Players mull over pharma retail

Groups previously not known for pharmaceutical retail are now showing an increasing interest in the market Photo: Le Toan

PT Kimia Farma, Indonesia’s largest state-owned pharmaceutical company, is pondering Vietnamese expansion by snapping up a local business. Potential acquisition targets for the company include Vietnamese retail pharmacy firms, as reported by The Jakarta Post.

According to PT Kimia Farma finance director I.G.N Suharta Wijaya, the company was studying Vietnamese regulations to establish if they are compatible with the company’s ambitions.

“It the regulations are good, we will enter the country this year,” he said, adding that to enter Vietnam, PT Kimia Farma has to hold the majority of shares in a local company as otherwise, the investment was not secured.

He noted that the retail pharmacy business in Vietnam was more lucrative than in Indonesia. “For example, a pharmacy outlet in Indonesia can book 1.5 billion rupiah ($104,100) in sales per month. In Vietnam, a pharmacy outlet could get about 4 billion rupiah ($227,600) monthly.”

Indonesia’s leading retail pharmacy chain and healthcare provider Century Pharma, a subsidiary of the Pharos Indonesia Group, made an entrance into Vietnam in 2017. The first Century Healthcare health and beauty store was opened at Bitexco Tower in District 1 of Ho Chi Minh City. As present, the chain boasts 13 stores in shopping malls as well as 11 outlets in prime locations in the municipal city.

Meanwhile, private equity firm Mekong Capital has issued funding to pharmacy chain Pharmacity. The investment reflects the attractiveness of Vietnam’s retail pharmacy market.

Chad Ovel, partner of Mekong Capital, said that Pharmacity was the first retailer in the sector to demonstrate that all of Vietnam’s regulations and compliance thresholds can be met and still generate a healthy store level profitability.

As of April, Pharmacity’s store network has increased significantly to 186 stores in Ho Chi Minh City, Can Tho, Binh Duong, Vung Tau, and Hanoi. The company is now the largest pharmacy retail chain in Vietnam, and by 2021 Pharmacity plans to enlarge its network to more than 1,000 stores with a national presence across Vietnam.

In addition to foreign players, local companies are also eager to tap into the modern pharmacy channel. Vingroup launched a chain of 11 VinFa pharmaceutical stores in Hanoi in November 2018. VinFa recently signed a memorandum of understanding with Switzerland’s DKSH, a global market expansion service provider, for their comprehensive collaboration in the area of domestic and international distribution of pharmaceutical products.

Electronic retailers Mobile World and FPT Retail have also ventured beyond their traditional businesses and into pharmacy retail. In 2017, Mobile World acquired a 40 per cent stake in Phuc An Khang pharma chain, while FPT Retail took over Long Chau’s retail chain with expectations that its pharmaceutical business will make up 40 per cent of its total revenue within the next 3-4 years. FPT retail has plans to expand the Long Chau pharmacy chain with 400 outlets by 2022.

Another local chain, Phano Pharmacy, has over 60 outlets in Vietnam with locations mainly in hospitals and supermarkets. The chain has established a presence in Ho Chi Minh City, the Mekong Delta, and in the central region. It also has plans to open more drug stores, focusing on the southern market.

According to Bertrand Sauvageon, vice president of Business Development and Strategy at DKSH, in the last twelve months the number of modern pharmacy outlets has increased by more than 75 per cent, with the pace accelerating within a few players who are opening nearly one outlet every other day. “Modern pharmacy chains still represent roughly 1.5 per cent of the total number of licensed pharmacies, but already 5.5 per cent of the total pharmacy channel retail sales value,” he said. “And this share, which has been growing by more than a percentage point per year over the last two years, is expected to grow faster in coming years.”

He added that in an overall trade channel which is growing by a high single-digit percentage for imported medicines, modern pharmacy chain sales are growing twice as fast as independent pharmacies. However, this overall strong growth is hiding a very distinctive dynamic from pharmacy chains, with many having difficulty in growing sales per established outlet, and few top players experiencing both a double-digit growth of sales in their established outlets, as well as incremental growth from rapidly opening new stores.

By the end of June 2018, Mobile World reported a loss of VND734 million ($31,900) for its pharmaceutical business. Meanwhile, FPT Retail is undergoing fast growth but is also in the red. In 2019, the company aims to achieve VND500 billion ($21.74 million) in revenue with a net loss of VND20 billion ($870,000).