Vietnam pharmaceutical retail market & the battle to expand market share


The Covid-19 pandemic has accelerated the growth of the entire pharmaceutical industry, especially modern models such as drugstore chains.


The outbreak of the disease caused people to limit medical examination and treatment from the hospital, causing the revenue of the ETC channel (from the hospital) to decrease, leading to a change in the revenue structure of the industry. According to estimates, the total pharmaceutical revenue of the whole country in the first quarter of 2022 increased by 7% compared to the same period in 2021. In which, revenue from the OTC channel increased by 23% compared to the same period in 2021, ETC channel decreased by 5% over the same period in 2021.


Potential of the pharmaceutical retail market

There are about 60,000 drugstores nationwide, most of them are traditional pharmacies, modern pharmacies only account for about 3-5%. In addition, the pharmaceutical market is highly fragmented and distributed by wholesale channels. Therefore, the market for selling pharmaceutical products still has a lot of room for investors to participate in this market.


With sales increasing from $7.7 billion in 2021 to $16.1 billion in 2026 and a compound growth rate of 11%, the Vietnamese pharmaceutical market is considered to be extreme potential.


On the other hand, according to the World Bank, Vietnam's number of people aged 65 and over will more than double by 2040, accounting for 18% of the total population, which will boost operational spending. Therefore, potential growth in pharmaceutical spending in Vietnam is still very likely, especially in a fragmented market that is not as systematic and functional as selling pharmaceutical products.


With its size and constant growth, the pharmaceutical retail market is attracting retailers into the race to open the drugstore chain.


The race to open the pharmaceutical retail chain


There is fierce competition in the pharmaceutical retail market among big names such as Pharmacity, Long Chau, An Khang, ECO Pharma, MEDiCARE,...


At the end of 2017, MWG bought An Khang pharmacy system, penetrating into the pharmaceutical distribution market. From the beginning of 2022, An Khang has expanded its network of stores nationwide. At a rapid pace, from 178 drugstores by the end of 2021, An Khang has increased to 522 drugstores across the country. It is expected that by the end of this year, An Khang will reach 800 drugstores.


With the Long Chau pharmacy chain, since being acquired by technology retailer - FPT Retail in 2017, this chain has grown from 8 drugstores to 400 drugstores across 53 provinces by the end of 2021. Up to now, the Long Chau pharmacy chain owns 876 drugstores nationwide.

However, the leading pharmaceutical retail chain belongs to Pharmacity Pharmacy Joint Stock Company with 1,074 drugstores. The chain is racing to expand its network, with an ambition to reach 5,000 pharmacies by 2025.


Accordingly, the race to open a new pharmacy chain will stimulate the pharmaceutical industry's revenue to increase in the next few years. The three largest drugstore chains, Long Chau, An Khang, and Pharmacity, are rapidly expanding the number of stores to provinces and cities across the country. It is expected that drugstore chains can account for 16% of the drug retail market share in Vietnam by 2025.


In addition, in the pharmaceutical retail market, there are also notable names such as Phano Pharmacy with more than 40 drugstores, ECO pharma with 10 drugstores, MEDiCARE with 86 drugstores, ...


In 2022, large modern pharmacy chains continue to set ambitious new opening targets. Besides, many new companies have also entered the market, including Wincommerce and Viettel.


Leading in terms of store size, but Pharmacity's sales and profits were dethroned


Pharmacity

The convenient pharmacy chain Pharmacity belongs to Pharmacity Pharmacy Joint Stock Company, established in 2011, Pharmacity is one of the first pharmaceutical retail chains in Vietnam.


In Vietnam's pharmaceutical retail industry, Pharmacity is currently the leading drugstore chain in terms of the number of stores. However, this pharmacy chain gradually lost its leading position in revenue and profit. Specifically, in 2021, pharmacy chain Pharmacity only recorded more than VND3.6 trillion in revenue, about VND350 billion lower than Long Chau pharmacy.


In addition, in recent years, pharmacy chain Pharmacity continuously reported losses. Specifically, in 2021, this pharmacy will lose more than VND360 billion in after-tax profit.


Pharmacity's ambition to dominate is based on its leading position and large financial buffer, supported not only by SK Group but also by Mekong Capital and TR Capital behind Pharmacity. Therefore, Pharmacity is willing to trade profits for market share.


Long Chau pharmacy

Long Chau pharmacy belongs to FPT Digital Retail Joint Stock Company - a member of FPT Corporation, FPT Long Chau Pharmacy system is one of the prestigious pharmaceutical retail chains in Vietnam.


Long Chau's advantage lies in the number of SKUs (the number of drugs in stock) 6-7 times higher than other pharmacies, helping the store's revenue to lead the market.


Accordingly, by the end of 2021, the revenue of Long Chau chain will reach nearly VND 4 trillion, an increase of 3.3 times compared to 2020, helping Long Chau make a slight profit and become the leading drugstore chain in the retail pharmacy chain market with a market share of 45%.

A Khang pharmacy

An Khang pharmacy chain, formerly known as Phuc An Khang pharmacy, was established in 2002. In 2017, Phuc An Khang pharmacy officially became a member of MWG and changed its name to An Khang Pharmacy with a brand identity new to MWG.


Although it has owned 49% of the shares of An Khang chain since 2018, it will not be until the end of 2021 that MWG will buy back the remaining shares, owning 100% of the pharmacy chain. After officially owning An Khang, MWG put all of its energy into An Khang by massively opening new stores in big cities. The revenue of An Khang drugstore chain also increased continuously after coming to MWG.


However, with the opening of a series of pharmaceutical stores as well as the sharp increase in operating costs, An Khang was still not profitable in the first years of joining MWG.


However, after a period of continuous losses, An Khang pharmacy chain has started to make a profit. Specifically, in 2021, this pharmacy chain brought the MWG nearly VND8.5 billion in profit after tax.


ECO Pharma

ECO Pharma is a trademark of ECO Pharma Joint Stock Company, established in 2008. The ECO pharmacy system is the first pharmacy chain in Vietnam to meet 3 standards: WHO-GSP, GDP, and GPP.


With the arrival of new recruits from technology retailers, ECO Pharma's position has been shaken. In recent years, the revenue of this pharmaceutical retail chain is almost flat at VND1.6 trillion.


To improve revenue, ECO Pharma has spent a lot on communication, marketing, and product promotion activities. Leading to higher selling costs, and profits also decreased significantly. Accordingly, in 2021, ECO Pharma's profit after tax is only over VND1 billion compared to more than VND43 billion in 2017.

Phano Pharmacy

In 2007, Phano Pharmaceutical Corporation was established. Phano pharmacy has been present in the system of clinics and hospitals, pioneering the model of pharmacy inside supermarkets and commercial centers.


Facing the trend of digital transformation, Phano launches Phano Link the first pharmaceutical e-commerce platform in Vietnam.


2021 is the third year in a row that this pharmacy chain has recorded a negative growth rate. Specifically, in 2021, the revenue of the Phano pharmacy chain will only reach about 360 billion VND (down more than 40% compared to 2020). Profit after tax of this pharmacy chain has also continuously decreased in recent years, from more than 20 billion VND (in 2017) to about 1.5 billion VND (in 2021).


MEDiCARE

MEDiCARE was established in Vietnam in 2001 with its first store in District 1, Ho Chi Minh City. MEDiCARE is the first & only retail brand in Vietnam for Health and Beauty Care.

The business situation of this retail chain is not very positive when revenue growth is negative, and profit after tax also decreases continuously. Specifically, the revenue of MEDiCARE Vietnam in 2021 is only over VND 200 billion (down about 30% compared to 2020), while profit after tax is nearly VND 80 billion negative.


It can be seen that the "big guys" in the pharmaceutical retail industry have begun to accelerate in the battle for a market share of this potential but fiercely competitive field. This is considered a "money-burning" battle of the players, because the "big guys" accept to spend big, and at the same time suffer hundreds of billions of dong losses to gain market share.


It is not clear where the race to expand the market share of these businesses will go. But in a fierce race like today, only businesses with a reasonable business strategy, effective technology application, cost optimization, and methodical management ability, and especially must have an only strong financial foundation can win.


Source: Vietdata