Pharmaceutical companies turn to established retail websites to expand

SHANGHAI - With the rapid development of the Internet and the consequent changes in lifestyles and shopping habits, Chinese pharmacies are now further tapping into the online business-to-consumer (B2C) sector to raise profits.

ForMe Drugstore, the largest chain drugstore in Shanghai, saw a sharp daily increase of orders from online selling in just two weeks after it entered the Taobao Mall, or tmall.com, a B2C trading platform run by the country's largest online retail website, Taobao, in late June.

The website of www.yaofang.com. Chinese pharmacies are looking to online business-to-consumer sites as the route to expansion. [Photo / China Daily]

"There is a significant increase in the number of orders from the online business and page views on the website in just a short period of time. Now we receive an average of 300 to 400 orders every day. Before that, the figure was about 50 to 100," said Wu Yijian, general manager of ForMe Drugstore.

"An upsurge in medicine sales online will be seen soon. We are very confident of that," he added.

ForMe established its online medicine selling platform daoyao.com in 2008 when it received the medicine online information service license and medicine online trading license from the State Food and Drug Administration (SFDA).

"Our own e-commerce platform developed at a slow pace in terms of consumer flow and influence," Wu told China Daily, adding that cooperation with a third-party online trading website will help expand its online market and improve sales.

"ForMe puts a premium on the quality brand image of Taobao Mall and its huge number of online customers," he said. "Taobao's 60 million users and its rich experience of B2C business will give an enormous impetus to the development of medicine e-commerce.

"It's actually a win-win cooperation between Taobao Mall and these chain drugstores. It will help promote the drugstores' brand spread and provide a large consumer flow. In the meantime, Taobao, without its own online medicine trading license, can take this opportunity to enter into the medicine selling industry."

Wu expects medicine sales through e-commerce will account for 15 to 20 percent of the sector by the end of the year. Currently the figure is less than 2 percent.

On June 20, Taobao announced that its dedicated B2C platform Taobao Mall had launched a new online pharmacy channel called yao.tmall.com. Also entering the new channel are Beijing-based Golden Elephant Medicine (jxdyf.com), Hangzhou-based Jiuzhou Drugstore (dada360.com), Jiangxi-based Kaixinren (360kxr.com) and Yunnan Baiyao (yunnanbaiyao.com.cn). About 10,000 types of products are listed on yao.tmall.com, including non-prescription drugs, healthcare items, medical instruments and reproductive health goods.

"Like ForMe Drugstore, all of these four chain stores have State-approved online trading licenses. They also have their own online selling website. But with the help of Taobao, which holds nearly half of China's e-commerce market share and many customers, drugstores will generate more profits," said a medicine industry insider surnamed Zhang.

But Zhang quickly added that "policy factor will be the main bottleneck for TaoBao as well as other third-party online trading websites developing medicine B2C businesses".

Restrained by current policy, Taobao Mall currently doesn't have the online trading license but does possess an online medical information service license, which means it is only permitted to offer online medical information services.

Zhao Nige, from Taobao's public relations department, said Taobao Mall works simply as "a medicine information service platform". She added: "The management and online health information consulting service are operated by these drugstores."

Although Taobao stressed that the real trading is still between the State-approved B2C drugstores and customers, some industrial insiders believe Taobao Mall is effectively involved in the business.

According to the regulation of online medicine trading, the operator of an online medicine B2C trading platform should only be the drug retailing company. That is to say, third-party online trading websites such as Taobao Mall that integrate many chain drugstores online are not allowed to sell medicine.

The Zhejiang food and drug supervision department has demanded Taobao Mall make changes to its medicine B2C channel. Currently, the yao.tmall.com site is under "system repair and update". Customers are advised to buy the products they want directly from drugstores' own websites.

It is not known when yao.tmall.com will be restored, and both national and Zhejiang food and drug supervision departments did not supply further information.

In addition to Taobao, other popular online trading websites are also tapping into medicine e-commerce, hoping for a larger share of the promising market.

Recent media reports said E-Commerce China Dangdang Inc, an online bookstore and general merchandise retailer listed on the US stock market, will also enter the online medicine B2C business and plans to apply for a license from the SFDA and to hold talks with Sionpharm Group Co Ltd.

Paipai.com, an online trading website owned by Tencent Holdings Ltd, launched an online drugstore in May.

The Jointown Pharmaceutical Group, the country's largest privately owned medicine distributor, will also further tap into the online B2C medicine sector. The company is in talks with 360buy.com, China's leading B2C website, to form an online medicine sales joint venture.

"It has become a trend to develop an online medicine B2C business, although the size of online medicine sales currently is still very small," said Liao Guanghui, general manager of the Guangzhou-based 800pharm.com, which was formed in 2009 as the country's first online third-party trading platform specializing in drugs and health products.

"The development of e-commerce has eliminated the boundaries of traditional distribution channels. Consumers all over China, especially those in the most remote inland areas, have access to drugs which are not easy to find where they live," said Liao, who has more than 10 years of research and management experience in the medicine industry.

"E-commerce in selling medicines could make drug-pricing more transparent. Compared with traditional physical drugstores, online drugstores have obvious price advantages. The cost of rents and management for a physical store can be saved and further lower the drug price," he said.

The average drug price in online stores will be 10 to 20 percent lower than that in physical drugstores, Liao said. He suggested that the government should make some changes to related policies to promote the development of medicine e-commerce and further lower prices for customers.

Statistics from the China Association of Pharmaceutical Commerce showed that the entire medicine retail market in China is worth about 150 billion yuan ($23 billion), of which online medicine sales only represented 70 million yuan, or just 0.046 percent. In other developed countries, the proportion is beyond 20 percent.

In 2011, hospitals will still be the main retail outlet for medicines, accounting for 60.2 percent. They will be followed by retail drugstores with about 21.9 percent. Third-party retail outlets, mainly medicine e-commerce sites, will account for 18 percent. By 2020, the market share of hospitals and retail pharmacies will decrease, and third-party retail outlets are expected to replace retail drugstores in second place, according to the South Medicine Economic Research Institute.

"It is a certainty that there is great potential in the medicine B2C online business in coming years. But online consuming behavior has yet to be cultivated. Currently, the habit of buying drugs online has not yet been established completely. So developing the market and educating customers is a priority during the initial phase of the development of medicine e-commerce," said Liu Zheng, consulting director from Beijing-based research company Analysys International.

"There are still problems that call for solutions in developing medicine e-commerce, such as delivery and safety issues," Liu added.

"Unlike common goods, medicine requires stricter standards of packing and delivery. Safety and timeliness are very important. It means a higher requirement on logistics companies. The current logistics systems don't seem able to meet these demands."