Tang Xunfang, Beijing Report — Some pharmaceutical B2C companies are eagerly awaiting developments.
"Everyone is looking forward to Tmall's Medicine Mall because Taobao can bring a lot of traffic," Shi Wenlu, the General Manager of KXIN Online Pharmacy, told reporters on February 17. He mentioned that KXIN Online Pharmacy had trial-operated in Tmall's Medicine Mall for one and a half months, generating revenue comparable to their independent B2C website.
Previously, there were rumors in the market that Tmall's Medicine Mall would reopen on February 28. Online pharmaceutical merchants like KXIN Online Pharmacy who intended to make significant moves on this platform were hopeful. However, it seems that these expectations may not be realized.
On February 17, Yan Qiao, the head of Tmall's PR department, stated that currently, Tmall's Medicine Mall only has the function of displaying information, with specific transactions being completed by redirecting to the merchants' websites, complying with the regulations of the Food and Drug Administration. Regarding the rumor that the Medicine Mall would not open as scheduled on February 28, Yan Qiao said that Tmall had never informed the merchants about going online on February 28. Currently, Tmall's Medicine Mall continues to recruit merchants, and the exact launch time is yet to be determined.
If Tmall's Medicine Mall fails to open as scheduled, Shi Wenlu will have to readjust his focus for 2012 back to his own independent B2C platform.
According to a report from the China Online Pharmacy Council, in 2012, the revenue scale of pharmaceutical B2C is expected to reach 1.5 billion yuan, nearly four times the 400 million yuan in 2011. Faced with this blue ocean, independent B2C platforms such as KXIN Online Pharmacy, Jinxiang.com, Yaofangwang, and No.1 Pharmacy are rapidly expanding, attracting comprehensive e-commerce platforms like Taobao, Tencent, and JD.com to enter the market.
"2012 will still be a year of gradual experimentation and preparation for pharmaceutical e-commerce," Paideya analyst Li Chengdong believes that due to restrictions in policy, logistics, professional medical personnel, etc., pharmaceuticals will not become a major category in online retail anytime soon.
The Complicated Qualification Process
Shi Wenlu regrets the twists and turns of Tmall's Medicine Mall. On June 20, 2011, Taobao's Medicine Mall went online but was quickly shut down by Zhejiang's Food and Drug Administration for lacking the necessary qualifications for online drug sales.
After four months of suspension for rectification, the medicine mall reopened, increasing the number of resident pharmaceutical merchants from five to fifteen. A merchant who joined mentioned that Tmall's Medicine Mall only has the qualification to display information, while the resident pharmaceutical merchants have the transaction qualification. Initially, they thought this combination would work, but unfortunately, it did not go as planned.
"Actually, as long as Tmall optimizes its purchasing process and redirects to the merchant's own page at the 'checkout' stage, then Tmall would merely provide information services without engaging in transactions," Shi Wenlu said, indicating that this way, Tmall would have no issues with qualifications.
Multiple pharmaceutical merchants told our reporter that they had technically solved this problem, but they do not know why the Food and Drug Administration has not approved Tmall.
Li Chengdong analyzed that next, Tmall needs to obtain the "Internet Pharmaceutical Transaction Service Qualification Certificate" for its Medicine Mall to operate normally.
However, obtaining this certificate is difficult. Currently, only fifty enterprises have obtained the "Internet Pharmaceutical Transaction Service Qualification Certificate" and the "Internet Pharmaceutical Information Service Qualification Certificate." Merchants holding the former can sell drugs online, while those with the latter can only display pharmaceutical information online.
Similarly affected is Tencent's Paipai. In May 2011, Tencent Paipai launched pharmaceutical products, but the pharmaceutical category has remained suspended since then.
"A pharmaceutical regulator now tightens the issuance of these two certificates and has centralized the authority to issue them. Previously, each province could approve certificates, but now they can only recommend candidates," an industry insider told us. Many merchants across the industry continue to apply for licenses.
"The Troubles of Expansion Year"
"By 2012, the entire medical retail market outside hospitals is expected to reach 400 billion yuan, with an estimated 5-10% shifting to online sales. This scale is already quite substantial," Shi Wenlu believes that after books, audiovisual products, 3C products, and clothing categories, online pharmacies are likely to represent the third wave of China's e-commerce boom.
Based on these judgments, Shi Wenlu believes that 2012 will be the year of category expansion for pharmaceutical B2C. He set a goal for KXIN Online Pharmacy: reaching 200 million yuan in turnover in 2012. Similarly, Jinxiang.com CEO Niu Zhengyu expects Jinxiang.com’s revenue to triple in 2012, reaching 120 million yuan from 40 million yuan in 2011.
These independent pharmaceutical B2C merchants once placed high hopes on comprehensive e-commerce platforms. However, these platforms have not made smooth progress in the pharmaceutical industry.
In 2010, JD.com partnered with Jiuzhou Tong to establish JD Good Pharmacist. In May 2011, Tencent Paipai launched pharmaceutical products. In June 2011, Tmall's Medicine Mall went online. However, as of now, Good Pharmacist has not achieved full-time operation, and the efficiency of drug delivery is unsatisfactory. A relevant person from JD.com told reporters that JD Good Pharmacist has not officially gone online and remains in the testing phase. Meanwhile, Paipai and Tmall's Medicine Mall are also in a state of "difficult birth."
As a result, online pharmaceutical retailers can only continue to rely on their own platforms.
"2012 will be our year of comprehensive acceleration. Previously, we invested considerable effort into foundational construction such as technology, products, channels, and logistics," Luo Ling, the marketing director of Jinxiang.com, believes that benefiting from the rapid increase in online shopping populations, the online sale of medicines can also grow proportionally. Moreover, although the pharmaceutical industry is strictly regulated by national policies, this results in fewer qualified merchants, leading to less intense competition compared to other e-commerce sub-industries, giving every pharmaceutical B2C company ample opportunity.
Currently, all pharmaceutical B2C companies are enthusiastically expanding their product lines, focusing on health supplements, OTC (non-prescription) drugs, and adult products.
Shi Wenlu believes that people's perceptions of medicine are gradually changing. Previously, people always considered medicine as an emergency item needed for treatment, requiring a visit to the hospital. In reality, emergency medicines come in various categories, among which basic medicines for treating colds and fevers are family staple medicines, and users are willing to purchase them online.
Currently, KXIN Online Pharmacy mainly focuses on OTC (non-prescription) drugs, supplemented by health supplements. In the future, the proportion of these two categories will remain unchanged, but their capacities will expand rapidly. Shi Wenlu stated that in 2012, they will increase the SKU (stock keeping unit) numbers of well-performing categories, including weight loss, beauty and skincare, cold and fever, blood replenishment and hair growth, tonics, and male kidney tonics, aiming to double the 2011 figure of 10,000 SKUs.
Luo Ling mentioned that in 2012, Jinxiang.com will increase its product variety and extend its product line, particularly focusing on boosting health supplement sales. She believes that online sales suit health supplements better. Currently, health supplement sales account for a small proportion in offline pharmacies, but with increased public attention on health, health supplements have great potential.
"Profitability is Impossible at Present"
"Currently, almost no pharmaceutical e-commerce companies are profitable," an industry insider told reporters. At present, most online drug sales consist of OTC drugs, which have low unit prices and profit margins. Similar to other e-commerce businesses, pharmaceutical B2C requires substantial market promotion, leading to financial deficits.
Reporters learned that the gross profit margin of offline pharmacies is 20%-25%, while online pharmacies have a gross margin of 10%-15%. Some e-commerce companies even have a gross margin of 10%-12.5%.
"Pharmaceutical e-commerce needs to accumulate between 3 to 5 million members to have a chance at profitability," Li Chengdong told reporters. Currently, no pharmaceutical e-commerce companies have reached this standard. It is understood that KXIN Online Pharmacy has close to 2 million users, Jinxiang.com has over 1 million, and Yaofangwang has 1.2 million.
"Currently, pursuing profitability is impossible; I hope to break even by the end of 2012," Shi Wenlu admitted. For pharmaceutical B2C, profitability is just a matter of time. Currently, the need is to expand scale while adhering to regulatory policies.
To improve its logistics team and find solutions for the national Food and Drug Administration's stipulation that "drugs cannot be mailed," KXIN Online Pharmacy will begin establishing its own logistics team in the second half of this year.
"Building self-owned logistics has a prerequisite: the daily order volume in this city must reach 800 orders, and the average order value should be around 280 yuan to balance the expenses of self-built logistics. If this standard isn't met, it might be better to use third-party logistics," Shi Wenlu stated. KXIN will not establish logistics for delivering refrigerated drugs because the investment is large and the returns minimal.
Similarly, to ensure drug safety and make users feel as confident buying medicine online as they do clothes, major pharmaceutical e-commerce companies are meticulously packaging their goods. "Jinxiang.com strictly packages its drugs, wrapping each item individually and attaching anti-counterfeiting labels. The outer packaging box is sealed with another layer and has two security seals. During the receipt process, users are required to sign personally. If consumers find the package tampered with, they can refuse the delivery," Luo Ling explained. Compared to other products, pharmaceutical e-commerce is more detailed and strict in its delivery process, thus doubling the packaging costs.
"The National Food and Drug Administration's logistics supervision mainly focuses on warehousing, with less emphasis on delivery," an industry insider revealed. Drugs require strict storage conditions, such as constant temperature, and different items have varying storage requirements.
"Even if you possess a pharmaceutical logistics license, IT systems are still needed for precise management," Li Chengdong believes that production dates and batch management are crucial for drugs. Any errors could lead to severe consequences, even endangering lives.
"Currently, the warehouses of various pharmaceutical B2C companies are still in the initial development stage, and they cannot adequately store items with stringent preservation requirements," the aforementioned industry insider believed that pharmaceutical B2C companies need to increase their investments in this area, otherwise, it could become a weakness in their development.
Regarding specialized talent, currently, all major pharmaceutical B2C companies are actively recruiting. These pharmaceutical B2C companies already employ professional healthcare workers as customer service representatives and plan to gradually increase this ratio. It is understood that one-third of KXIN Online Pharmacy's customer service staff are graduates of pharmaceutical secondary or junior colleges, and this ratio will increase to two-thirds in the future.
Luo Ling informed us that Jinxiang.com has integrated health information and arranged for physicians and pharmacists to interact with users. Luo Ling believes that customer service personnel possessing basic medical knowledge is sufficient because consumers typically only buy non-prescription drugs online.
Share to:
Related Reports:
Tmall Medicine Mall Gains Approval from the Food and Drug Administration Amid Ambiguous Attitudes from All Parties
Tmall Medicine Mall Likely to Restart at the End of the Month with Official Approval from the Food and Drug Administration
Tmall Medicine and Health Care Mall Resumes Operations, But the Peak of Online Drug Purchases Has Yet to Arrive
Sina Technology Weibo Recommendation