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Time for modern pharmaceutical retail chain in Vietnam

Chain business is a fairly fast-growing model in Vietnam in recent years and many players across different industries have chosen this method to expand their market share. From food and beverages to technology, we have seen lots of giants doing well with this model. As a huge potential market that always has tough competition, pharmaceutical industry cannot stay out of this trend.

Vietnam’s pharmaceutical market potential is based on the growing population, ageing society, and the improving disposable income from which would be spent on healthcare, leading to more medication purchases. According to , Vietnam’s healthcare expenditure was estimated at USD 16.1 billion USD in 2017, representing 7.5% of its GDP in the same year and would likely to grow with CAGR at 12.5% per year to USD 22.7 billion by 2021. Later on in 2019, a follow-up report stated that the market size of Vietnam’s pharmaceutical industry reached USD 6.5 billion, up 10.17% compared to the previous year (USD 5.9 billion). Mr. Vo Tan Thanh, Vice Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), also shared that the pharmaceutical industry had witnessed two-digit growth in recent years and that would continue until 2022.

Following a study conducted by Economist Intelligence Unit in 2018, Vietnam’s projected annual pharmaceuticals sales in 2022 is estimated only USD 5.44 billion, 3rd lowest among the researched countries but have a positive number of CAGR in pharmaceutical spending.

Despite rapid development, this market is still fragmented. Some of the largest companies only earned a few thousands of million USD, less than 5% of market share. There are still chances in production, distribution and retail for companies to earn more. The drug distribution sector is divided into distributed by hospitals (ETC) and retail pharmacies (OTC). At the moment, the ETC channel accounts for 70% of the drug market and OTC channel represents for the remaining 30%. However, enterprises are gradually switching from ETC channel to OTC channel because the new policies are requiring hospitals to prioritize domestic drugs which are often cheaper. The expand to OTC channels will help businesses consolidate their position, ensure competitiveness in the market and avoid being affected by related regulations.

Is it time for modern pharmaceutical retail chain yet?

The model of pharmaceutical retail chain was formed decades ago but changed quite slowly and only started blooming in recent years. Some prominent brands are: Phano, Pharmacity, Medicare, etc. Thanks to the double-digit growth potential, it has even attracted many other domestic investors operating outside the industry such as The Gioi Di Dong, FPT Retail, Nguyen Kim, Vingroup to jump in this appetizing but risky market. These chains are expected to contribute to the professionalization of the whole ecosystem, increase the scale to several thousands in the coming years, changing the face of retail industry and soon account for a large proportion of the total revenue of the OTC channel.

One of the most familiar chain to Vietnamese citizens is Pharmacity, which was found in 2011 in Ho Chi Minh city and now has 261 stores nationwide, becoming the market leader with the largest number of stores in existing drugstore chains. According to a survey conducted by BEAN survey in 2/2020, Pharmacity leads the brand identity ranking as 74% out of 179 people who participated in the survey know about them. In the end of 2019, the pharmacy chain announced that they have finished raising capital with USD 31.8 million for the first fundraising round of Series C and operating to achieve the target to open 350 stores in 2020, then 1,000 stores in 2021. Their revenue from stores in 2019 is estimated to increase 129% compared to 2018, reaching about USD 38.7 million.

Photo: Long Chau pharmacy 

Long Chau is also a famous chain, especially in the Southern Vietnam. They were originally found in 2007 as an individual pharmacy store but has developed rapidly to become a famous chain in Ho Chi Minh city. In 2017, FPT Retail officially started operating in the market by acquiring Long Chau and has opened 75 stores in various provinces of Vietnam. A rival of FPT in technology market – The Gioi Di Dong also took advantage of their experience in retail chain operation and expanded their business into the pharmaceutical segment by acquiring Phuc An Khang drugstore chain (now An Khang). Even though they shared that An Khang was not their top priority at the moment, the chain is still thought to be a formidable player.

Some foreign investors are keeping an eye on this promising market, such as Indonesia’s Century Pharma, who decided to buy Vistar and now is owning more than 20 stores in many malls in Ho Chi Minh city. However, experts said Century Pharma could be the pioneer but not the only one as a lot of other chains are waiting for the Vietnam market to become more attractive.

Despite rapid development, this market is still fragmented. Some of the largest companies only earned a few thousands of million USD, less than 5% of market share. There are still chances in production, distribution and retail for companies to earn more. The drug distribution sector is divided into distributed by hospitals (ETC) and retail pharmacies (OTC). At the moment, the ETC channel accounts for 70% of the drug market and OTC channel represents for the remaining 30%. However, enterprises are gradually switching from ETC channel to OTC channel because the new policies are requiring hospitals to prioritize domestic drugs which are often cheaper. The expand to OTC channels will help businesses consolidate their position, ensure competitiveness in the market and avoid being affected by related regulations.

Is it time for modern pharmaceutical retail chain yet?

The model of pharmaceutical retail chain was formed decades ago but changed quite slowly and only started blooming in recent years. Some prominent brands are: Phano, Pharmacity, Medicare, etc. Thanks to the double-digit growth potential, it has even attracted many other domestic investors operating outside the industry such as The Gioi Di Dong, FPT Retail, Nguyen Kim, Vingroup to jump in this appetizing but risky market. These chains are expected to contribute to the professionalization of the whole ecosystem, increase the scale to several thousands in the coming years, changing the face of retail industry and soon account for a large proportion of the total revenue of the OTC channel.

One of the most familiar chain to Vietnamese citizens is Pharmacity, which was found in 2011 in Ho Chi Minh city and now has 261 stores nationwide, becoming the market leader with the largest number of stores in existing drugstore chains. According to a survey conducted by BEAN survey in 2/2020, Pharmacity leads the brand identity ranking as 74% out of 179 people who participated in the survey know about them. In the end of 2019, the pharmacy chain announced that they have finished raising capital with USD 31.8 million for the first fundraising round of Series C and operating to achieve the target to open 350 stores in 2020, then 1,000 stores in 2021. Their revenue from stores in 2019 is estimated to increase 129% compared to 2018, reaching about USD 38.7 million.

Long Chau is also a famous chain, especially in the Southern Vietnam. They were originally found in 2007 as an individual pharmacy store but has developed rapidly to become a famous chain in Ho Chi Minh city. In 2017, FPT Retail officially started operating in the market by acquiring Long Chau and has opened 75 stores in various provinces of Vietnam. A rival of FPT in technology market – The Gioi Di Dong also took advantage of their experience in retail chain operation and expanded their business into the pharmaceutical segment by acquiring Phuc An Khang drugstore chain (now An Khang). Even though they shared that An Khang was not their top priority at the moment, the chain is still thought to be a formidable player.

Some foreign investors are keeping an eye on this promising market, such as Indonesia’s Century Pharma, who decided to buy Vistar and now is owning more than 20 stores in many malls in Ho Chi Minh city. However, experts said Century Pharma could be the pioneer but not the only one as a lot of other chains are waiting for the Vietnam market to become more attractive.

The battle in the retail pharmaceutical industry is between the old and the new. Compared to modern chains, traditional individual pharmacies are at a disadvantage because of the increasingly tightening regulations of the health sector. From 01/01/2020, people who directly retail drugstore must have an , the stores also need to equip with appropriate recording frequency, and deploy information technology application, have network connection to ensure control of origin and price of medicine.

Indeed, professional medical qualified staffs, clear origin and price are ones of the standards that makes consumers choose a pharmacy store, shared from BEAN survey.

However, convenient location is an important factor as well. According to President of Phano, the change in consumer habits from buying drugs at individual drugstores to modern retail chain has been quite slow. The biggest reason for this slow speed is locals’ habit in buying in the pharmacies that nearby their home and bought there once. This is a crucial factor that helps the traditional pharmacies to be able to contest with the chains as they are everywhere, in a small alley or the next lane.

An Khang founder used to describe the retail pharmaceutical industry that “The first person to unlock this door will win, but the way to (this door) there is very risky”. Even though the modern chains still have a long way to be able to shape the retail pharmaceutical industry, with the high growth potential, Government supporting policies, many investors, especially foreign investors have been attracted. We expect the M&A trend in the pharmaceutical industry to continue to be more exciting in the future.

Reference:

  1. Forbes Vietnam [1]
  2. Forbes Vietnam [2]
  3. Forbes Vietnam [3]
  4. Vietnam Report
  5. Department of Health of Ho Chi Minh City