Yifeng Pharmacy Announces Planned Acquisition of Shijiazhuang Xinxing Pharmacy, Sparking Another Major Consolidation in China's Retail Drugstore Sector

VCBeat (WeChat: vcbeat) reported on April 17,Yifeng Pharmacy, the leading listed pharmaceutical retail chain, announced today its plan to acquire a controlling stake (more than 51%) in Shijiazhuang Xinxing Pharmacy Chain Co., Ltd.As the acquisition may constitute a major asset restructuring, Yifeng Pharmacy has applied for a trading suspension effective today, with the suspension period not to exceed one month.

Shijiazhuang XinXing Pharmacy Chain Co., Ltd. was established in 1996. From a company initially composed of eight people, it has grown to today boast more than 2,700 employees, 4.5 million members, and 460 directly operated stores.Sales exceeded RMB 1 billion in 2017.

As the leading regional chain, Xinxing Pharmacy had previously secured multiple rounds of financing, with investors including Huatai Capital and Morgan Stanley. It also pursued external acquisitions, acquiring targets such as Xingtai Yize Pharmacy Chain Co., Ltd., Wu’an Kangjian Pharmacy Chain Co., Ltd., and Handan Deyitang Pharmacy Chain Co., Ltd.

Beyond this acquisition, the entire pharmacy retail industry is undergoing a transition characterized by the decline of independent stores and the rise of chain pharmacies, with mergers and acquisitions (M&A) serving as the primary driver. According to incomplete statistics from VCBeat, in recent years, professional investment firms such as Tianyi Capital, GF Xinde, and Hillhouse Capital, along with pharmaceutical manufacturers like GPC Baiyunshan, Tasly Group, and Buchang Pharmaceuticals, have actively participated in investments and M&A within the pharmaceutical retail sector. Coupled with listed pharmaceutical retail companies intensifying their acquisitions of smaller pharmacy chains, the industry’s “land grab” campaign has been proceeding with great momentum.

According to Yifeng Pharmacy’s annual report, as of December 31, 2017, the company operated a total of 2,059 chain stores across seven provinces and municipalities—Hunan, Hubei, Shanghai, Jiangsu, Zhejiang, Jiangxi, and Guangdong—selling pharmaceuticals, medical devices, health supplements, health foods, personal care products, and daily convenience items related to health.

The company launched its pharmaceutical e-commerce business in 2013 and established the E-Commerce Business Group in 2016, which comprises e-commerce divisions such as B2C, O2O, CRM, and e-commerce technology. Centered on CRM and big data, the group has built an integrated online-offline pharmaceutical e-commerce ecosystem.

During the reporting period, the Company achieved concurrent growth in both business scale and operating profit. It realized operating revenue of RMB 4,807,249,000, representing a year-on-year increase of 28.76% compared to 2016; the net profit attributable to shareholders of the listed company amounted to RMB 313,503,600, representing a year-on-year increase of 40.03% compared to 2016.

During the reporting period, in accordance with the development strategy of “regional focus and steady expansion” and the growth model emphasizing both “new store openings and mergers and acquisitions (M&A),” the Company achieved rapid progress in opening new stores and completing industry M&A transactions. In 2017, the net increase in stores totaled 524, comprising 349 self-built stores, 167 stores added through M&A, and 57 newly added franchise stores, while 49 stores were closed. Throughout the year, the Company signed 16 M&A investment agreements involving 474 stores (including 307 stores that had been contracted but not yet closed). As of the end of the reporting period, the Company operated a total of 2,059 stores (including 80 franchise stores).

In response to the currently surging trend of prescription outflow, Yifeng has also established comprehensive coverage and is continuously advancing its adoption of the prescription outflow model. First, the company continues to strengthen the site selection and layout of stores adjacent to hospitals through optimized location strategies and assessment mechanisms. Currently, stores located near hospitals account for approximately 30% of the company’s total store count. In the future, Yifeng aims to achieve full coverage of all hospitals at Grade II Class A level and above. Second, the company implements specialized management for chronic diseases and prescription medications. By leveraging its membership system and customer service research, Yifeng conducts in-depth analysis of customers with chronic conditions and those using prescription drugs. It has established dedicated counters, zones, and stores for chronic disease management, staffed with professional personnel who provide targeted patient management, medication guidance, and adherence reminders, thereby enhancing medication compliance among member customers. Third, Yifeng has established a Direct-to-Consumer (DTC) business unit to vigorously promote strategic collaborations with prescription drug manufacturers, aiming to build specialized Direct-to-Patient (DTP) pharmacies.

Currently, there are more than ten pharmaceutical retail enterprises with extensive coverage across China, such as Yixintang, Laobaixing, Yifeng, and Dashenlin, whose pharmacy networks span the entire country. In various regions, there are also regional leaders, including Shandong Lijian, Hebei Emerging Pharmacy, Henan Zhang Zhongjing, Hubei Tianji, and Sichuan Derentang. As the pace of mergers and acquisitions in the pharmaceutical retail industry accelerates, some independent pharmacies and small-to-medium-sized chains will inevitably be absorbed to varying degrees. The future landscape of China’s pharmaceutical retail sector will be characterized by a few national players alongside regional leaders, with mutual checks and balances between the national giants and regional frontrunners.

For capital investors, pharmaceutical retail represents a high-quality sector with relatively low entry barriers and significant return potential. Given its favorable long-term growth prospects, investors can proactively target relevant assets to capitalize on the dividends from the upgrading of the pharmaceutical retail industry. For retail enterprises, introducing strategic investors can expand M&A capital, optimize operational structures, and pilot new business models, thereby laying the groundwork for diversified development and asset securitization.