I. Summary of Key Points
In 2025, the domestic pharmacy industry witnessed the largest wave of closures in its history, with over 35,000 stores closing nationwide, effectively ending an 8-year period of continuous store expansion. The industry seemed to be on the rebound in 2026: more people were visiting pharmacies to buy medicine, but due to the impact of online shopping and changes in healthcare policies, consumers became more cautious with their spending, resulting in a 3% decrease in average transaction prices. This marked a shift from an era of easy profit through sheer volume to one of intense competition focused on operational efficiency and cost-cutting.
Leading company Dachalin managed to achieve a 18% increase in core profits from drug sales in the first half of the year, despite the overall market downturn, and even saw its gross profit margin rise. At a time when other companies were hesitant to expand, Dachalin actively pursued mergers and acquisitions to acquire high-quality stores. Foreign investors and top securities firms are highly optimistic about Dachalin's prospects, indicating a rapid consolidation of the industry towards a few dominant players. As weaker competitors exit the market, Dachalin's market share continues to grow.
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II. Detailed Analysis by Dimension
1. The Pharmacy Industry's Crucial Test: One Out of Every Twenty Stores Closes
Many may not realize that running a pharmacy used to be a relatively easy business. Just a decade ago, opening a store near a residential area and relying on the natural flow of customers using healthcare insurance could generate profits without much effort, leading to annual growth in the number of pharmacies. However, 2025 saw the worst record for closures, with 35,700 stores closing—equivalent to one out of every twenty stores disappearing. Three main factors contributed to this situation:
1. Online delivery services have made it more convenient for customers to receive medication at home, reducing foot traffic to physical pharmacies.
2. Reforms to healthcare insurance policies have limited the amount of money that can be used from personal accounts, making consumers more cautious with their spending.
3. Increased regulation has curbed illegal practices such as using insurance to purchase non-medical products.
Despite some improvement in 2026, such as higher customer awareness and a 5% increase in monthly orders per store, the decline in average transaction prices has offset these gains. Small, less efficient pharmacies were unable to sustain operations and were forced to close or sell their businesses.
2. How Dachalin Managed to Profit Despite Challenges
Despite the decline in customer traffic and prices, Dachalin managed to increase its profits. Its net profit (excluding non-recurring income from property sales and subsidies) rose by 18% year-over-year, with its gross profit margin increasing by 0.74 percentage points. The company achieved this by focusing on four key areas:
1. Targeted Expansion: Dachalin expanded its existing stores in established provinces, increasing its purchasing power and reducing costs. This led to lower purchase prices and a positive cycle of higher sales and lower costs.
2. Efficient Marketing: It eliminated ineffective promotional tactics and used data to target profitable products, ensuring that marketing efforts were directed at genuine customers.
3. Strong Brands: Dachalin developed its own brands, offering cheaper alternatives to well-known brands, thus attracting more customers and increasing profits.
4. Digital Transformation: The company implemented digital systems to streamline operations and reduce costs, such as automatically reminding staff about expiring products and automatically notifying members about needed medications.
3. Dachalin's Mergers and Acquisitions: A Precise Strategy
After a pause of 1.5 years, Dachalin resumed acquisitions at a rapid pace, acquiring five chain pharmacies in the first half of 2026. This move was strategic rather than impulsive, as the industry was in a period of consolidation. The acquisition prices were significantly lower than in previous years, and Dachalin had already integrated the acquired stores, ensuring immediate profit improvement. This strategy allowed it to gain a significant market share while others were hesitant.
4. The "Matthew Effect" in the Pharmacy Industry
The industry is now dominated by a few leading companies. The logic has shifted from quantity to efficiency; only the most efficient companies will survive. This trend is evident in the increasing share held by major chains, which will likely continue to grow. The demand for pharmaceutical services is stable, especially due to the aging population. As a result, foreign investors (such as those from Beijing and Shanghai) have invested heavily in Dachalin, holding 9.32% of its shares. Top securities firms have also given it positive ratings, predicting continued strong performance.
In summary, the pharmacy industry has evolved from a period of rapid growth to one where efficiency and quality are key determinants of success. Companies that can withstand the current challenges will thrive in the future.