Selling medicines? Convenience stores will move the “cheese” of 450,000 retail pharmacies

Near the Qinglong Hutong in Dongcheng District, Beijing, there are three 24-hour convenience stores within less than 500 meters. CN-Healthcare went into these three stores and asked if there were over-the-counter (OTC) drugs. All the answers are negative. However, the clerks said that the possibility of buying medicines in the store will be very high in a couple of while, and a female store manager of one of the stores told us that the company has started to "prepare for the license".

Recently, the Beijing Municipal Commission of Commerce, together with other 6 departments including the Municipal Development and Reform Commission and the Finance Bureau, issued a notice on “Several Measures to Further Promote the Development of Convenience Stores”. Conforming to the notice, chain convenience stores can apply for the retailing operation of Class B non-prescription drugs according to relevant standards. Those who request the registration of Class II medical devices should be uniformly equipped with qualified management personnel.

As can be seen from the notice, the premises of convenience stores selling Class B OTC are, firstly, they must be “chain convenience store”, and secondly, they have to satisfy “relevant standards”. This means soon people will be able to buy Class B OTC drugs in chain convenience stores without even leaving their own community.

Currently, the main terminal for OTC sales is retail pharmacies. When the chain convenience stores join this sales channel, it will definitely affect the existing market structure.

OTC drugs can be divided into Class A OTCs and Class B OTCs. With white words on the red background is the class A, and the one on the green background is the class B. Class A OTCs can only be sold by hospitals and pharmacies. While in addition to these two, Class B OTCs can also be sold in hotels and department stores which has been approved by the drug regulatory authorities. The reason is that Class B OTC is relatively safer, such as Banlangen Effervescent Tablets, Niuhuang Shedan Chuanbei Dropping Pills, etc.

Allowing chain convenience stores to retail Class B OTCs also means to expand the scope of competition. In this regard, retail pharmacies may face a huge influence.

The truth is, if a chain convenience store retails OTC drugs, it can indeed bring convenience to the public. CN-Healthcare randomly interviewed several customers of the three previously-mentioned convenience stores at Qinglong Hutong, and the responses were basically the same – if convenience stores are able to sell common prescription drugs, it will increase convenience hugely since people don’t have to run to a pharmacy or worry about their closing time.

Said the convenience store clerk, there is a retail pharmacy next to the Lama Temple of Peace and Harmony subway station not far from Qinglong Hutong. The pharmacy clerk said that he was unaware of the convenience store selling non-prescription drugs, and after learning, he expressed concerns about the future sales of his pharmacy, because the nearby chain convenience stores are dense, which will inevitably divert some of his current customers.

China is the second largest health consumer of the OTC market in the world with an average annual growth rate of 6%. With the expansion of China's big health market, the scale of the OTC market will expand from the current 300 billion yuan to the next 600-800 billion yuan. This is the data released by the world-renowned pharmaceutical company Mylan in September 2018 when it announced its entry into the Chinese OTC market.

For retail pharmacies, the OTC market is essential. In recent years, due to the continuous influence of policies such as drug control and rational drug use, OTC for preventive health care has been preferentially reduced compared with prescription drugs for severe and clinical needs. Retail pharmacies have taken over the sale of OTC drugs from some hospitals and become the main terminal.

 According to the “Blue Book of China's Pharmaceutical Market Development in 2017” released by China Investment Corporation, in the total market of retail pharmacies in 2016, OTC accounted for 30.50% of chemical drugs, and double-span varieties accounted for 1.84%; OTC drugs accounted for the largest share of 56.57% among Chinese patent medicine while double-span accounted for 16.27%.

According to menet.com, there are more than 5,000 retail pharmacies in Beijing in 2017, and the total retail drug market is 10.5 billion yuan (including non-medicine). On the other hand, there are about 1,200 chain convenience stores in Beijing. Compared with the above-mentioned 5,000 retail pharmacies, the amount of chain convenience stores appears to be relatively insignificant. Yet, based on the notice, Beijing will reserve a space for convenience store business according to the standard of 10~20 square meters per thousand people in the residential project. In the next three years or so, the number of chain convenience stores in the city will reach more than 6,000, which will, in principle, achieve the goal of building no less than one chain convenience store in each community.

Shi Lichen, head of the Beijing Dingchen Medical Management Consulting, believes that this also means pharmacies will be more affected than the current situations with the increasing number of convenience stores and their advantages of location.

Commercial supermarkets ’entry to  the pharmaceuticals is not new

It is not new to sell medicines in supermarkets and convenience stores. According to Gao Jingyuan, the chairman of Beijing Juhe Lianjia Business Consulting Co., Ltd. and the founder of Chaoshang.com, commercial supermarkets have long been eager to try and want to get involved in drug retailing due to the high profits. At the operational level, supermarkets and convenience stores are not completely unfamiliar to the pharmaceutical retail industry, neither. In 2000, Shanghai government already allowed supermarkets to sell Class B OTC drugs, and then Guangdong Province in the year of 2004.

In March 2012, the Chengdu Food and Drug Administration issued the “Notice on Strengthening the Supervision and Management of Class B OTC Drug Retail Counters in Commercial Supermarkets”. It has been suggested that supermarkets that sell OTC drugs should be properly distributed in urban and residential areas with large population, and subways, train stations and airports where there are fewer pharmacies. The rational layout will provide a real convenience to the public.

At the end of 2015, Fujian Provincial Government promulgated the “Implementation Plan for Promoting the Rule of Law and Business Environment for the Modernization of Domestic Trade Circulation”, which proposed to allow chain convenience stores with 24-hour service capacity to set up convenient medicine cabinets to expand convenience consumption.

Fujian Daily reported in April 2016 that convenience stores in Putian have signed a drug distribution agreement with the pharmaceutical company: the medicine in the convenience medicine cabinet should be purchased and distributed by the pharmaceutical company, and convenience stores are responsible for the daily storage and sales.

It is worth noting that Putian City issued a document that clearly lists the list of drugs that are allowed to be placed in convenience stores, including 50 kinds of generic non-prescription drugs that are not highly required for storage conditions, and drugs outside the list are not allowed to enter convenience stores.

In 2017, the Shenyang Municipal Government's legal office issued the “Implementation Rules for the Acceptance of Pharmaceutical Retail Enterprises in Shenyang City”, which stated that “chain or franchise enterprises that operate non-pharmaceuticals may apply for the operation of Class B non-prescription drugs counters”. However, the government also put forward clear requirements for independent office space and distribution warehouses that are suitable for the scale of operations. In addition, the company headquarters must be equipped with at least one full-time qualified pharmacist (including TCM pharmacist) in charge of the quality control; each store must be equipped with at least one assistant pharmacist (including assistant TCM pharmacists) or one stuff who has a high school education or above and has passed the 60-hour training test of the drug regulatory department.

Today, Beijing will soon allow convenience stores to join the ranks of retail drugs. Given that Beijing is the capital of China, if this project is successfully piloted, it is more likely to be promoted in other provinces and cities. At that time, will the retail market structure of over 400 billion drugs in the country change dramatically, and the business of 450,000 retail pharmacies will be significantly affected?

However, there are also many people in the industry who are holding a wait-and-see attitude. Wang Fuguo, the Managing Director Secretary of Yifu Pharmacy, issued an essay on the E company's capital community on 23rd, saying that the policy will not impact on pharmacies. The important factors that determine the purchase of medicines are “convenience, professionalism, quality, price, payment, etc.”, Chinese pharmacies will continue to exert professional benefits around these factors and usher in a long-term stable development.