How Vietnam pharmacy chains manoeuvre for bigger market share

Major pharmacy chains in Vietnam are restructuring themselves to gain a bigger market share in the lucrative domestic pharmaceutical retail market.

Pharmacity changes strategy to return

Born as early as 2011 and backed by foreign investors such as Mekong Capital and SK Group, Pharmacity continuously expanded to become the largest drug distributor with more than 1,000 stores by mid-2022.

However, its wrong strategy in shaping the chain under the model of convenience stores and in pricing products have made the company gradually lose ground and suffer continuous losses. Pharmacity's scale has shrunk from over 1,100 pharmacies at the end of 2022 to about 900 currently, losing its leading position to the Long Chau chain of FPT Retail.

After two changes in leadership with the departure of founder Chris Blank, Pharmacity is showing its determination to return. The new CEO, Deephanshu Madan, shared that the chain had shortcomings in service provision, uncompetitive prices, and quantity of goods at pharmacies failing to meet people's needs.

To change the situation, the chain has sought new product sources, launched a customer-centric strategy, and changed consumers' perception that Pharmacity is just a convenient pharmacy without prescription drugs.

While Long Chau prioritizes a competitive pricing strategy, Pharmacity is defined by consumers as in a higher price segment. To turn things around, Deephanshu Madan said that the chain has adjusted the selling prices of more than 1,000 drug products, offering more affordable prices than many local pharmacies. It aims for good and diverse prices to cater to people's different financial capabilities.

Pharmacity's changes will force pharmacies to review their product pricing, thereby benefiting consumers.

Long Chau develops health ecosystem

Although it was born later, the Long Chau chain, operated by FPT Retail - a member of tech giant FPT Corporation, has found the most successful and most quickly profitable business model with a market share of over 20%, according to broker KB Vietnam Securities.

At the end of Q2/2024, the chain had 1,706 pharmacies, an increase of 209 compared to the beginning of the year. According to its plan, Long Chau will reach the milestone of 1,900 pharmacies by the end of this year.

Its goal is to gain market share from smaller pharmacies, mainly private pharmacies and pharmacies in hospitals, which currently account for 85% of the total market.

Despite continuous expansion, Long Chau achieved revenue of only VND1.2 billion ($48,140) per pharmacy per month. In the first half, it recorded total revenue of VND11,521 billion ($462.2 million), up 67% year-on-year; and after-tax profit of more than VND200 billion ($8.02 million), double the figure in the same period last year.

However, Long Chau cannot continue to expand its pharmacies forever. CEO Nguyen Do Quyen analyzed that the market currently has about 45,000 pharmacies. Long Chau's revenue is about VND1.2 billion ($48,140) per pharmacy per month, 5-8 times higher than other private ones.

If the enterprise opens up to 3,000 stores, the number will be equivalent to 15,000-20,000 ordinary pharma outlets, or half of the market. Long Chau targets to build a healthcare ecosystem from prevention (vaccination), diagnosis, treatment, and pharmacies to home monitoring and insurance.

In addition to pharmacies, it has launched vaccination centers, numbering 87 by end-Q1. Although the expansion brings growth prospects, it also poses significant challenges in terms of establishing and operating an effective business model.

An Khang restructures, Trung Son Pharma accelerates

An Khang pharmacy chain was purchased by retail giant Mobile World Investment in 2017. The ambition of the owner at that time was to have 800 pharmacies by 2022 and 2,000 by 2023. However, after reaching the milestone of 500, it began to slow down.

At the same time, the more money was poured into expansion, the bigger the chain's losses were. It suffered losses of VND306 billion in 2022, VND343 billion in 2023 and VND172 billion ($6.9 million) in the first half of this year.

Therefore, the leadership decided to restructure the chain, continuously closing ineffective stores. Now the An Khang chain has only 343 pharmacies, down from 527 at the beginning of the year. Doan Van Hieu Em, a board member of Mobile World, said that the number of An Khang pharmacies will be reduced to 300 by year-end.

The Mobile World leader also noted that the main goal of the chain is to ensure enough medicines for customers and the qualifications of pharmacists. The chain will gradually reduce the number of pharmacies to operate at the lowest cost, then perfect the business model to achieve break-even results and expand.

A new emerging giant is Trung Son Pharma - a famous pharmacy chain in the southwestern region. In August 2023, South Korea’s Dongwha Pharm Group announced its acquisition of a 51% stake in Trung Son Pharma.

With this foreign partner, the enterprise has been accelerating strongly by continuously opening pharmacies in many southern provinces such as Vinh Long, Dong Thap, Tien Giang, Hau Giang, and Ben Tre.

The number of Trung Son pharmacies has now exceeded 200, an increase of 60 compared to the period prior to the acquisition. The chain aims to increase its scale to 460 pharmacies by 2026 and enter big cities where Pharmacity, Long Chau, and An Khang are fiercely competing.

Except for Long Chau, which is still expanding, Pharmacity and An Khang have slowed down to change their product and price strategies. Trung Son Pharma is also emerging as a formidable rival with two founders who are doctors with decades of experience and support from Dongwha Pharm Group.

All of this shows that the race for market share in the Vietnamese pharmaceutical market is very tense and will even intensify.

Vietnam's pharmaceutical retail sales are expected to increase from $7.7 billion in 2021 to $16.1 billion in 2026, more than doubling in five years, according to market research firm BMI.