Hard to run a profitable retail drugstore chain

By the end of 2020, Long Chau drugstore chain recorded revenue of up to VND 1,190 billion, doubling the figure that of 2019, but suffered a net loss of VND 113 billion (- VND 42 billion in 2019).

Although the retail pharmaceutical market share is ed, many businesses want to join this market. This fierce competition has caused retail drugstore chains of many businesses to fall into prolonged losses, notably the Long Chau stores chain of FPT Retail (HoSE: FRT).

Biggest revenue, but still at losses

Upon Long Chau drugstore chain M&A in 2017, the pharmaceutical segment has been considered a long-term growth driver of FPT Retail. Vietnam’s pharmaceutical industry is of high potential, but also many challenges. 

The audited consolidated financial statements of FPT Retail show that, by the end of 2020, the pharmaceutical segment recorded revenue of up to VND 1,190 billion, doubling the figure that of 2019, but suffered a net loss of VND 113 billion (- VND 42 billion in 2019).

FPT Retail attributed the said losses of Long Chau drugstore chain to its expansion. FPT Retail opened 130 more drugstores in 2020, bringing its chain to 200 retail pharmacies. As a result, sales and administration expenses increased sharply, resulting in a decrease of over 90% of the consolidated net profit of this business, VND 204 billion to VND 10 billion.

Ms. Nguyen Bach Diep, Chairwoman cum CEO of FPT Retail, once shared that the reason FPT Retail is confident in Long Chau retail system is that this retail chain is having a high average monthly revenue, which is superior to other chains in the market. Each month, Long Chau drug store earns USD 136,000 in revenue, while Pharmacity chain is USD 11,000; Phano is 18,000 USD; Eco is 25,000 USD and An Khang is 32,000 USD. Accordingly, FPT Retail aims to open 100 pharmacies a year on average and would own 400 pharmacies by 2022.

However, according to RongViet Securities Company (VDSC), it is not easy for FPT Retail to open 400 drugstores in a short time. Because, drugstore chains like America or Phano, which appeared for 10 years, would remain fuzzy. Even the successful drugstores in the world such as Mercury (Philippines) or Raia Drogasil (Brazil) have undergone many years to reach this milestone.

Currently, the pharmaceutical retail market of Vietnam is joined by many businesses, notably those which specializes in retail pharmaceuticals under the drugstore chain model such as Phano (about 60 stores), Pharmacity (about 39 stores), Vistar (about 20 stores)... and the latest players as FPT retail, Mobile World Investment Corp…

An effective formula needed

VDSC forecasted that the ed market share of retail pharmaceuticals is a big challenge for businesses. On the other hand, the retail drugstore chain does not dominate this market share, which belongs to small retail pharmacies. "The retail pharmaceutical sales in Vietnam only account for 30% of the total pharmaceutical market, lower than 64% in Brazil and 80% in the Philippines”, emphasized VDSC.

Vietnam is among the top countries with the highest drugstore density in the world, while the ratio of pharmacists per person is the lowest. This explains why the quality of consultation at retail drugstores in Vietnam is pure. This also prevents drugstore chains expanding their operation because each drugstore is required to be run by a pharmacist with a university or higher degree.

Meanwhile, the health insurance coverage around the country is forecast to go up strongly, while medical expenses at hospitals are paid by health insurance. Besides, privately-run hospitals also have their own drugstores. All of these factors have hindered retail drugstore chains growing up.

“The reality in Vietnam is not really in favor of the retail pharmacy chains. The success of Long Chau retail channel will depend on how many shares of the current fragmented market it dominates, rather than the natural growth of the pharmaceutical industry, which is predicted at 12% per year by BMI. Therefore, the successful development of Long Chau drugstore chain would depend a lot on how FPT Retail deployed”, noted VDSC.

Mr. Ho Viet Dong, CEO of Cambodia- based An Khang pharmacy chain and BigPhone phone chain of Mobile World Investment Corp. said that the retail drugstore channel is only profitable when opening a large number of chains and managing to increase sales. Then, the providers will have better pricing policies for the pharmacies. The current size of several dozen stores cannot bring a good profit.

Many experts trust that it is important for drugstore chains to find out an effective business formula, including premises, branding, operation expenses… to improve business performance. When there is an appropriate formula, the chain expansion will be faster and more efficient.