Yifeng Pharmacy Financial Report Analysis: Rapid Expansion through 'New Store Openings + M&A' and Notable Achievements in Innovative Businesses
Yifeng Pharmacy recently announced its 2018 annual report and first-quarter report for 2019: In 2018, the company achieved total operating revenue of RMB 6.91 billion, a year-on-year increase of 43.8%, marking the highest growth rate in seven years; net profit attributable to shareholders of the parent company reached RMB 420 million, up 32.8% year on year, with the growth rate remaining above 22% for seven consecutive years. In the first quarter of 2019, the company recorded operating revenue of RMB 2.47 billion, a year-on-year increase of 66.7%; net profit attributable to shareholders of the parent company amounted to RMB 150 million, up 45.8% year on year.
VCBeat (WeChat: vcbeat) interpreted Yifeng Pharmacy based on its financial report disclosures and, using Yifeng Pharmacy as a case study, provided a brief analysis of development trends in the pharmaceutical retail industry.
Yifeng Pharmacy has long adhered to a regional focus strategy, balancing market breadth with intensive cultivation of regional markets and dense store network deployment, thereby highlighting its regional competitive advantages. With steady growth driven by organic expansion of mature stores, new store openings, and industry M&A, the company’s scale continues to expand. This has strengthened its bargaining power with upstream manufacturers, continuously diluted overall management costs, and sustained enhancements in profitability.
“Four Core Competencies” Drive the Steady Enhancement of the Company’s Core Competitiveness. The Company has always prioritized refined management and the strengthening of its foundational business capabilities. During the reporting period, the Company continued to advance the development of its “Four Core Competencies”: the Blue Ocean Strategy for Professional Services, the Premium Product Strategy, Operational System Optimization, and Talent and Cultural System Development. Through professional services and premium products, the Company achieved sustained improvements in customer satisfaction and retention rates. By optimizing operational systems, it enhanced the level of refined, systematic, and intelligent management, thereby improving managerial efficiency. Furthermore, by strengthening talent teams and fostering team culture, the Company bolstered its execution capability and cohesion, meeting the human resource demands of rapid growth and promoting sustained, healthy, and rapid corporate development.
Data Source: Choice Terminal
As of December 31, 2018, Yifeng Pharmacy Chain Co., Ltd. operated a total of 3,611 chain stores (including 169 franchise stores) across nine provinces and municipalities: Hunan, Hubei, Shanghai, Jiangsu, Jiangxi, Zhejiang, Guangdong, Hebei, and Beijing. The company sells pharmaceuticals, medical devices, health supplements, health foods, personal care products, and other daily convenience items related to health.
In recent years, Yifeng Pharmacy has been highly active in mergers and acquisitions, with total expenditures exceeding RMB 2.2 billion. VCBeat has compiled a review of Yifeng Pharmacy’s M&A activities in recent years.
M&A Activities of Yifeng Pharmacy in Recent Years
Data Source: Annual Reports, Business Registration Records
Data shows that in 2018, Yifeng Pharmacy Chain Co., Ltd. added a net total of 1,552 stores throughout the year, including 546 newly self-built stores, 959 stores acquired through mergers and acquisitions, and 89 new franchise stores, while closing 42 stores. By the end of the reporting period, the company had a total of 3,611 stores (including 169 franchise stores). From 2012 to 2018, the company achieved a compound annual growth rate (CAGR) of 34.91% in store count, 28.44% in sales revenue, and 35.06% in profit. The company’s sales scale has steadily and rapidly expanded, and its store network layout has become increasingly mature.
In its store layout, Yifeng Pharmacy offers a comprehensive range of products through large-format stores to meet consumers’ one-stop shopping needs and rapidly enhance its local brand influence. It also operates numerous small and medium-sized outlets around these large stores to cater to consumers’ convenience needs. The “large-store model” is Yifeng’s key distinguishing feature.
As of March 31, 2019, Yifeng Pharmacy operated 3,958 stores (including 212 franchise stores), with a total operating area of 471,132 square meters (excluding the operating area of franchise stores). From January to March 2019, the company achieved a net increase of 347 stores (comprising 131 newly opened stores, 204 acquired stores, 43 franchise stores, and 31 closed stores). The newly added operating area amounted to 34,310 square meters (excluding the operating area of franchise stores). The regional distribution is as follows:
Store Distribution of Yifeng Pharmacy
Data source: Yifeng Pharmacy Chain Co., Ltd. Annual Report
From an industry background perspective, driven by policy incentives, capital influx, and large-scale competition, industry concentration has continued to rise. National and regional leading enterprises have accelerated consolidation through capital strength, making chain pharmacies the mainstream model for industry development. According to statistics from the Report on the Development of China’s Pharmaceutical Distribution Industry, by the end of 2017, the total number of retail pharmacies in China reached 453,700, a 1.5% increase from the end of 2016; the chain pharmacy rate stood at 50.5%, representing a 1.1 percentage point increase compared with 2016.
According to the “Report on the Development of China’s Pharmaceutical Distribution Industry (2018)” published by the China Pharmaceutical Commerce Association, the sales revenue of the top 100 pharmaceutical retail chain enterprises in China accounted for 30.7% of the total retail market, with the top 10 enterprises accounting for 17.4% and the top five enterprises accounting for 11.3%. While large retail chain enterprises have increased their market share to varying degrees compared with the previous year, China’s pharmaceutical retail industry remains relatively fragmented compared with developed countries in Europe and the United States, indicating considerable room for further improvement in industry concentration.
The separation of prescribing from dispensing and the outflow of prescriptions are regarded as significant future growth opportunities for the retail pharmacy industry. Currently, companies such as Baiyang Yifuzhen, WeChat, Ali Health, Jointown Pharmaceutical Group, and Yaoshiquan are actively positioning themselves in this sector. Policies in cities like Xi’an, Chengdu, Chongqing, and Tianjin are also relatively supportive. However, a nationwide, large-scale system for the external circulation of hospital prescriptions has not yet taken shape.
Yifeng Pharmacy has long been strategically positioned to capitalize on prescription outflow and the new retail e-commerce sector. The company launched its pharmaceutical e-commerce operations in 2013 and established an E-commerce Business Group in 2016. This group comprises specialized divisions for B2C, O2O, CRM, and e-commerce technology. Leveraging CRM and big data as its core capabilities, Yifeng Pharmacy has built an integrated online-offline pharmaceutical new retail business model.
In its annual report, Yifeng Pharmacy also disclosed its strategic layout in digitalization and intelligent infrastructure, a move of forward-looking significance for the pharmaceutical retail industry. Yifeng Pharmacy has established an IT team centered on independent R&D and engaged in deep collaboration with leading international software companies. By leveraging technological and process innovations, the company aims to enhance various digital and intelligent systems to empower business development.
During the reporting period, the strategic framework comprising the business middle platform, data middle platform, and technology middle platform was progressively deepened. The Company’s SAP system, intelligent store POS system, and Warehouse Management System (WMS) were continuously optimized, while the Business Intelligence (BI) system, financial reconciliation framework, expense control and reimbursement system, employee mobile app, precision member marketing platform, remote security surveillance, and store inspection systems were gradually rolled out. These initiatives have consistently enhanced the Company’s operational and management efficiency.
Meanwhile, to further advance the Company’s regional focus strategy, Yifeng Pharmacy Chain Co., Ltd. is leveraging its Hunan logistics distribution center as a foundation to progressively upgrade and build provincial-level logistics distribution centers in Shanghai, Jiangsu, Jiangxi, Hubei, Hebei, and other provinces and municipalities, thereby providing the necessary software and hardware support to enhance logistics distribution efficiency and meet the rapid expansion demands of regional markets.
Regarding future operational strategies, Yifeng Pharmacy has primarily outlined the following plans: adopt an expansion model that places equal emphasis on “self-built stores and acquisitions” to accelerate the expansion of its store network. In 2019, Yifeng Pharmacy plans to add 1,000 new stores in its existing markets in Central, East, and North China through “self-built stores and acquisitions.” By densely deploying its store network, the company aims to continuously increase its regional market share and concentration.
Actively engage in healthcare reform policies, innovate business models, and capture the substantial growth in the pharmaceutical market. The company will actively explore initiatives in health insurance payment systems, assumption of community healthcare functions, sharing of hospital prescription information, and chronic disease management by fostering collaborations with government and medical insurance authorities, healthcare institutions, insurance companies, and pharmaceutical manufacturers.
Centered on CRM and big data, innovate the pharmaceutical e-commerce business model. Develop pharmaceutical e-commerce operations, build an O2O health cloud service platform, continuously advance member operations based on the CRM system, further deepen the integration of online and offline member management, strengthen member services and content operations, establish a core member chronic disease management system, and steadily promote self-operated O2O businesses. Seize market opportunities arising from the separation of prescribing and dispensing and the outflow of prescriptions, broaden channels, and accelerate the development of third-party O2O e-commerce businesses.
By leveraging health management services and extending business formats, we continuously explore new models for pharmacies within the broader healthcare sector. Through integrated online and offline channels, we provide members with targeted health management services—including rehabilitation, wellness, prevention, traditional health preservation, and nursing care—delivering higher-level professional services and a more diverse range of health products to customers in the wider health domain.