Proceeding from the principle of economics, the logic of "demand breeds the market, and the market generates profits" seems to be a footnote to the current prosperity of the pharmacy industry.
Observing the changes in the streetscape, the situation of bubble tea shops blooming everywhere is gradually contrasting with the growth of the number of pharmacies, and even in some areas, the distribution density of pharmacies has surpassed the former, which is a thought-provoking phenomenon.
It has been pointed out that pharmacies are frequently popping up in commercial blocks as short as a few hundred meters, and these pharmacies not only coexist well, but also show lasting business vitality, and there is no obvious wave of store closures.
This situation has led to widespread speculation that the operation of pharmacies may contain considerable profit potential.
Is opening a pharmacy really a high-yield business activity, and if it is lucrative, it should theoretically attract more market participants, so why doesn't everyone choose to get involved in this space?
The act of opening a pharmacy is in fact far more complex and rigorous than the public generally believes, in stark contrast to the situation of opening a bubble tea shop.
The operation of bubble tea shops is relatively simple, the threshold for technical learning is not high, and most brands will provide detailed operation training when recruiting franchisees, and the initial investment is the main consideration, so the entry barrier is low.
In contrast, the establishment of pharmacies needs to carry higher social responsibility and professional requirements.
Pharmaceuticals are directly related to the health and safety of the population, and any medication errors can lead to serious consequences, which is very different from ordinary consumer products.
Although customers often have a clear idea of what they need when purchasing medicines, some people still rely on the professional advice of pharmacy staff, especially in the context of self-diagnosis and treatment of minor diseases, and they tend to seek appropriate drug recommendations based on their own symptom descriptions.
Therefore, the operation of pharmacies is not only about capital preparation, but also requires strict qualification review, professional pharmacy service team, and compliance with strict laws and regulations to ensure the accuracy and safety of drug supply, which constitute a high entry threshold unique to the pharmacy industry.
The wide variety of cold medicines used to treat common ailments, some specific to viral infections and others to bacterial infections, suggests that the choice of medicine is much more straightforward than it seems.
For the safety of drug use and to prevent potential legal disputes, the regulatory authorities have clearly stipulated that each pharmacy must have at least one qualified licensed pharmacist to protect the rights and interests of customers.
At the practical level, large-scale pharmacies are able to meet this requirement by hiring a full-time pharmacist, but for many small or self-employed pharmacies, the owners themselves often need to perform this role directly by obtaining a licensed pharmacist.
This regulation has undoubtedly raised the threshold for industry access.
To sum up, opening a pharmacy not only faces high qualification barriers, but also comes with significant economic costs.
Compared to bubble tea shops, which can usually operate in a space of about 10 square meters, the physical space requirements of pharmacies are significantly different and more stringent.
With a wide variety of pharmaceutical inventory, more spacious stores are required to ensure the display and storage of goods, and small stores are difficult to meet basic operational needs.
The greater dependence of pharmacies on business space directly leads to an increase in initial investment costs.
In addition, pharmacies need to have dedicated cold storage facilities to maintain the storage conditions of specific drugs, which is due to strict requirements for the stability and safety of drugs to prevent regulatory compliance issues that may arise from improper storage.
This is not only an additional investment in hardware, but also a fixed cost in ongoing operations.
Still, there are those who believe that despite the high cost of setting up and maintaining a pharmacy, as long as it is profitable, it is expected to pay off and ultimately be profitable in the long run.
It has been reported that the profitability margin of pharmaceuticals is more limited than that of certain FMCG categories, such as milk tea.
Taking milk tea as an example, the cost may be as low as 1-2 yuan, while the retail price can climb to more than 10 yuan, achieving several times or even more than 10 times the profit gain.
On the other hand, in the pharmaceutical industry, the average profit margin is usually maintained below 30%, showing a relatively conservative level of profitability.
With the rapid growth of the number of pharmacies and the increase in market saturation, the competition is becoming increasingly fierce.
In order to attract customers, many pharmacies have adopted promotional strategies such as member-only discount days and regular membership discounts, which not only enhance customer stickiness, but also inevitably squeeze profit margins and further reduce the revenue of individual stores.
In fact, the actual profitability of pharmacies is often lower than public expectations, and some studies have shown that the average annual net profit of ordinary pharmacies may only reach about 30,000 yuan.
So, what are the specific profit channels of pharmacies?
The primary path to profitability involves the marketing of specific high-margin drugs, even though such drugs have limited market share due to regulatory restrictions.
Conventional drugs on the shelves of pharmacies are usually capped at no more than 30% due to their abundant supply and relatively low profit margins, and the actual profit margin can be reduced to only about 5% after deducting operating costs.
As a result, these low-margin products are often strategically placed in inconspicuous locations and are only recommended when explicitly asked by customers.
Pharmacies are more inclined to promote drugs with significant profit margins, which can have profit margins of as high as 50 to 90 percent.
Secondly, pharmacies are partnering with brands to carry out in-store advertising as another source of profit.
Under this model, it has become the norm for pharmacies to set up advertising space within pharmacies, aiming to use such cooperation in exchange for purchase discounts provided by brands, which will help pharmacies control costs and improve profit margins.
Taking advantage of this partnership, brands can avoid the high cost of advertising directly in public media, and instead use the physical platform of pharmacies and their inherent trustworthiness to enhance the credibility of their products and effectively improve their market visibility.
Why are pharmacies not very profitable, but there are many of them
When it comes to the increase in the number of pharmacies and the driving force behind it, we have to pay attention to the "pharmacy association" policy measure actively advocated by the government.
Nowadays, most offline pharmacies, especially well-known chain brands such as Yixintang and Laobaimin, essentially benefit from the solid support of pharmaceutical companies behind them.
Most of these pharmaceutical companies have been successfully listed on China's A-share market, and through pharmaceutical research and development, they have brought rich profit returns, and the net profit benchmark is generally maintained at more than 10%, and Yifeng Pharmacy has highlighted its leading position in the industry with a net profit margin of 38.09%, which shows that such pharmaceutical companies have abundant funds.
The expansion of the offline pharmacy network not only serves the purpose of sales, but also serves as the forefront of brand promotion.
Each brick-and-mortar store invisibly assumes the role of a self-presenting billboard, and through a wide range of geographical layouts, the brand visibility is greatly enhanced, so that consumers gradually become familiar with and build trust in the brand in their daily contact.
Therefore, although individual pharmacies may face profit challenges, through chain and large-scale operation, pharmaceutical companies have effectively improved market awareness and brand loyalty, and achieved the dual goals of long-term brand building and market share.
Information sources:
"7 pharmacies on a 500-meter street, with an annual profit of only 30,000 yuan!Who opened a large-scale pharmacy in China?" - HI Kokola released on February 27, 2024