Tang Xunfang, Beijing Report -- Some pharmaceutical B2C businesses are eagerly waiting.
"Everyone is looking forward to Tmall's Medicine Mall, after all, Taobao can bring a lot of traffic," Shi Wenlu, the General Manager of Kxnr Online Pharmacy said on February 17th. Kxnr Online Pharmacy once operated in the Tmall Medicine Mall for one and a half months, and the revenue generated was comparable to its own independent B2C website.
Previously, there were rumors in the market that Tmall's Medicine Mall would reopen on February 28th. Online medicine merchants like Kxnr Online Pharmacy, who intended to make big moves on this platform, had high hopes. But it appears that this might be wishful thinking.
On February 17th, Yan Qiao, the head of Tmall's PR department, stated that currently the Tmall Medicine Mall only has the function of displaying information, and the actual transactions will be completed by jumping to the merchant's website, which complies with the regulations of the Food and Drug Administration. Regarding the rumor that the mall did not open as scheduled on February 28th, Yan Qiao said that Tmall had never informed the merchants that it would go online on February 28th. Currently, Tmall's Medicine Mall is continuing to recruit merchants, and the launch time has not been determined.
If Tmall's Medicine Mall does not 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 China Online Pharmacy Council, in 2012, the revenue scale of pharmaceutical B2C is expected to reach 1.5 billion yuan, nearly four times more than the 400 million yuan in 2011. Facing this blue ocean, independent B2C platforms such as Kxnr Online Pharmacy, Jinxiang.com, Yaofang.com, and No.1 Pharmacy are rushing ahead, attracting comprehensive e-commerce platforms like Taobao, Tencent, and JD.com to enter the market.
"In 2012, pharmaceutical e-commerce is still a process of gradual experimentation and laying the groundwork," Pai Daiwang analyst Li Chengdong believes that due to restrictions in policy, logistics, professional medical personnel, etc., pharmaceuticals will not become the main category of online retail for now.
The Rare Qualification Certificate
Shi Wenlu deeply regrets the twists and turns of Tmall's Medicine Mall. On June 20th, 2011, Taobao Medicine Mall went online. Soon after, due to lack of online drug sales qualification, it was ordered to stop and rectify by Zhejiang Food and Drug Administration.
After a four-month suspension for rectification, the pharmacy reopened, increasing the number of resident pharmaceutical merchants from five to fifteen. A merchant who moved in told reporters that Tmall Medicine Mall only has the qualification certificate for information display, while the resident pharmaceutical merchants have the transaction qualification certificate. Initially, they thought that this combination would work, but things didn't turn out as expected.
"Actually, as long as we optimize Tmall's purchase process, and jump to the merchant's own page at the 'checkout' stage, then Tmall would just provide information services without offering transactions." Shi Wenlu indicated that in this way, Tmall would have no issues with qualifications.
Several pharmaceutical merchants interviewed by our reporter said that they had already solved this technical problem, but they don't know why the Food and Drug Administration hasn't approved Tmall.
Li Chengdong analyzed that next, Tmall needs to obtain the "Internet Pharmaceutical Transaction Service Qualification Certificate" for its Medicine Mall to possibly open normally.
But obtaining this certificate is difficult. Currently, only fifty enterprises have obtained both the "Internet Pharmaceutical Transaction Service Qualification Certificate" and the "Internet Pharmaceutical Information Service Qualification Certificate". Merchants holding the former can sell medicines online, while those holding the latter are allowed to display pharmaceutical information online.
Similarly affected is Tencent Paipai. In May 2011, Tencent Paipai launched pharmaceutical products, but the pharmaceutical category has remained suspended ever since.
"One Year of Expansion" Troubles
"In 2012, the entire medical retail market outside hospitals will reach 400 billion yuan, and it is estimated that 5-10% of this will be converted to online sales. This scale is already quite large," Shi Wenlu believes that after books, audiovisual products, 3C, clothing, etc., online pharmacies may very well become representatives of the third wave of China's e-commerce.
Based on these judgments, Shi Wenlu believes that 2012 will be the year of category expansion for pharmaceutical B2C. He set a goal for Kxnr Online Pharmacy: to achieve a turnover of 200 million yuan in 2012. Similarly, Niu Zhengzhen, CEO of Jinxiang.com, expects that Jinxiang.com's revenue in 2012 will triple compared to the 40 million yuan in 2011, reaching 120 million yuan.
These independent pharmaceutical B2C merchants once had high hopes for comprehensive e-commerce platforms. However, currently, these platforms' progress in the pharmaceutical industry has not been smooth.
In 2010, JD.com partnered with Jiuzhoutong to establish JD Hao Yishi. In May 2011, Tencent Paipai launched pharmaceutical products. In June 2011, Tmall's Medicine Mall went online. However, up until now, Hao Yishi has not achieved full-time operations, and the efficiency of drug delivery has not been satisfactory. A relevant person in charge of JD.com told reporters that JD Hao Yishi has not officially gone online and is still 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 is our year of full acceleration. Previously, we have made great efforts in basic construction such as technology, goods, channels, and logistics," Luo Ling, Market Director of Jinxiang.com, believes that benefiting from the rapid increase in online shopping population, the online sale of drugs can also rise accordingly. Moreover, although the pharmaceutical industry is strictly regulated by national policies, conversely, fewer merchants possess qualifications, resulting in less intense competition compared to other e-commerce细分 industries, giving each pharmaceutical B2C ample opportunities.
Currently, various pharmaceutical B2C companies are enthusiastically expanding their product lines, focusing on health supplements, OTC (non-prescription) drugs, adult products, etc.
Shi Wenlu believes that people's perceptions of medicine are gradually changing. Before, people always considered medicine as an emergency item needed for treatment, requiring a trip to the hospital. In fact, emergency drugs come in many categories, among which foundational drugs for treating colds, fevers, etc., belong to family staple medicines, and users are willing to buy them online.
Currently, Kxnr Online Pharmacy mainly focuses on OTC (non-prescription) drugs with health supplements as a supplement. In the future, the proportion of the two will remain unchanged, but the capacity will expand rapidly. Shi Wenlu said that in 2012, he will increase the SKU (stock keeping unit) numbers of better-selling categories, including weight loss, beauty care, colds and fevers, blood replenishment and hair growth, as well as tonic products and male kidney supplements, aiming to double the 10,000 SKUs of 2011.
Luo Ling said that in 2012, Jinxiang.com will increase the variety of goods and extend the product line. Among them, the focus will be on increasing the sales of health supplements. She believes that online sales are more suitable for health supplements. Currently, the sales ratio of health supplements in offline pharmacies is small, but with people's growing attention to health, health supplements have great potential.
"Profitability is currently impossible"
"Currently, almost none of the pharmaceutical e-commerce companies are profitable," an industry insider told reporters. Currently, most online drug sales consist of OTC drugs, which have low unit prices and gross profit margins. Like other e-commerce companies, pharmaceutical B2C requires substantial market promotion, leading to deficits.
Reporters learned that the gross margin for offline pharmacies is 20%-25%, while online pharmacies have a gross margin of 10%-15%, with some e-commerce companies having even lower margins of 10%-12.5%.
"Pharmaceutical e-commerce needs to accumulate 3-5 million members to have the opportunity to become profitable," Li Chengdong told reporters. Currently, no pharmaceutical e-commerce company has reached this standard. It is understood that Kxnr Online Pharmacy has nearly 2 million users, Jinxiang.com has over 1 million, and Yaofang.com has 1.2 million.
"Currently, pursuing profitability is impossible; I hope to break even by the end of 2012," Shi Wenlu frankly admitted that for pharmaceutical B2C, profitability is just a matter of time, and currently, what is needed is to expand scale while adhering to regulatory policies.
To improve its logistics team and find solutions for the prohibition of mailing drugs as stipulated by the National Food and Drug Administration, Kxnr Online Pharmacy will start building its own logistics team in the second half of this year.
"Building its own logistics has a prerequisite: the daily order volume in this city needs to reach 800 orders, and the average order value should be around 280 yuan to balance the expenditure of building its own logistics. If this standard is not met, it might be better to use third-party logistics," Shi Wenlu said that Kxnr will not establish logistics for delivering cold-chain drugs because this part involves significant investment with minimal returns.
Similarly, to ensure the safety of drugs and make buying medicine online as reliable as buying clothes, major pharmaceutical e-commerce companies put great effort into packaging their goods. "Jinxiang.com has very strict packaging for drugs. Each drug is wrapped in a layer of packaging and labeled with anti-counterfeiting tags. The outer box of the courier package is also labeled with another layer and two seals. During the signing receipt process, customers are required to sign themselves. If consumers find the packaging has been tampered with, they can refuse to accept the goods," Luo Ling said that pharmaceutical e-commerce companies handle the delivery process more meticulously and strictly than other commodities, so the packaging cost of parcels has increased by one fold.
"The logistics supervision of the National Food and Drug Administration mainly focuses on the warehousing part, and the requirements for the delivery part are secondary," an industry insider told reporters that the preservation conditions for drugs are relatively stringent, requiring constant temperature, and the preservation conditions for different products vary.
"Even if they have the license for pharmaceutical logistics, pharmaceutical e-commerce companies still need IT systems for fine management," Li Chengdong believes that for drugs, production dates and batch management are very important. If mistakes occur, they could lead to serious consequences, even endangering lives.
"The warehouses of various pharmaceutical B2C companies are still in the early stages of development, and they cannot yet properly store some products with high storage condition requirements," the previous industry insider believes that pharmaceutical B2C companies need to increase investment in this area, otherwise, it may become a weakness in their development.
For the required specialized talent, currently, various pharmaceutical B2C companies are actively recruiting. Currently, these pharmaceutical B2C companies already have professional medical personnel as customer service staff, and they plan to gradually increase this ratio. It is understood that one-third of the customer service staff at Kxnr Online Pharmacy are graduates from pharmaceutical secondary and higher vocational schools, and this ratio will increase to two-thirds in the future.
Luo Ling told reporters that Jinxiang.com has integrated health information and arranged for physicians and pharmacists to interact with users. Luo Ling believes that customer service staff only need basic medical knowledge because consumers generally only buy non-prescription drugs online.