The enclosure war of China’s chain drugstores has made great strides. There are different voices of inflection point and foam. Some people even predict that drugstores will be “closed” in the next three years.
Yixintang Pharmaceutical Group Co.Ltd(002727) issued a report on the first quarter of 2022, the first listed company of A-share chain drugstore. Under the growth of revenue, the net profit decreased by 31.17% year-on-year. In this report, it was proposed that it was affected by epidemic prevention and control and phased closure.
According to data, the construction of Yixintang Pharmaceutical Group Co.Ltd(002727) stores in 2021 exceeded expectations. By the end of December 2021, there were 8560 direct chain stores, a net increase of 1355 in the whole year, and 92 stores were closed in the whole year.
Not only Yixintang Pharmaceutical Group Co.Ltd(002727) , but also Yifeng, Lbx Pharmacy Chain Joint Stock Company(603883) , Dashenlin Pharmaceutical Group Co.Ltd(603233) and other chain pharmacies have accelerated their expansion in the past two years. The “horse racing enclosure” in the north and south of the river is not lively, which has attracted Internet enterprises such as Alibaba, JD, meituan and so on to join in seizing share. The competition in the pharmaceutical chain retail industry is extremely fierce. Under the pressure of centralized purchase and price reduction, pharmaceutical enterprises in the upstream also reconsider the value of the retail market and are eager to try the “Omni channel” retail model.
As for whether the decline of Yixintang Pharmaceutical Group Co.Ltd(002727) performance is related to the speed of store expansion and other issues, the reporter of Huaxia times contacted and interviewed the Yixintang Pharmaceutical Group Co.Ltd(002727) Secretary of the board of directors. As of press time, no reply has been received.
On May 19, an investor asked Yixintang Pharmaceutical Group Co.Ltd(002727) on the interactive platform that the company continued to expand and increase the number of stores. Can the operating performance of stores support such expansion speed Yixintang Pharmaceutical Group Co.Ltd(002727) replied that the company will adjust the pace of store expansion according to market development, target price and other influencing factors.
Zhou Shu, a strategic consultant of the pharmaceutical industry, told the Huaxia times that under the policy background of actively dealing with the aging population and implementing the healthy China strategy, the pharmaceutical retail market has attracted all kinds of capital to fight. At the same time, with the implementation of the “two vote system” and a series of policies to promote the separation of medicine and the outflow of prescriptions, the reshuffle of the pharmaceutical retail industry is inevitable.
first quarter net profit decline
Yixintang Pharmaceutical Group Co.Ltd(002727) what signals are released by the setback of performance?
Yixintang Pharmaceutical Group Co.Ltd(002727) founded in Kunming in 2000, is the first listed company of A-share chain drugstores. Its core business is pharmaceutical retail chain. Its main business scope includes the operation and sales of traditional Chinese medicine, western medicine and medical devices. The pharmaceutical sales revenue of direct chain stores constitutes the main source of income of the company.
Yixintang Pharmaceutical Group Co.Ltd(002727) take the southwest as the core business area, South China as the strategic in-depth business area and North China as the supplementary business area, and implement the expansion of store groups integrating cities, counties and townships. According to the annual report, as of December 31, 2021, Yixintang Pharmaceutical Group Co.Ltd(002727) stores had 8560, and 7426 drugs had obtained the qualification of “designated retail pharmacies of medical insurance”, accounting for 86.75% of the total number of pharmacies of the company. Among them, the proportion of medical insurance stores increased by 0.63 percentage points compared with the previous year. During the reporting period, the proportion of the company’s medical insurance card sales in the total sales was 43.80%, an increase of 1.99 percentage points over 2020.
From the annual report data, from 2019 to 2021, Yixintang Pharmaceutical Group Co.Ltd(002727) revenue and net profit increased for three consecutive years, with revenue of 10.479 billion yuan, 12.656 billion yuan and 14.587 billion yuan respectively, with year-on-year growth of 14.20%, 20.78% and 16.34% respectively; The net profit was 604 million yuan, 789 million yuan and 922 million yuan respectively, with a year-on-year increase of 15.90%, 30.81% and 16.66% respectively. Among them, Yixintang Pharmaceutical Group Co.Ltd(002727) ‘s net profit increased significantly in 2020, but the growth slowed down in 2021.
In the 2021 annual report, Yixintang Pharmaceutical Group Co.Ltd(002727) mentioned the factors of intensifying competition in the pharmaceutical retail market. With the improvement of industry concentration, some large national and regional pharmaceutical retail chain enterprises have gradually formed. These enterprises can gradually develop and grow with the help of their advantages in capital, brand and supply chain management. The competition among retail enterprises is becoming increasingly fierce. At the same time, with the continuous improvement of drug use level in grass-roots medical institutions, the promotion of drug zero difference policy, the rising operating costs of drug retail enterprises, and the gradual formation of consumer groups based on Internet and mobile terminal shopping, the market competition is intensified.
Since then, according to the first quarter report of 2022, Yixintang Pharmaceutical Group Co.Ltd(002727) net profit suffered a loss, realizing a revenue of 3.995 billion yuan, a year-on-year increase of 16.53%, and a net profit of 179 million yuan, a year-on-year decrease of 31.17%.
In this regard, Yixintang Pharmaceutical Group Co.Ltd(002727) reported in the first quarter that during the reporting period, nearly 500 stores of the whole group were temporarily closed due to epidemic prevention and control. In addition, the epidemic prevention and control in the border cities of Yunnan and Guangxi is more complex. More than 1000 stores located in Wenshan, Honghe, Pu’er, Banna, Lincang, Dehong, Baise, Chongzuo, Fangchenggang and other border cities have been operating under the epidemic control requirements for a long time, with strict restrictions on the flow of people and business varieties. Some regional stores have not been able to resume business since August 2021. Nationwide, according to the requirements of local epidemic prevention and control, the number of isolated employees involved in the company is 630, and the number of stores involved in irregularly taking off the shelves of fever, cough, antiviral and antibiotic products is 2146.
Yixintang Pharmaceutical Group Co.Ltd(002727) said that the current multi-point epidemic situation had an impact on the flow of people and business varieties in stores, resulting in a certain pressure on the growth of the company’s performance in the first quarter of this year. At the same time, the impact of the epidemic in Shanghai has hindered the payment, reconciliation and collection of commercial insurance in the company’s retail business, affecting the company’s operating cash flow.
“The impact of the epidemic does put some pressure on the operation of retail pharmacies.” The operator of a chain drugstore in Shijiazhuang, Hebei told the Huaxia times that physical drugstores have generally felt sad since last year, especially the sales of traditional commonly used drugs such as fever relief, cough relief and anti-virus have fluctuated greatly, and it is impossible to predict when the impact will end.
rapid expansion meets the test
Head chain drugstores want to redefine the industry pattern, but it is not easy to stand firm in the “enclosure war”.
In October 2021, the Ministry of Commerce issued the guiding opinions on promoting the high-quality development of the drug circulation industry during the 14th Five Year Plan period, which proposed that by 2025, the annual sales of China’s top 100 drug retail enterprises are expected to account for more than 65% of the total drug retail market; The drug retail chain rate is close to 70%.
In addition, according to the data of the State Food and drug administration, as of September 30, 2021, there were 606500 licensed enterprises in China, including 13400 wholesale enterprises, 6700 retail chain headquarters, 335300 retail chain stores and 251200 single pharmacies. The retail chain rate of pharmacies increased from 36.57% in 2013 to 57.17% at the end of 2021.
It can be seen that the promotion trend and goal of China’s pharmacy chain rate are determined, and there is still huge room for M & A.
In order to seize the opportunities of policy and market, in the past two years, not only chain pharmacy enterprises have accelerated the pace of expansion, but also “horse racing enclosure” by means of “self construction + M & A + franchise”, but also Internet enterprises such as Alibaba, jd.com and meituan have begun to seize the share, resulting in an extremely fierce scale war in the pharmaceutical retail industry.
At the same time, the impact from online platforms is becoming stronger and stronger. According to the data of the Southern Institute of pharmaceutical economics of the State Food and drug administration, the scale of the online drug retail market has reached 200 billion yuan in 2021. Under the influence of epidemic factors, users have gradually formed the habit of online drug purchase.
The head pharmacy chain chose to expand faster. From 2016 to 2021, the compound annual growth rate of Yifeng Pharmacy Chain Co.Ltd(603939) stores reached 38.87%; Another industry leader Dashenlin Pharmaceutical Group Co.Ltd(603233) ‘s store growth rate is also expanding. In 2019, 2020 and 2021, the expansion rate is 22.58%, 26.58% and 36.1% respectively.
Compared with the growth rate of stores, the net profit growth of chain pharmacies shows signs of slowing down. Among the top ten chain pharmacies, except that Yixintang Pharmaceutical Group Co.Ltd(002727) had a loss in net profit in the first quarter of this year, compared with the data of the previous two years, the growth rate of Yifeng Pharmacy Chain Co.Ltd(603939) revenue and net profit in 2021 declined. According to the data, the revenue of Yifeng Pharmacy Chain Co.Ltd(603939) in 2019 and 2020 was 10.28 billion yuan and 13.14 billion yuan respectively, with a year-on-year increase of 48.66% and 27.91% respectively; The net profit attributable to the parent company was 544 million yuan and 768 million yuan respectively, with a year-on-year increase of 30.58% and 41.29% respectively.
Shuyu Civilian Pharmacy Corp.Ltd(301017) released the annual report for 2021. In 2021, the company achieved an operating revenue of 5.322 billion yuan, a year-on-year increase of 14.70%, and the net profit attributable to shareholders of listed companies was 115 million yuan, a year-on-year decrease of 46.88%.
the annual report of Dashenlin Pharmaceutical Group Co.Ltd(603233) 2021 shows that during the reporting period, the net profit attributable to shareholders of listed companies was 791 million yuan, a decrease of 25.51% over the same period of last year. After deducting non recurring profits and losses, the net profit attributable to shareholders of listed companies was 718 million yuan, a decrease of 29.77% over the same period of last year; The net cash flow from operating activities decreased by 20.42% over the same period last year, mainly due to the expansion of the company’s business scale, the growth in stores, the increase in the number of stores and the increase in expenses.
Even so, in the future, Yifeng, Dashenlin Pharmaceutical Group Co.Ltd(603233) , Lbx Pharmacy Chain Joint Stock Company(603883) and other chain pharmacies will still take expanding the number of stores as one of the strategic cores. According to the development strategy proposed in the annual report of Yixintang Pharmaceutical Group Co.Ltd(002727) 2021, while opening its own stores, Yixintang Pharmaceutical Group Co.Ltd(002727) will continue to acquire regional high-quality pharmaceutical retail assets and strive to build Sichuan and Chongqing into a region with the largest sales volume. At the same time, realize the integration of online channels and offline sales.
Zhou Shu believes that medical reform, prescription outflow and health demand determine that there is still a certain growth space for drugstore retail. There is no doubt about the trend and potential of industry integration in the future, and the concentration of drugstores will be further strengthened. However, after the rapid expansion of chain pharmacies in the past two years, problems such as cost, management and differential competitiveness continue to appear, and the survival of the fittest in the industry will accelerate in the future. “We all see how many stores have been acquired and newly opened, but we don’t see how many stores close every year.” He said.
