KanZhongYi Files IPO Prospectus: Online User Acquisition, Offline Profitability in Internet + TCM Model

The “Internet + Traditional Chinese Medicine (TCM) Industry Forum,” themed “Change and Opportunity: Identifying New Focal Points in the TCM Industry,” was held on the afternoon of July 1 at Zhubang 2000 Business Building, Ciyunsi, Chaoyang District, Beijing. The event was hosted by VCBeat, co-organized by Kan Zhongyi, and received media support from Jinri Toutiao, Sohu Health, NetEase Technology, Bioon, Life Times, People’s Health Channel, Life Times, 36Kr, Health Point, China Digital Healthcare Network, and New Kangjie.                           

The forum brought together industry leaders, including Lu Gang, Partner at Legend Star; Li Sirui, General Manager of the Strategic Development Department at Tasly; Gong Qiao, General Manager of the Big Health Division at Taikang Online; Xu Jing, Deputy General Manager of Kangmei Smart Pharmacy; Zheng Wei, Board Secretary of Zhongjing Ketou; Zhu Tianyu, Partner at BlueRun Ventures; and Luo Feng, Founder and CEO of Kan Zhongyi, to jointly discuss key issues amid the transformation of the traditional Chinese medicine industry against the backdrop of healthcare reform.

The traditional Chinese medicine (TCM) industry has a long history in China. In recent years, with the development of internet technology, the integration of the TCM industry and the internet has sparked a wave of entrepreneurial enthusiasm, particularly in 2015, which saw a small peak in startup activity.

Zheng Wei, Secretary of the Board of Directors of Zhongjing Ketou, mentioned at the forum that, analyzed according to the five-wave pattern proposed by Elliott, the entrepreneurship in the “Internet + Traditional Chinese Medicine” industry is currently in the initial stage of Wave 3.

2011–2015 marked Wave 1, a phase characterized by sporadic financing cases, such as Qiming Venture Partners’ investment in Junhetang and NEA’s investment in Gushengtang.

2015–2016 marked Wave 2, a phase characterized by macroeconomic downturn, during which costs, demand, and financing were all adversely affected, leaving industry participants unable to generate profits.

Currently, entrepreneurship in this field has entered the initial phase of Wave 3. Throughout this wave, favorable policies will be rolled out with significant impact, capital will flood in, and the top three players in the traditional Chinese medicine (TCM) healthcare industry will emerge.

At the forum, Gong Qiao, General Manager of Taikang Online’s Big Health Business Department, mentioned that Taikang Insurance had previously conducted an interesting big data experiment via the internet, which revealed substantial market demand among Chinese consumers for traditional Chinese medicine (TCM) services.

In fact, according to data released by the National Health and Family Planning Commission, the market size of China's traditional Chinese medicine (TCM) industry had already exceeded RMB 600 billion in 2013, with an annual growth rate of over 30%. At this pace, the market for China's TCM industry is projected to surpass RMB 1 trillion by 2020.

Lu Gang, a partner at Legend Star, believes that compared with Western medicine, the “new services” offered by Traditional Chinese Medicine (TCM) possess inherent advantages. First, TCM is more holistic in nature and characterized by the principle that “a single practitioner can provide comprehensive care.” TCM physicians can make diagnoses without relying heavily on large-scale medical equipment, which aligns well with the healthcare environment in primary care markets. Second, data shows that in 2014, outpatient fees at TCM general hospitals were approximately 15% lower on average than those at general hospitals, while inpatient costs were 34.7% lower. The relatively lower treatment costs of TCM can effectively alleviate the financial burden of healthcare for residents in primary care settings. Furthermore, the TCM concept of “preventive treatment of disease,” which encompasses “preventing disease before it occurs,” “preventing progression after onset,” and “preventing recurrence after recovery,” holds significant advantages and enjoys a strong public foundation in the prevention, management, and rehabilitation of common and chronic diseases at the primary care level.

Surveys indicate that 70%–80% of people have a preconceived notion about whether to seek treatment from traditional Chinese medicine (TCM) or Western medicine practitioners for specific conditions. Luo Feng, Founder and CEO of Kan Zhongyi, stated, “We do not need to convert users; we simply need to accurately match them with the appropriate conditions and practitioners. The potential user base for TCM is substantial, encompassing not only those who favor TCM but also individuals interested in wellness and health maintenance, as well as patrons of foot massage and reflexology services.”

“If the current problem in the Western medicine market lies in doctor-patient relations, then the problem in the traditional Chinese medicine (TCM) market is the lack of such relations.”

As Luo Feng mentioned, customer acquisition is currently a significant issue affecting the development of the “Internet + Traditional Chinese Medicine” industry.

To facilitate large-scale customer acquisition more smoothly, Kan Zhongyi took a step back, opting for features further removed from direct payment to cultivate user experience.

The lack of standardization in Traditional Chinese Medicine (TCM) is evident not only in medicinal materials but also in other aspects. In Luo Feng’s words, “nothing can be standardized.” Standardization does not necessarily mean uniformity; rather, it involves leveraging data to identify patterns and develop solutions to problems. “Since many people do not seek TCM services, data standardization can help us create broader customer acquisition channels.”

Thus, in the newly launched version 3.0 of the “See a TCM Doctor” app, the Health and Safety Guardian feature was introduced. On the “See a TCM Doctor” app, it can be seen that its human body health management function resembles the interface of “360 Security Guard,” allowing users to view various bodily metrics and providing a health assessment score. When any metric exceeds the warning threshold, the corresponding area of the body turns red to alert the user. As users develop the habit of self-examination, more of them will convert into paying subscribers of “See a TCM Doctor.”

“O2O-style family doctors” represent the second customer acquisition channel for TCM practitioners. By stepping out of their clinics and visiting patients at home, doctors can deliver a superior experience, thereby enhancing patient retention.

Mobile clinics for Traditional Chinese Medicine (TCM) consultations also serve as a significant customer acquisition channel. This team-based service model allows companies to schedule physicians for on-site consultations in groups. While providing care to employees, the physicians establish individual health records for each employee. These records are shared with the company’s human resources department and simultaneously accumulated within the platform as user-specific personal data. Currently, mobile clinics account for 70% of the TCM consultation business volume. “Since the launch of our mobile clinic services, our conversion rate for in-home physician visits has increased from 7% to 27%.”

Furthermore, collaboration with the National Office on Aging has introduced a new customer acquisition channel for Kan Zhongyi. According to VCBeat’s analysis, national policies related to the traditional Chinese medicine (TCM) industry introduced in recent years have encouraged and supported TCM-based elderly care, creating opportunities for Kan Zhongyi’s eldercare services. In the future, elderly care will be a key development direction for Kan Zhongyi. “We have currently expanded into eight communities and four nursing homes, providing services to 1,263 elderly individuals.”

Surveys conducted by traditional Chinese medicine (TCM) practitioners have revealed that mobile internet has unlocked an additional 30% of market demand for TCM services. Among users seeking TCM services via mobile platforms, the gender ratio is 1:1 between males and females. In contrast, among patients at traditional offline TCM clinics, female users account for 70%, while male users also constitute 70%.

Furthermore, currently, among users visiting offline clinics, those aged 45 and above account for 68%, whereas on internet platforms offering Traditional Chinese Medicine (TCM) services, over 70% of users are under the age of 30. One reason for this phenomenon is that existing, older TCM patients already have established channels for supply and demand, “while the powerful internet has brought a wave of young new users to TCM.”

As the product representative closest to profitability within the VCBeat Forum, Kan Zhongyi’s “Teacup Theory” reveals the core of profitability for Internet Plus traditional Chinese medicine (TCM) products: offline stores.

Within the traditional Chinese medicine (TCM) system, there are three tiers of medical institutions: clinics, outpatient departments, and hospitals.

The clinic’s service area covers approximately two square kilometers, with a monthly revenue of around RMB 100,000 and roughly 100 repeat patients. The cost to establish a clinic is approximately RMB 200,000. However, the clinic is not authorized to dispense medications, even though pharmaceutical sales constitute a major revenue stream for traditional Chinese medicine (TCM) services.

Compared with clinics, the advantage of outpatient departments lies in their ability to prescribe medications.

The outpatient clinic serves a 5-square-kilometer radius, with approximately 300 repeat patients, yet its establishment costs amount to around RMB 3 million.

The hospital serves a catchment area of approximately 10 square kilometers, with initial setup costs of around RMB 12 million. It has acquired 1,000 returning patients, generating an estimated monthly revenue of roughly RMB 2 million.

In contrast, outpatient clinics are the most suitable for integration with the internet. The internet can help outpatient clinics attract more returning patients and reduce customer acquisition costs. This is akin to a teacup: the internet platform serves as the rim, gathering more users through this opening, who ultimately settle at the “bottom of the cup,” namely, the offline outpatient clinic.

Currently, the business operations of Kan Zhongyi’s smart outpatient clinics and smart pharmacies have been fully rolled out, allowing users to purchase medications directly at these clinics. This also represents a key revenue model for Kan Zhongyi.

To enable the rapid expansion and replication of the TCM Smart Clinic and Smart Pharmacy services, and to better implement the “Teacup Theory,” the team developed “Kan Zhongyi+.”

“This is a lightweight, agile SaaS system that can integrate with Hospital Information Systems (HIS),” enabling connectivity with offline physical outpatient clinics and facilitating their integration with the internet.

Taking Kan Zhongyi’s own offline clinics as an example, since integrating the “Kan Zhongyi+” platform, its outpatient service volume has increased by 79%, and revenue has risen by 92%, with 67% derived from medical technical services and 23% from pharmaceutical sales.