groups in offline physical stores and broaden sales channels for physical pharmacies.

With the increase in the penetration rate of online pharmaceutical retail, physical pharmacies will further embrace the Internet and break through the barriers of the online and offline industrial chains.
There is no difficult industry, only difficult companies.
The competition between e-commerce and entities is unnecessary.
Only companies that meet consumer demand for products and professional services can "surplus".

Retail pharmacy listed companies will have more market share in the future.