Text/Xin na Zhang Jianfeng
Editor / Wang Xiao
Photo/Pexels
Zou Qifang's office hangs four words, "Tranquility and Distance.". The calligraphy comes from his 92-year-old father.
As a member of the Rare Group (06639. HK) chairman, always reminiscent of the "Thousand Stores Plan" he mentioned in 2017. "My temper is relatively urgent at home." Zou Qifang said in an interview with Caijing.
At the time, he proposed plans to reach a thousand stores by 2025. At that time, Rare had about 80 clinics and hospitals. On March 22, 2022, Zou Qifang landed on the Hong Kong Stock Exchange with Arrail Group with 111 stores.
It is difficult for Zou Qifang to achieve the ambitious "Thousand Stores Plan", which is behind the expansion dilemma of the entire dental chain. According to the Frost & Sullivan report, in terms of revenue, China's top five private dental institutions accounted for only 8.5% of the total market share in 2020. In fact, dental clinics can be seen in various streets and alleys, many and miscellaneous, but the regionality is obvious.
As one of the few dental chain targets in the capital market, "Tooth Mao" Tongce Medical (600763. SH) and Rare have chosen a completely different expansion model. The former's main position is in Zhejiang Province, using the "big belt small" model to radiate to the surrounding areas, and the pace is slow. The latter continues to expand stores in first- and second-tier cities through acquisitions or self-construction.
The advantages and disadvantages of the two methods remain to be seen. In Zou Qifang's view, the participants of oral service institutions can be more, so that everyone's demand in the oral area will be slowly released, and the market will develop faster.
In the era of cold weapons, we must first occupy the territory
If compared with the speed of milk tea shops opening hundreds of stores a year, the speed of the oral industry can be regarded as "snail climbing". Tonce Medical has been established for 15 years and now has 50 hospitals or clinics; Rare Group has opened 111 stores in 23 years.
Tongce Medical's 37 stores are opened in Zhejiang Province, and the most successful case is in Hangzhou, where more than half of its net profit comes.
Tongce Medical has explored a regional route and formed a regional hospital cluster in the form of "main hospital + branch hospital", that is, tongce medical treatment has become larger by acquiring existing dental institutions in various places. The first success story was the acquisition of Hangkou Hospital, a public stomatological hospital established in 1952 and second only to Zhejiang Provincial Stomatological Hospital in Hangzhou. After that, it was restructured as a private enterprise and became a wholly-owned subsidiary of Tongce Medical. So much so that even now, in the eyes of some locals, it is still regarded as a public hospital.
An industry insider previously analyzed Caijing, "The popularity of Tongce Medical Care in various regions is not high, relying on the resources and capabilities of the local stomatological hospital itself." ”
Tongce Medical's profitability mainly depends on the three central hospitals. In 2020, Tongce achieved 493 million yuan, and the three central hospitals accounted for 57.14% of the total revenue of the year.
The "Zhejiang model" of Tongce Medical has reached other provinces and is not easy to replicate. So, the other way is to cooperate to create a new brand, known as the "Dandelion Project", which is characterized by the use of power to spread.
However, among the "Cunji" brands jointly created by Tongce Medical and the University of Chinese Academy of Sciences, the early establishment of Wuhan Cunji Stomatological Hospital has a far lower status in the hearts of the locals than Hangkou Hospital in Zhejiang. At the 2020 shareholders' meeting, the relevant person in charge of Tongce Medical said that Wuhan Cunji has passed the breakeven point, but Xi'an, Chongqing and Chengdu do not have the conditions to establish a "dandelion plan".
One industry insider believes that the success of Tongce Medical now mainly relies on several reformed general hospitals in Zhejiang Province, and then expanded. If you blindly expand nationwide, the risk is not small.
On the afternoon of April 12, 2021, an investor asked: "At present, there are many dental clinics, and the concentration is very dispersed, are there more mergers and acquisitions plans to enhance the influence and popularity of Tongce Medical in the future?" ”
Tonce Medical responded that there is no high-quality M&A target at present. He also said that for the company, what must be done is to occupy the high-income areas of the oral market.
To target high-income people, you have to connect with the Rare Group. The dental war is still in the era of cold weapons, and the advantage is one is the commanding heights (good territory) and the other is people.
Photo/pixabay
Arrail Group has two brands, one is Rare Dental, which is mainly aimed at the affluent people with high purchasing power in first-tier cities, and the other is Ruitai Dental for mid-range customers. With two brands in hand, It is still difficult for Rare Group to find good stores.
In Beijing's Chaoyang district, near a small street less than a kilometer long near the U.S. and Japanese embassies, there are three dental clinics, including a Rare store, but not the most high-end of the three.
Rare Group Dental has tried to build stores in several second-tier cities, but it has not been as smooth as expected. As a result, Rite-Hite Dental was established in 2012 to continue to expand to second-tier cities. However, the Rare Group, which mentioned the Thousand Stores Plan in 2017, is still hovering in more than a dozen regions.
For the original intention of incubating Rite-Hite Dental, Zou Qifang believes that when she saw the rapid release of the needs of the domestic middle class, considering that they may not be able to afford the price of the Rare Dental brand, she launched Rite-Hite Dental.
In Zou Qifang's view, this is an important strategic decision in the development process of Rare Group, second only to the listing, "equivalent to creating a second curve for itself." Rite-Hite Dental can enter more new cities. ”
As of September 30, 2021, 51 Rare Dental Departments are located in seven cities, including Beijing, Shanghai, Shenzhen and Guangzhou. The 53 Rite-Hites are mainly located in densely populated residential areas in ten cities.
From the perspective of revenue data, at present, Rare Dental and Rite-Hite Dental contribute about half of the revenue. To reach this number, Rite-Hite Dental took 10 years and Rare Dental took 20 years. "But then again, the reason why Ruitai has been able to develop rapidly is actually with the influence of the Rare Dental brand." Zou Qifang said.
Expanding stores does not mean making money
Rare will continue its rapid expansion plans.
The use of the funds raised by the Hong Kong city can be seen: part of the funds will be used for business expansion and opening new stores in existing cities; part of the funds will be used for further penetration of existing first- and second-tier cities and expansion to new core second-tier cities.
The industry once rumored Ariel Group's VAM agreement with capital, such as "the market value before listing should not be less than $1 billion". Zou Qifang denied this.
In Rare's prospectus, a shareholders' agreement effective 31 March 2020 was mentioned. If it is not listed before 31 December 2020, the preferred stock holder may request redemption of the outstanding preferred shares held by the holder concerned. The agreement was subsequently amended and the redemption date has been extended to 31 December 2021. This also led to an increase in Riel's current liabilities.
Because there is a redemption clause for preferred shares, most Hong Kong companies put the funds invested by this part of the preferred shareholders on the debt side, which leads to an increase in liabilities.
From the first Rare Dental Clinic opened in Beijing's Chang'an Avenue in 1999, like a point of origin, it took 12 years to carve out 11 clinics. Capital is the most hilarious catalyst, and after obtaining The Series D financing led by Goldman Sachs, Hillhouse and CITIC in 2017, Zou Qifang proposed the "Thousand Stores Plan".
However, the expansion of the dental industry is not so easy.
In 2007, Tongce Medical acquired Beijing Jingchao Stomatological Hospital, which was consistently on the verge of profit and loss. In 2013, it lost 300,000 yuan, in 2014 it lost 290,000 yuan, and in 2015 it lost 2.19 million yuan. Now, Tongce Medical has put the Jingchao Stomatological Hospital into the in vitro incubation of listed companies.
Rare is also addressing the profitability of expansion. Zou Qifang explained, "Among the 111 outpatient clinics and hospitals under the group, more than half of the outpatient clinics and hospitals that have been operating for more than 6 years in a period of steady growth have exceeded 30% on average, and the profit margin of well-done stores can exceed 40%, but because the number of newly opened clinics and hospitals in more than 100 is still quite large, the overall average profit level has been reduced."
In Zou Qifang's view, based on the fact that the number of stores in the current stage of steady growth accounts for more than 50%, Rare Group has bid farewell to the stage of "small horse-drawn carriage".
According to media reports, in 2021, Lu Jianming, chairman of Tongce Medical, said on his official Weibo that Zhejiang is equivalent to a big country in Europe and can fully support Tongce Medical Care for 5-10 years. It can be seen that Tongce Medical is still mainly focusing on the resources in Zhejiang Province, while seeking opportunities outside other provinces.
The dentist is the key to this innings
Oral chain, the first solution is the doctor's resources. This is also an important factor restricting the expansion speed of dental clinics that are difficult to have milk tea shops.
Arrail said in the prospectus that due to the current shortage of dentists, the company has continued to provide more competitive remuneration for dentists.
The dental industry has two unequal numerical constraints: 190,000 and 110,000. The former is the number of existing practicing dentists, while the latter is the number of dental institutions.
From 2019 to 2021, the average income of each full-time dentist in The Rare Group was 1.3767 million yuan, 1.2879 million yuan and 1.8748 million yuan, respectively.
Zhou Wei, founding managing partner of Genesis Partners, believes that the development of ophthalmic medical care, a lot of income can be achieved by relying on medical high-tech equipment, which belongs to the asset-heavy model, and this development model is highly replicable. Relatively speaking, the growth of the scale of oral medicine depends more on the reserve and training of excellent dentists.
Private dental chain institutions will recruit fresh graduates every year to cultivate themselves. In its 2020 financial report, Tongce Medical revealed that a total of 200 doctors were hired by school recruitment and social recruitment.
Zou Qifang once admitted in an interview with Caijing that talent is still a challenge, but "talent" is divided into two levels, one is medical talent. As businesses grow in size and multi-city operations emerge, the next bigger challenge is the management challenge. The demand for management talents, the need for management structures, and the need for management effectiveness are all challenges for the next step.
According to Rare Group's prospectus, from fiscal 2019 to fiscal 2021, the company lost 304 million yuan, 326 million yuan and 598 million yuan respectively. However, in fiscal 2021, Rare Group's adjusted net profit got rid of losses and achieved a profit of 55 million yuan. For the six months ended September 30, 2021, the Company's figure was $31 million. "Achieving operational profitability in fiscal year 2021 is a milestone change for Rare." Zou Qifang thinks.
From the perspective of gross profit margin, Rare Group has averaged 16.4% in the past three years, of which 24.1% in fiscal 2021 and More than 40% per year in Tonce Medical. Behind this, there is a comparable data between the two is the cost of sales, especially employee compensation.
A person in the medical industry believes that with enough funds, it is not difficult to open a store, the difficulty is how to maintain good profitability, oral medical treatment does not make money, a large part of the reason is that medical institutions have insufficient cost control capabilities for doctors and staff.
From 2019 to 2021, the sales cost of Rare Group was 917 million yuan, 988 million yuan and 1.151 billion yuan, respectively. Among them, the most important part is employee welfare expenses, accounting for more than half of the total.
According to the 2020 annual report of Tongce Medical, the labor cost under "medical services" is about 637 million yuan. In that year, there were more than 3,000 health technicians, including 1,381 doctors. Even excluding medical technology and nurses, the labor cost of 637 million yuan is apportioned to 1381 dentists, and the average income of each dentist is 460,000 yuan.
Zhou Wei analyzed that if the rapid expansion of talent reserves is insufficient, the quality of service will not keep up.
The above-mentioned industry practitioners believe that for Rare Group, it is necessary to solve the problem of excessive operating costs, and whether Tongce Medical can go out of Zhejiang is also a test for managers.