JD Health's Three-Pronged Strategy: Pharmaceutical Distribution, Self-Operated Pharmacies, and On-Demand Home Delivery

Quietly, JD.com has achieved comprehensive coverage in its pharmaceutical business segment, encompassing pharmaceutical distribution, self-operated plus platform-based B2C, and O2O drug delivery services.

Recently, VCBeat (WeChat: vcbeat) reviewed JD.com’s strategic layout in the pharmaceutical business sector.

JD.com has achieved comprehensive coverage in its pharmaceutical business segment, spanning from pharmaceutical distribution to end-consumer services such as light consultations, medication purchases, and delivery. This integrated approach demonstrates strong business connectivity and synergy, underscoring that JD.com’s investment in the pharmaceutical sector is no longer negligible.

JD Daojia is positioned as a fresh food O2O e-commerce platform. Health to Home is a business sub-segment under the JD Daojia platform, which partners with offline pharmacies to provide medication delivery services to consumers, utilizing Dada, a crowdsourced logistics platform, for delivery.

Dada Delivery, established in June 2014, is a platform for intra-city on-demand delivery based on crowdsourcing and mobile internet. Specifically, institutions and individuals place orders on the Dada platform; upon accepting an order, delivery personnel deliver it within the specified time frame as required and receive compensation. This model can be understood as the sharing economy applied to logistics delivery.

In June last year, Dada merged with JD Daojia to form New Dada, with JD holding a 47% equity stake in the new entity. Following the merger, the two businesses developed independently, with Dada providing delivery services for JD Daojia.

New Dada’s crowdsourced logistics platform currently covers more than 300 major cities across China, with over 2.3 million crowdsourced delivery riders, serving more than 400,000 merchants, and reaching a peak daily order volume of over 2 million orders.

New Dada’s crowdsourced logistics platform leverages mobile and crowdsourcing models to provide low-cost, high-efficiency, and scalable “last-three-kilometer” delivery services for numerous retail, service, and O2O enterprises in China. Aiming to become the infrastructure for O2O e-commerce players, the Dada logistics platform serves as the foundation for New Dada’s nationwide and category expansion.

New Dada continues to use the “JD Daojia” brand for its supermarket fresh produce business. In addition to the aforementioned pharmaceutical services, JD Daojia also offers supermarket fresh produce, food delivery, and on-demand home services, covering 19 cities including Beijing, Shanghai, and Guangzhou. It partners with over 40,000 stores and has more than 25 million registered users.

Specifically, in the pharmaceutical business segment, more than 5,000 stores have been integrated into JD Health’s at-home service platform, with an average daily order volume of approximately 7,000 and an average transaction value ranging from RMB 53 to RMB 56. Over-the-counter (OTC) medicines account for 70% of sales, while daily chemical products, disinfection-grade items, and medical devices also hold a considerable share.

Based on this assessment, JD.com’s next move is to boost brand awareness and increase the average transaction value, enabling its “Health at Home” service to deliver higher-quality care to a broader user base.

JD Daojia also holds certain advantages in business expansion. As a primary entry point on the JD.com platform, JD Daojia benefits from seamless traffic diversion from JD.com’s hundreds of millions of users. Meanwhile, JD Daojia operates its own standalone app, which effectively retains high-engagement users.

In fact, from the perspective of consumer behavior, purchasing medication is inherently a low-frequency activity. Bundling it with high-frequency services such as fresh grocery delivery can effectively enhance business visibility, while convenient access points can continuously attract new users.

Notably, VCBeat’s hands-on review revealed that this section also provides access to the Wuzhen Internet Hospital, where users can obtain free text/image- or video-based consultations and electronic prescriptions, thereby addressing the issue of prescription sources for prescription drugs. This offers considerable convenience for patients with chronic diseases and those requiring long-term medication.

From the perspective of the market environment, companies currently engaged in online-to-offline (O2O) pharmaceutical services include Kuai Fang Song Yao, Ding Dang Kuai Yao, and Alibaba Health’s “Pioneer Alliance.” The first two primarily operate self-built stores, requiring substantial financial support for business expansion. The latter is similar to the Health Daojia service, with overlapping nationwide coverage, and may represent the future direction of O2O pharmaceutical services.

In addition to O2O pharmaceutical services, JD.com had previously established another consumer-facing healthcare business segment, namely JD Health Pharmacy, which launched in May last year.

JD Pharmacy’s predecessor was Qingdao Anjitang Pharmacy, which was acquired in 2013 by JD Shanyuan (Qingdao) E-Commerce Co., Ltd., a subsidiary of JD.com. In November 2015, Anjitang officially obtained the Internet Drug Transaction Service License C, authorizing it to sell pharmaceuticals directly to end consumers.

The logic behind JD.com’s self-operated B2C pharmaceutical business is primarily to complete its product category offerings, thereby catering to consumers’ preference for “one-stop shopping.”

JD.com’s approach to pharmaceutical B2C e-commerce combines a marketplace model with its own direct-sales operations. Under the marketplace B2C model, JD.com allows third-party enterprises holding an Internet Drug Transaction Service License (Category C) to operate stores on its platform, such as Deshengtang Pharmacy, Jianmin Pharmacy, and Yifeng Pharmacy. These sellers primarily offer over-the-counter (OTC) medications, personal care and health products, nutritional supplements, and adult wellness items. The direct-sales channel is operated by JD Health Pharmacy, which sells both OTC and prescription drugs. The purchase process for prescription medications involves submitting an order request, followed by a callback from a licensed pharmacist for verification, and finally delivery via JD Health Pharmacy’s logistics network.

Exact data on the operational performance of JD Health’s pharmaceutical business are not currently available. However, previous reports indicated that during last year’s Double 11 shopping festival, JD Pharmacy received over 100,000 orders, and JD Health’s platform-wide gross merchandise value (GMV) exceeded RMB 400 million. Based on these figures, it is estimated that JD Health’s annual B2C sales (including both marketplace and self-operated models) are substantial.

In fact, the growth of pharmaceutical e-commerce (B2C) has been astonishing in recent years, with an average annual growth rate consistently exceeding 50%. By the end of 2016, nearly 600 companies held Class C licenses for pharmaceutical e-commerce, with annual transaction volumes surpassing RMB 20 billion. In January this year, the State Council issued an administrative order abolishing the approval requirements for Class B and Class C pharmaceutical e-commerce licenses, which is undoubtedly positive news for JD Health.

Following the abolition of the approval requirements for Class B and C licenses, a large number of pharmaceutical commercial enterprises are expected to enter the market, which may promote the healthy and sustainable development of the industry. Explorations at the business level can also drive administrative reforms, facilitating the full liberalization of online drug sales and the deregulation of prescription drugs.

JD.com’s pharmaceutical distribution business was established even earlier than its consumer-facing (B2C) operations. Qualification documents show that JD.com obtained the Class A Certificate for Pharmaceutical E-commerce on December 23, 2014. This certificate authorizes the provision of trading platforms for pharmaceutical manufacturers and distributors (i.e., pharmaceutical B2B services) and was valid until December 2019.

On May 18 last year, JD.com and Shanghai Pharmaceuticals announced a partnership, under which the two parties will establish a cooperative relationship at the strategic, capital, and business levels.

It is worth noting that Shanghai Pharmaceuticals is a true leader in China’s pharmaceutical distribution sector. Its annual report shows that its revenue reached RMB 120.7 billion in 2016, with pharmaceutical distribution accounting for more than 90% of total revenue. The partnership between JD Health’s B2B platform and Shanghai Pharmaceuticals is equivalent to obtaining a national-level entry ticket into the pharmaceutical distribution market.

In accordance with the terms of the agreement at that time, both parties agreed to collaborate in the field of prescription drug e-commerce by jointly establishing an online sales platform and an offline warehousing and distribution network for prescription medications.

Meanwhile, both parties will increase their capital investment in Shanghai Pharma Healthcare Cloud Commerce Co., Ltd. (“Shanghai Pharma Cloud Health”). Specifically, Shanghai Pharma will inject 100% of the equity interest in Shanghai Pharma Zhongxie Pharmaceutical Co., Ltd. (“Shanghai Pharma Zhongxie”) into Shanghai Pharma Cloud Health through a capital increase, while JD.com will make a capital contribution to Shanghai Pharma Cloud Health in the form of cash and valued related resources.

As the primary platform for bilateral collaboration, Shanghai Pharmaceuticals Cloud Health focuses on three core platforms: “E-Prescriptions,” “Drug Data,” and “Patient Data.” The E-Prescription platform integrates with hospital HIS systems and self-pay prescription systems; the Drug Data platform connects with retail pharmacy inventory and distribution information; and the Patient Data platform enables tracking of patients’ long-term medical visits, drug purchases, and medication usage. Through this integration, the market size and potential for growth are substantial.

According to the official website of JD Health’s Yaojingcai platform, the currently available product categories include medications for respiratory, digestive, urological, cardiovascular and cerebrovascular, anti-allergy, and anti-tumor conditions. Pharmaceutical suppliers include Guangdong Zhenkang Pharmaceutical, Beijing Yuekang Yuantong Pharmaceutical, Siji Huitong Pharmaceutical, and Hebei Zhongxin Pharmaceutical, among others. Delivery services cover four provincial-level regions: Beijing, Tianjin, Hebei, and Guangdong.

In addition, JD.com has extended its procurement strategies from other sectors to this domain, offering buyers “Baitiao” financial services. According to materials on “Yao Baitiao,” pharmaceutical purchases enjoy a “buy now, pay later” option with a maximum credit limit of RMB 500,000 and interest-free repayment within 30 days.

In fact, it is very common for pharmaceutical companies to advance payments in offline drug procurement. JD Health has adopted this model, which may gain approval from purchasers.

In summary, JD.com’s pharmaceutical business can be categorized into three major segments: B2B, B2C (comprising both self-operated and marketplace models), and O2O (leveraging partner pharmacies and crowdsourced delivery). If synergies are achieved among these segments—for instance, by having partner pharmacies source products through JD Health and operate flagship stores on its platform—JD Health could potentially build substantial influence in the pharmaceutical sector.