Summary of Key Points
The era of aggressive expansion in the chain pharmacy industry, which lasted for over a decade, has come to an end! By 2025, the number of pharmacies nationwide is expected to decrease by 22,000. Leading companies such as Dachanlin, Laibaimin, and Yifeng have begun to close inefficient stores, shifting the industry focus from competing on the number of outlets to emphasizing the profitability of each individual store. However, closing stores only addresses the immediate issues, as profit growth continues to decline, and the industry is also facing intense price competition across all product categories. The root of these difficulties lies in both external and internal pressures: externally, there are stricter regulations from medical insurance systems and reduced price margins due to centralized drug procurement; internally, there are misaligned business strategies (emphasizing promotions over customer needs and gross profit over product quality), as well as stores competing with each other for customers.
The way forward should be modeled after overseas practices, such as Japan's Matsuboto Kiyoshi and Australia's Chemist Warehouse, which focus on using drugs to attract customers and then generating profits through health-related products. This includes implementing differentiated operations for each store, developing proprietary health brands, and upgrading health services.
1. The Retreat from Aggressive Expansion: Pharmacies Moving from a “Quantity Race” to a “Quality Contest”
In the past, pharmacies could grow by opening new stores, but this is no longer effective. In 2025, leading companies are simultaneously opening new stores and closing less profitable ones. For example, Dachanlin opened 1,741 new stores and closed 536, Laibaimin opened 875 and closed 1,177, and Yifeng opened 694 and closed 547. Even with the closure of inefficient stores, overall growth remains weak—each company has seen a decline in revenue growth rates, with individual store revenues plummeting even more significantly. For instance, Dachanlin’s revenue per store is expected to decrease by 3.3% in 2025 compared to 2024 and by 11.19% compared to 2023. In other words, what used to generate ten units of profit from ten stores may now only yield five, or some stores may even incur losses. The industry has entered a phase where opening new stores no longer leads to profits, and closing them causes financial distress.
2. Dual Pressures: Shrinking Profits and Intense Competition Across All Product Categories
Pharmacies are facing two major challenges: declining profit growth rates (Dachanlin’s from 10.17% in 2024 to 8.48%, Yifeng’s from 9.6% to 6.14%, and Laibaimin’s from 9.21% to 5.67%) and fierce price wars. For instance, Chongqing Xinhu Pharmacy has reduced the prices of commonly used drugs to near their production costs, forcing other pharmacies to follow suit or offer discounts, which may result in suppliers cutting off supply due to low profits. The situation is even worse when it comes to non-drug products (such as health supplements and personal care items), as all competitors offer similar products, leading to a race to the lowest price.
What causes this? Externally, medical insurance regulations are stricter, increasing compliance costs, and centralized procurement has reduced profit margins on chronic disease medications. Internally, there are misaligned business strategies: companies prioritize promotions over customer needs, low salaries that make it difficult to retain staff, and product selection is based solely on high gross profits rather than efficacy. Additionally, stores within the same group compete with each other for customers, reducing the potential customer base per store and further diminishing profitability.
3. Lessons from Overseas Models: Health Consumption as a New Source of Profit
While domestic pharmacies are stuck relying on price differences in drug sales, overseas companies have already shifted to a different approach. Japanese brands like Matsuboto Kiyoshi and Welcia, as well as Australian company Chemist Warehouse, generate profits by focusing on health-related products alongside drug sales. In Australia, health supplements and skincare products account for 70% of Chemist Warehouse’s revenue, while in Japan, non-drug sales make up 67.3% of pharmacy revenues compared to just 18.7% in China. This indicates significant potential in the Chinese health consumption market, as consumers are increasingly focusing on wellness and demand for nutritional supplements and home fitness equipment is on the rise.
4. Breaking the Cycle: Moving from “Price Competition” to “Operational Excellence and Quality Focus”
To overcome these challenges, pharmacies need to change their approach:
- Differentiated Store Operations: Each store should serve a specific purpose. For example, stores near hospitals can provide specialized services for chronic disease patients, such as health monitoring and follow-up care, to retain customers who leave the hospital. Community-based stores can create areas dedicated to health products and home testing equipment (for instance, Hong Kong’s Longfeng Group has succeeded with health supplements and cosmetics, generating a 54.6% gross profit margin on these products).
- Developing Proprietary Health Brands: Pharmacies should stop competing with supermarkets and e-commerce platforms for the same products and use their purchasing power to collaborate with manufacturers or research institutions to develop unique health supplements, traditional Chinese medicine-based wellness products, and home fitness equipment. This allows them to charge a premium for their brands.
- Upgrading Health Services: Pharmacies should transform from mere drug sellers into “health managers” by providing personalized services such as creating long-term patient records, reminding patients about medication schedules, and offering free health checks (blood pressure, blood sugar monitoring). These face-to-face services are irreplaceable by online offerings and are valued by customers.
Conclusion
The era of growing through opening new stores and exploiting price differences in drugs is over. In the future, pharmacies will compete on the efficiency of their operations and the uniqueness of their health services. Those that can provide solid health services and build strong brands will be better positioned to survive the industry’s transformation.