Pharmacy Operation Trends and Growth

In this post-epidemic era, how to seize favorable policies and market opportunities is worth in-depth discussion for the long-term development of pharmacies and the second growth curve. This article proposes countermeasures to the problems of declining service visits/scale, declining member stickiness and activity, declining store traffic, and low average customer spending in stores.

With the post-epidemic era, the policy has been relaxed and the new crown has been subject to "Class B and Class B management". Pharmacies have ushered in the last wave of drug rush in the three years of the epidemic. Against this background, the online e-commerce platform of pharmacies has developed rapidly, and a large number of users have gradually established the habit of buying medicine mainly through medical e-commerce channels. According to the 2021 China Medical E-commerce Research Report, only 11.1% of consumers said that "almost all of them are bought in pharmacies or hospitals."

Secondly, the number of people served/scale of single stores has declined, the stickiness and activity of members have declined, the store traffic has declined, and the average customer spending is low. However, since December 15 last year, the National Development and Reform Commission issued the "14th Five-Year Plan for Expanding Domestic Demand Strategy Implementation Plan", proposing to actively develop "Internet + Medical Health" services, orderly promote the development of services such as time-divided appointment diagnosis and treatment, electronic prescription circulation, and online drug sales, and include qualified Internet medical service projects in the scope of medical insurance payment according to procedures.

At the same time, my country's retail pharmacies are currently the second terminal, with a drug sales scale of about 480 billion yuan, of which prescription drug sales are about 160 billion yuan. The proportion of prescription drug retail channels has increased from 12% in 2018 to 15% in 2020, while the proportion of prescription drug pharmacy channels in the United States and Japan is close to 50%. China's retail pharmacy market has broad space. With the advancement of my country's drug and medical separation policy, pharmacies are expected to become the first terminal for drug sales. Without considering the growth of the industry's basic demand, only considering the increase in the proportion of prescription drug pharmacy channels to the level of the United States and Japan, the long-term scale of my country's physical pharmacies is close to 1 trillion.

Therefore, how pharmacies can seize favorable policies and market opportunities is worthy of in-depth discussion for their long-term development and the realization of the second growth curve.

1. Countermeasures

1. Establish your own online drug purchasing channel

In recent years, the number of physical drugstores and sales have continued to increase, but the revenue scale of each store has gradually declined, which is related to the saturation of drugstores in some areas, the reduction of drug prices due to centralized procurement, and the impact of e-commerce. For drugstores, they can establish their own online drug purchase channels, preferably mini programs, which have low development costs and are easy to spread and use in the WeChat ecosystem; this is only one of the omni-channel marketing methods, and they also need to enter major e-commerce platforms, such as Taobao, JD.com, Pinduoduo, Meituan, Ele.me, Dingdang Buy Medicine, etc., all online.

2. Establish a complete membership growth system

At present, many pharmacies have adopted the strategy of attracting new customers and increasing customer quality and average order value in order to overcome the dilemma of low store traffic and declining sales. In fact, this is a vicious cycle. Attracting new customers is important, but it should be noted that the cost of maintaining old customers and bringing in 10 new customers is equal to the cost of developing 1 new customer. At the same time, too high a unit price will lead to low repurchase and member loss.

Therefore, it is necessary to establish a complete membership growth system, increase brand awareness through maintenance and marketing through various activities, such as membership day and birthday benefits, so that customers can feel the existence of the pharmacy and the difference between members and ordinary customers many times; it is also highly recommended that pharmacies build a complete private domain system to drive performance growth through the private domain. For example, the first pharmacy stock Dasanlin and the sinking market growth giant Laobaixing have already established private domains. This is something that must be done.

3. The expansion and franchising of chain drug stores

At present, most chain-store pharmacies are saturated. The policy has been relaxed, and volume-based procurement has reduced drug prices, resulting in a decline in customer flow and a longer time for new stores to be profitable. Therefore, most pharmacies have begun to focus on the sinking market and have begun to deploy in third- and fourth-tier cities. Expansion in other places has slowed down, and strategic contraction and even store closures have been carried out. Franchise business has begun to be developed to reduce investment risks and increase the certainty of profitability. In the long run, expansion will not stop, so sinking and franchising are the last resort for chain pharmacies.

4. Establish a user (patient)-centered service model

Drugstores have bid farewell to the era of high customer flow and high gross profit. Facing the impact of e-commerce, they need to work hard. The advantages of stores cannot be replaced online, and they are also irreplaceable in the current aging situation in China. The silver economy cannot do without offline stores. It is recommended that drugstores pay attention to the construction of community stores and hospital-side stores, deploy O2O and DTP dual-channel businesses, and establish a user (patient)-centered omni-channel, full-process business operation and service model. For example, establish chronic patient files, provide butler services (medication notifications) through WeChat public accounts, WeChat and other channels, and abandon product marketing as the main focus; as well as divide drugstore areas to cover communities, establish community groups for sales, and plan community activities; in order to improve the profitability of single stores.

5. Increase the proportion of centralized procurement and joint construction by manufacturers

In the long run, affected by medical insurance policies and prescription outflows, the proportion of drugs will gradually increase. As the growth rate of physical drugstores slows down, the trend of diversified categories will also emerge, such as innovative drugs, health products, traditional Chinese medicine, cosmeceuticals, diagnosis and treatment services, etc. Secondly, the penetration of the industrial chain is accelerating. It is recommended to increase the proportion of centralized procurement and manufacturer co-construction. The key to increasing the proportion of manufacturer co-construction lies in regional monopoly and marketing promotion.

2. Conclusion

1. Pharmacies are still the growth model for retail

Expansion is the first priority. Not only pharmacies, but also Chinese medicine clinics can be developed together to improve bargaining power and market share;

Category expansion to improve turnover rate and gross profit margin;

Focus on serving users, keep close to consumers' needs, and increase customer flow and conversion rate.

2. Full-area, full-process "retention" operations and services

The policy liberalization and e-commerce impact have highlighted the importance of traffic operations. Chain drugstores: Give full play to the service platform value of offline drugstores and provide full-domain and full-life cycle health services centered on patients, including O2O, prescription outflow, and patient pharmaceutical management.

Actively deploy O2O, B2C and telemedicine, use digital tools to empower front-end, middle-end and back-end businesses, conduct consumer insights, member management, store operation improvements, etc.

Author: Laicai Operation Notes