Author/ Author of "Finance and Economics" Weekly Zhou Xiangyue
Editor / Chen Fang
The first stock of the high-end dental chain
22 years ago, Yu Hua, a writer who "abandoned medicine and followed literature", once commented on his dentist career, "Looking at other people's mouths every day is the most scenic place in the world." ”
Yu Hua's tired mouth has actually been plaguing countless Chinese. The data shows that 97% of adults in the mainland have oral problems, don't look at the toothache is not a disease, but the pain is really fatal. Fortunately, there are still a group of people who love the cause of dental and have solved hundreds of millions of Chinese oral problems.
Rare is one of them. Founded in 1999, the company has 111 directly operated stomatological hospitals and outpatient clinics, more than half of which have a business cycle of more than six years, and its business covers 15 cities across the country, serving more than 7.4 million patients. At present, this company will become the first stock of China's mid-to-high-end dental chain.
On March 22, Rare Group officially landed on the Hong Kong Stock Exchange with an issue price of HK$14.62, raising a total of about HK$680 million, winning the crown of the first stock of China's mid-to-high-end dental chain. Prior to its listing, Arrail Group received five rounds of financing totalling US$400 million from Temasek, Orbo Capital, Goldman Sachs, Hillhouse Capital, Qiming Venture Capital, New Horizon Capital and KPCB.
The reason why Rare can be recognized by the capital market is not unrelated to its outstanding performance. According to the prospectus, in fiscal 2021, Rare Achieved Revenue of 1.515 billion Yuan, an increase of 37.7% year-on-year, which far exceeded the industry. According to the Frost & Sullivan report, the compound annual growth rate of China's oral medical service market in the past five years has been 9.6%, of which the compound annual growth rate of private oral medical services is 13.9%.
The largest contributor to Rare's revenue was general dentistry, which accounted for 54.7% of the 2021 fiscal year, followed by orthodontics and implants, which contributed 22.6% and 19.8% respectively. This more balanced business structure shows the unique positioning of Rare Group to provide one-stop, full-cycle oral medical services and build a lifelong relationship of trust with customers. The core reason why Rare's growth rate is higher than the industry is that it has been focusing on the mid-to-high-end market.
As of September 30, 2021, Rare's Arrail Dental Department, which focuses on the high-end market, has opened 51 dental clinics in 7 cities across the country, including Beijing, Shanghai, Guangzhou, and Shenzhen, most of which are located in prime commercial areas and Grade A office buildings, facing the affluent people with high purchasing power in first-tier cities.
According to the Frost & Sullivan report, in terms of revenue in 2020, Rare Dental has occupied 24.1% of the market share of the high-end private oral medical service market, far surpassing the second-ranked Ma Taki Dental department and the third-ranked United Family Medical, becoming a veritable leader in the field of high-end private oral medical services.
Ruitai Dental, a subsidiary of Rare, is positioned in the mid-market, mainly for middle-class consumer groups in first-tier cities and core second-tier cities. As of September 30, 2021, it has opened 7 hospitals and 53 clinics in 10 cities, usually located near densely populated residential areas, to facilitate consumer access to specialized dental services at more affordable prices, with Rite-Hite Dental accounting for 1.1% of the market share in the mid-range private dental market.
In the number of key assets of dental hospitals, the strength of Rare Group cannot be underestimated. According to the Frost & Sullivan report, as of December 31, 2020, Rare had a total of 1271 dental chairs, and Rare's annual visits to each dental chair were generally higher than the industry average, from 2018 to 2020, Rare was 1041, 1116 and 966, respectively, while the industry average in the same period was 700, 700 and 600.
The income of single-tooth chair is also at a higher level in the industry, such as the income of the single chair position of the Rare Dental Brand is up to 3 million yuan / year, and the income of the single chair position of the Rite-Hite Dental brand can reach up to 2 million / year, far exceeding the single-tooth chair income of Tongce Medical, which is also a listed private dental medical institution, which is about one million yuan / year.
With these, In the past decade, Rare has served more than 7.4 million patients, and the number of patients is still growing at a high speed, and the return rate and customer satisfaction of loyal customers have always remained at the forefront of the industry. For the six months ended September 30, 2021, the number of Rare patients and the total number of visits were 398,800 and 805,000, respectively, an increase of 37.82% and 28.53% year-on-year, respectively, and the return rate of loyal customers was 47.6%. In the past three fiscal years, Rare's customer satisfaction rate has been as high as 97%, but the customer complaint rate is only 0.016%, which is far below the industry average of 1.00%.
How does Rare impress consumers?
Why are so many consumers willing to go to Rare to see the mouth?
This is not unrelated to Rare's corporate culture and the service concept of "Rare Way", which is implemented in 5A and 5S. 5A refers to the 5A experience, which means that the whole process of service is divided into 5 important touchpoints and links, aiming to provide customers with a quality experience, thereby improving customer satisfaction and loyalty; 5S refers to the 5S specification, which is simply to ensure that "Nissin is clean at all times", and makes great efforts in environmental creation and behavior norms.
In order to play the key card of "quality user experience", Rare has made a lot of efforts. According to the prospectus, Rare is a pioneer in the use of four-handed dentistry and ADA standards in China to sterilize and disinfect dental instruments.
The so-called four-handed dentist, in simple terms, is that a dentist is equipped with a special nurse to assist in oral medical operations. This is very different from a nurse in a public hospital who has multiple jobs, and the nurses in the four-handed dentist are more attentive, not only fully assisting the dentist and allowing him to concentrate on dental treatment, but also calming the patient's emotions in a timely manner.
In order to reduce the patient's fear of dental treatment and the pain of treatment, Rare is one of the first private institutions to introduce the finest anesthetic needles from abroad. At the same time, in order to eliminate the pain of the needle at the moment, Rare also added epithetectronic treatment to ensure that patients do not feel pain even during the anesthetic.
"This will be a great relief for people who are afraid of needles." Gao Feng, who has been treated many times in Rare, told the "Finance world" weekly that due to fear of injections, he will be nervous during oral treatment, but several treatments in Rare are smooth, almost no feeling, and the anesthesia has been finished.
He later analyzed that the needle is on the one hand, the attending doctor's hand speed and technical stability are also on the one hand, and more importantly, the nurse's action of gently patting his shoulder on the side, and even the pressure ball that is tightly held by himself during treatment, actually relieves his own pressure invisibly.
"Don't underestimate these details, it will make you feel that you are accompanied by someone around you, and you can feel the warmth of professionalism." Gao Gao added. Since then, Riel has become the first choice for peak dental viewing, and he values the one-stop oral medical services here, as well as the concepts of multidisciplinary consultation, case classification, doctor classification, and moderate treatment.
Gao Feng's first oral treatment was in a public hospital, and the experience was very bad at that time. It was 9 years ago, due to the long-term use of teeth to bite the beer bottle cap, a large tooth of the peak suddenly cracked one day, he immediately went to a dental hospital in Beijing, a toss to pull out the bad tooth, but the implant, post-repair also have to re-register, back and forth several times, the entire treatment cycle of more than 1 year.
"After I had a dental implant, I had acute pulpitis on the opposite side of a tooth due to overuse, and I had to go to the stomatological hospital for root canal treatment." Gao Feng helplessly said that at that time, the doctor cured pulpitis and also gave a crown, but did not fully consider the situation that there were implants in the mouth of Gao Feng, resulting in problems with the bite of the teeth, until he went to Riel for treatment later, and finally was paid attention to by the general practitioner and properly debugged and solved.
Compared with public hospitals, private hospitals are much more convenient, and after patients say the main complaint, doctors will give a full set of treatment solutions based on this and based on questions and answers from different angles. "He will not only fundamentally solve the problems you treat, but also consider aesthetics, teeth bites and other issues." Gao Feng told the "Finance world" weekly that Riel was most satisfied with him, not only to help him solve the pain, but also to do moderate treatment, really from the patient's point of view.
Riel does have his own unique understanding of moderate treatment. According to industry sources, the simplest criteria and principles for moderate treatment within Rare are actually "today I am a doctor, you are my relative, I will treat you, I will recommend you what kind of program."
"This is obviously different from some medical institutions that are more transactional customer relationships, and Rare pursues more of a virtuous circle formed by word of mouth and word-of-mouth recommendation after establishing a long-term relationship of trust with customers, rather than buying and selling, bringing traffic through a large number of marketing promotions and quickly realizing." An industry insider explained.
It is understood that in order to better maintain the long-term relationship of trust with customers, Rare and Ruitai will even specially prepare various customized customer appreciation activities and regular return visits and care such as wine tastings, flower arrangements, spring tours, etc. These initiatives have had a tangible impact. According to the prospectus, in FY2021, about 22% of Arrail's new patients were referred through existing patients.
On the other hand, Rare also reaches more consumers through corporate customers. For example, Rare Dental has signed contracts with dozens of large-scale well-known enterprises at home and abroad, such as China Merchants Bank, Ping An, Chinese Life, deloitte China, etc. Currently, Rare's individual patients and corporate clients generate 93% and 7% of total revenue, respectively.
This 7% of corporate customers has brought more popularity to it. Some netizens have shared on social media that because of the benefits given by the company, they went to Rare Dental to experience a dental cleaning service, and found that whether it is a "quiet and tidy waiting area, beautiful as flowers, soft-spoken reception nurses and customer service", or a doctor who will chat with herself while washing, excellent technology and thoughtfulness, or a small gift of toothpaste received at the end, the customer satisfaction return visit received the next day, are very able to poke her heart.
Ninety percent of dentists have worked for more than three years
For Rare, 2001 was a year to remember. In the second half of this year, Arrail Group, which has been established for more than two years, got millions of dollars in financing and began to try to develop nationwide, opening a Beijing-foreign store in Shenzhen, more than 2,000 kilometers away from Beijing, Shenzhen Diwang Building Clinic. The following year, Rare continued its efforts to move into a third city, Shanghai, and added 4 new branches in one fell swoop.
The national chain was easier said than done, and soon Riel encountered a talent challenge. When opening its first store in Shenzhen, Rare was able to send mature doctors trained in Beijing to serve as business leaders, but when it opened 4 new stores a year, Rare's talent training was a bit stretched, and the service quality of the clinic dropped significantly.
After realizing the problem, Zou Qifang, the founder of Rare Group, decided to temporarily slow down the pace of expansion and solve people's problems first. At the beginning, mature talents were recruited from the society, but soon Zou Qifang found that these external doctors who had not undergone long-term training, practice and run-in were difficult to change their cognition and agree with Rare's corporate culture and service standards, but the quality of service was difficult to control.
"You still have to cultivate yourself." Zou Qifang, who thought clearly about the problem, creatively chose a rather risky solution in 2005 - taking the lead in campus recruitment in the field of private oral medicine and began to train dentists herself.
Young blood comes in, how to cultivate? Rare first established a "morning meeting" system to help newcomers grow rapidly through daily case exchanges and discussions. After that, through the construction of a teaching mechanism, the establishment of training bases, long-term cooperation with well-known universities at home and abroad to provide visiting programs and scholarship programs, and the creation of online knowledge sharing and teaching platform "Rare Academy" and other measures, a complete talent training system has been built.
To retain talent, Rare also offers physicians a clear career path, giving them the freedom to take a technical route focused on dental skills, complex cases and advanced surgeries, or to transition from dentistry to management roles. Equity incentives and partnership mechanisms have made the interests of dentists and corporate interests strongly bound.
According to the data, at present, 17 dentists of Rare have been promoted to management and business partners under the partnership mechanism, and a large employee stock ownership plan has been implemented, and 22.42% of the restricted stock incentive has been granted to 616 employees and middle-aged executives in the group. On October 1, 2021, approximately 45% of the incentive share in the ESOP was granted to frontline healthcare workers.
Riel's many efforts in talent have indeed paid off. According to the prospectus, as of September 30, 2021, of the 882 experienced full-time dentists it has an average of 10.2 years of industry experience, more than 50.7% of full-time dentists have a master's degree or above, 31.9%, 11.2% and 4.8% of dentists with more than five, ten and fifteen years of employment with Rare, and the retention rate of full-time dentists with three years or more work experience is even a staggering 95.8%.
It is understood that there are also special training camps for Evergreen Business School within the Rare Group, which specializes in cultivating backbones such as regional general managers, regional medical deans, clinic directors and operation directors, and has been carried out for four or five phases.
Do the "Starbucks" of the dental industry
Before the talent problem was solved, Rare was a well-known "slow company" in the industry, opening only 11 clinics from 1999 to 2010. Until the summer of 2010, after the maturity of talent, operation and other conditions, Rare began to focus on the brand, after more than a year of preparation, in March 2012 officially launched the second brand - Rite-Hite Dental, began to carry out the expansion of the dual brand road.
At this time, relying on the steady development of the previous ten years, Arrail Dental has accumulated a good reputation both on the consumer side and the industry side, and Rite-Hite Dental, which belongs to the same group, can be said to have brought its own high-quality endorsement of Arrail Dental at the beginning, the most direct embodiment is in the recruitment of talents.
In 2015, when Rite-Hite Dental acquired a local dental chain brand in Chongqing, the recruitment of doctors has always been one of the biggest weaknesses and pain points of the latter. After the strategic cooperation with Rare, the chain brand relied on Rare's strong influence and high reputation in the recruitment market, and quickly recruited a number of graduates from famous universities, such as graduates of the West China School of Stomatology of Sichuan University, one of the five major universities in the dental industry, and several experts from master's and doctoral supervisors to join.
According to the prospectus, Rare Group's current external expansion strategy is mainly self-construction and mergers and acquisitions in parallel, but whether it is self-construction or mergers and acquisitions, from the head of the clinic to the doctor to various suppliers and other industry insiders, in fact, in the end, it should be more recognized and affirmed by Rare's brand reputation and corporate culture. This has brought a lot of help to Rare's national chain business.
Chain industry expansion system level must also have a very strong support, especially if consumer medical enterprises do not have their own medical management system to support expansion, once the management radius expanded to a certain extent, it will be stretched.
In order to ensure that the service quality and operational efficiency are not affected in the national expansion, Rare has indeed gradually formed a set of platform-based standardized business development and operation management models in practice.
According to Zou Qifang, the founder of Rare Group, in an early interview, about ten years ago, Rare has begun to develop IT digital infrastructure construction, hiring professional IT company IBM to help develop an ERP system. In 2018, Rare officially set up an IT team of 20 or 30 people, and spent more than a year to develop a standardized, digital and intelligent SaaS system platform that is rare in the industry. The platform greatly helps employees deliver a consistent customer experience to patients at any of Rare's hospitals and clinics.
"We actually agree with Starbucks, a giant in the coffee space." Zou Qifang also introduced that Starbucks is not only a well-deserved godfather of enlightenment in the coffee industry, but more importantly, it has gone through decades and experienced ups and downs, but its basic performance is growing steadily.
"This is also why we often say that slow is fast, because only by laying the foundation of corporate culture, IT digital infrastructure construction, institutional system, user experience, industry influence and so on to form a closed loop can you open a positive cycle of business expansion and deployment." He once said.
In this context, Rare has finally achieved certain results in the national chain business.
For example, the Chengdu market, which mainly enters through off-site self-construction, opened the first dental hospital in 2014, and then added 5 new clinics until December 31, 2020, and the corresponding revenue of the Chengdu market increased by 100% at a compound annual growth rate from fiscal 2015 to fiscal 2021, and the number of dental chairs increased from 19 to 81.
The Chongqing market, which focuses on mergers and acquisitions, completed its entry in 2015 by acquiring ten clinics, followed by opening a hospital and six clinics, and the corresponding annual revenue of the Arrail Chongqing market was from fiscal 2016 to fiscal 2021, achieving a compound annual growth rate of 35%, and the number of dental chairs increased from 80 to 217.
Empower small and medium-sized clinics
The story of Rare and its founder Zou Qifang began with a "coincidence".
At the end of 1996, Zou Qifang, who was also working as a management consultant at a management consulting company, met his former boss in Hong Kong, Henry Winter, chairman of Sino-American SmithKline, and learned that the other party had just acquired the largest dental implant production company in the United States at that time and wanted to expand the dental implant business to the Chinese market. Zou Qifang, who had always wanted to do something practical, immediately became interested in this matter.
After surveying more than a dozen cities in China, he further found that the public's demand for medical services is increasing, but the medical field has not yet been liberalized, and he believes that there will be huge business opportunities in the dental market that is still a blank. In April 1999, Zou Qifang took the lead in playing the concept of "service" and opened the first high-end dental clinic on the edge of Chang'an Avenue in Beijing, Arrail Dental, and from the very beginning set the guidelines and tone of "customer-centric" and "moderate treatment" for Arrail.
This year, Zou Qifang was 45 years old, which can be regarded as a "late bloomer". And the first half of his life, but also quite dramatic, 16 years old into the construction site as a mason, 25 years old is the first batch of college students after the recovery of the college entrance examination, 29 years old into the Tianjin Pharmaceutical Bureau as a translator, soon joined the Sino-US SK, as the head of production planning, but also as a marketing manager, 37 years old when the limelight is in full swing but chose to go to the United States to study MBA, after graduation and into the United States Xinfu Bank to engage in finance, to Kearney Consulting Company as a consultant, until the age of 45, by creating a high-end dental clinic, became the first batch of returnees in China.
In the following two decades, Zou Qifang and Riel can be said to have participated in and witnessed the entire process of change in private dentistry from closed to open, from barbaric to orderly, and the rise of oral care awareness among Chinese consumers.
In the second year of the establishment of Rare Dental, the Ministry of Health and other four departments issued the "Implementation Opinions on the Classification Management of Urban Medical Institutions", so that private hospitals began to enter the stage of standardized development. At this time, Riel, who was in its infancy, did the most work to popularize science and let people know the importance of oral care.
After 2010, with the introduction of relevant policies of government departments, the gradual liberalization of market access, the acceleration of social capital, and the sharp increase in market demand, Arrail Group embarked on the road of expansion, and through the launch of the mid-range brand Ruitai Dental, reached a wider range of people and quickly seized the market.
"The high price for the high-end market, the number of people who can afford to spend is doomed to be small, but the mid-end market is more suitable for seizing market share." People familiar with the matter said that after 2012, Rare began to tilt a large number of resources to Rite-Hite Dental, "Rite-Hite Dental is growing at a high speed, and Rare Dental is slowing down appropriately."
An example is that since 2010, Rare Dental has added about 40 new clinics, covering 7 cities, but Ruitai Dental has come to the fore, successfully entering 10 cities in 10 years, opening 7 hospitals and 53 clinics. In terms of revenue, in fiscal 2021, the revenue of the two major brands of Arrail Dental and Ruitai Dental accounted for an equal proportion, 50.6% and 49.4% respectively.
As for the future strategic trend, informed sources revealed that Rare Dental will hope to go up a step further, and build a more high-end Rare plus flagship store in cities such as Chengdu and Chongqing that originally did not have Rare Dental to serve the part of the people who really stand at the tip of the pyramid, and the rest will be handed over to Ruitai Dental to serve, truly separating the boundaries of the two brands.
At the same time, Arrail Group will continue to expand the Rite-Hite Dental network by accelerating self-construction and strategic mergers and acquisitions in parallel to cover more cities in China and provide more customers with high-quality and differentiated oral medical services.
More importantly, in view of the current situation that the mainland oral medical service market is still relatively fragmented, informed sources revealed that Rare Group plans to further empower external institutions and doctors in the industry through the DSO model in the future.
The DSO format that Rare wants to make efforts is an imported product of successful verification in the foreign oral medical industry, and the core lies in "empowerment". In simple terms, it is to provide business solutions such as management, operation, IT, finance, legal, training and other dental clinic operation support to various other small and medium-sized clinics in the industry by using the standardized capabilities of digital infrastructure facilities and services that have matured by chain enterprises.
"In the future, Arrail will consider infiltrating more sinking markets through this DSO format." According to people familiar with the matter, Rare will not have an equity association with small individual clinics, but will help these clinics operate more standardized and standardized by charging management fees. The complete set of standardized system platform that Rare has opened up internally, as well as some advantages in brand, customer acquisition, technology, talent, supply chain, etc., will actually help it empower external enterprises in the future.
The above-mentioned person said, "In the short term, Arrail Group's national layout is mainly based on self-construction, supplemented by mergers and acquisitions, but in the long run, the business model of DSO format will become more and more important." ”
(At the request of the interviewee, Gao Feng is a pseudonym)
This article is originally produced by AI Finance and Economics, an account of Caijing Tianxia Weekly, without permission, please do not reprint it on any channel or platform. Violators will be prosecuted.