Yaoshang Network: A 2B+2C Model Enabling Smart Vending Machines to Bridge the Last-Mile Medication Access Gap in Communities

“Pharmacies are, in essence, primarily community-oriented service providers, addressing the ‘last mile’ challenge in healthcare access. However, with rising property prices and labor costs, pharmacy profit margins have been shrinking, making it increasingly difficult to meet the community’s demand for 24-hour medication access.”

Ju Jinyou, founder of Yaoshangwang, found his own pharmacy grappling with these same challenges. What should pharmacies do next? What will pharmacies look like in the future? Ju asked himself. In late 2014, after a casual get-together with his old friend Xu Hongping, Ju spotted an automated beverage vending machine downstairs as he was seeing Xu off. This sparked the idea of deploying medication vending machines in residential communities. He promptly pulled Xu back into another discussion...

I had assumed that the next chapter of the story would involve both parties working together to accomplish this task. However, with an abundance of emerging trends and hotspots at the time, Ju Jinyou was uncertain about how to make a choice. According to the article “More Than Half of Over 30 Platforms Have Folded: Pharmaceutical O2O Has Become a Capital Game—Where Is It Headed?” published by VCBeat (WeChat ID: vcbeat), pharmaceutical O2O platforms emerged in 2013 and experienced explosive growth in 2015. It was in August of that breakout year that Ju Jinyou “entered the arena” of pharmaceutical O2O platforms.

At the 2018 VCBeat Future Healthcare 100 event, Wang Xiaocen, Partner at CEC Health Industry Fund, shared insights on the hot topics in the medical and health sector over the years:

2014: physician social networking and pharmaceutical e-commerce; 2015: the “hundred-sugar” battle, physician groups, and healthcare big data; 2016: gene sequencing and medical artificial intelligence; 2017...

Capital infusion has propelled hotspots in the healthcare sector to the forefront of public attention. Behind these trends lies the entry of more investors. Yet, after the hype subsides, companies either transform or face elimination....

Yaoshangwang also once rode this wave of trend or bubble. However, within less than four months, it had to cease its O2O pharmaceutical sales business. Ju Jinyou told VCBeat that during the trial of the O2O model, Yaoshangwang conducted a cost-benefit analysis of this operation. First, the business was primarily online-based, resulting in high customer acquisition costs; reportedly, Yaoshangwang spent up to RMB 1 million on promotional expenses in under one month. Second, operational costs were high: purchasing medications is a low-frequency activity, yet the delivery process required substantial investment in human capital.

What truly convinced Ju Jinyou to abandon this business was witnessing Dingdang Kuaiyao’s exit from the Suzhou market: In early 2015, Dingdang Kuaiyao entered the Suzhou market, but by October, its operations had already begun to shrink....

The team conducted a forward-looking analysis and concluded that although the cost of providing O2O pharmaceutical sales services through self-operated pharmacies is relatively low, it remains difficult for the company to achieve profitability without government subsidies. Consequently, the team unanimously decided to discontinue the O2O pharmaceutical sales business and return to its original vision.

“Fortunately, our trial-and-error phase lasted only four months...”

Although the pharmaceutical O2O platform failed, the medication delivery services provided during that period enabled Ju Jinyou to validate his earlier hypothesis: there is indeed a demand for purchasing medicines within communities. Furthermore, based on accumulated data, Ju conducted preliminary calculations regarding the timing, locations, and demographic profiles associated with medication sales.

With the concept finalized, Yaoshangwang began to explore its business operations and identified two primary challenges that needed to be addressed first. The first was a technical issue; Ju Jinyou’s solution was to entrust the entire research and development of both hardware and software for the medication dispensing machines to Johnny, the Technical Director. The second challenge was the need for policy support to facilitate expansion into grassroots communities. To address this, Ju Jinyou personally spearheaded business development efforts, engaging in extensive outreach and coordination with various stakeholders.

During communications with the government, Ju Jinyou found that their primary concerns were twofold: first, safety—specifically, how to ensure the security of both hardware and software; and second, operational management.

To address these two issues, Yaoshangwang has proposed its own solutions.

In terms of hardware security, Yaoshangwang first implements 24-hour dynamic monitoring both inside and outside its medication dispensing machines. External monitoring ensures safe medication retrieval for users, while internal monitoring guarantees the accuracy of medication inventory movements. Secondly, Yaoshangwang utilizes sensors and refrigeration units to regulate the machine's temperature and humidity, maintaining temperatures between 8°C and 20°C and humidity levels between 25% and 75%. Finally, Yaoshangwang integrates the outer casing design with advertising screens, which not only meets the light-protection requirements for medications but also effectively generates non-operating income.

In terms of software security, Yaoshangwang ensures drug classification, expiration date management, remote control of temperature and humidity, and integration with ERP systems.

In terms of management, Yaoshangwang has a pharmaceutical team on 24-hour rotating duty to answer user inquiries at any time; meanwhile, it also maintains an operations and maintenance team providing 24-hour service to promptly address any equipment issues.

After a year of practical experience in pharmacy operations, the Suzhou Municipal Government issued an official document in May 2017, explicitly supporting the deployment of automated medicine vending machines in communities. In the same year, the company gained recognition from a renowned US-dollar fund specializing in the healthcare sector and completed a Pre-A financing round of nearly RMB 10 million.

With policies clearly defined, the next step is to turn vision into action. In its concrete efforts to penetrate grassroots communities, Yaoshangwang has gradually developed its own “model.”

Yaoshangwang first conducted a city-wide regional plan, beginning its deployment with a one-kilometer radius. In the further process of selecting residential communities, Yaoshangwang has established a set of screening criteria:

First, the residential community must comprise more than 1,000 households;

Second, the population in the residential area is predominantly composed of young and middle-aged adults;

Third, prioritize mid-to-high-end residential communities.

The deployment of automated medicine vending machines is not limited to urban areas. Ju Jinyou told VCBeat that although Kunshan, Suzhou, is a county-level city, it ranks first on China’s Top 100 Counties list and has a large influx of migrant workers and numerous factories, resulting in highly effective performance of the vending machines.

Yaoshangwang will determine the layout density for each area based on its specific characteristics; for instance, industrial parks with an outward-oriented focus will have a relatively high layout density, whereas predominantly agricultural regions will have a relatively low layout density.

It is worth noting that Yaoshangwang positions experts as operational service providers. On one end, it serves C-end medication purchasers by enabling them to buy medicines conveniently and around the clock; on the other end, it serves pharmacies and similar entities, facilitating drug sales during non-business hours.

In terms of closing the industry loop, Ju Jinyou stated that he has over a decade of experience in pharmaceutical sales and possesses an extensive professional network, which will facilitate future regional expansion. Furthermore, the rapid deployment of vending machines will generate substantial user data; feeding this data back to pharmaceutical manufacturers can further enhance the differentiation of pharmacies.

It is reported that Yaoshangwang has currently deployed over 200 automated medication vending machines in Suzhou. With policies opening up across various provinces and municipalities, Ju Jinyou stated that Yaoshangwang will maintain a relatively prudent growth strategy, with a key focus on expanding its presence in the Yangtze River Delta region.

It is reported that Yaoshangwang is currently undergoing its Series A financing round, and VCBeat will continue to monitor the developments.