5 Nov 2009 10:06

Drugstores must adjust to a more competitive market - insiders

By Karl Zhong

Shanghai. November 5. INTERFAX-CHINA - It is imperative that Chinese drugstores reevaluate their product and business strategies now that grassroots medical institutions will soon sell essential drugs at zero cost-plus markup, business insiders said at a seminar in Shanghai on Nov. 4.

"Drugstores should not rely on essential drug sales for profits and consider concentrating sales on drugs which are not listed on the essential drug schedule," said He Jun, deputy general manger of Shanghai Leiyunshang Pharmaceutical Co. Ltd.'s marketing center, at the Third China Pharmaceutical Executives Club Salon organized by Sidea Consulting Co. Ltd.

In July this year, the central government announced that the essential drug system will be introduced in 30 percent of China's grassroots medical institutions in rural and urban areas before the end of the year. The announcement implies that essential drugs will be sold at zero cost-plus markup in 30 percent of China's grassroots medical institutions before the end of the year. This will potentially have a negative impact on essential drug sales in drugstores since consumers will prefer to buy these drugs from grassroots medical institutions.

According to He, a drugstore should focus on marketing over-the-counter (OTC) drugs which are not listed on the essential drug schedule such as branded products, products with high profit margins and traditional Chinese medicines (TCM) which have been granted government protection status.

"There will be room for drugstores to grow profits if they sell drugs that do not have government-set price caps," He said.

Zhang Li, chief operating officer of Healthcare Executive magazine, said at the seminar that with multinational pharmaceutical companies pumping up investments in China, many of them will be launching new OTC medicines which are not listed on the essential drug schedule, as such representing a growth opportunity for Chinese drugstores.

Drugstore operators should also look into adjusting their business scope, Chen Chunhua, deputy general manager of Shanghai Fosun Pharmacy Chain-Store Co. Ltd., said.

"Drugstores can expand businesses to include sales of medical devices, foodstuff and health and beauty products," Chen said, explaining that drugstores should make better use of their idle retail space and that non-drug retail can increase customer flow. For instance, Harbin Renmin Tongtai Chain Drugstore Ltd. provides dry cleaning and digital printing services in addition to drug retail. In fact, many drugstores already started selling cosmetics products a few years ago in a bid to beat fierce market competition.

"It may be helpful if drugstores can focus on good customer service since it is known that poor customer service ranks high as an area of dissatisfaction among Chinese residents," Chen said. In addition, drugstores can also gain a competitive edge by extending their opening hours since pharmacies within medical institutions usually close in the late afternoon.

Leiyunshang Pharma's He added that drug manufacturers should also develop varying dosages of drugs for sale in drugstores and medical institutions to create niche markets.