Summary of Key Points
In the past two years, Tongchen Best Health has accelerated its online transformation. For the first time in 2026, its online revenue exceeded its offline revenue (1.945 billion yuan vs 1.71 billion yuan). However, this growth did not translate into profits or cash flow: total revenue only increased by 3.94%, net profit attributable to the parent company decreased by 18.11%, and operating cash flow plummeted by 72.21%. The root of the problems lies in the lack of confidence among distributors (reduced upfront payments, increased credit sales), a large number of new products launched but most of them failing to become bestsellers, and high costs associated with online traffic, which eroded profits. To break this situation, the company needs to shift from spending heavily on acquiring traffic to focusing on creating highly successful products and engaging with users.
Detailed Analysis
1. Why is less profit despite higher online sales?
Although Tongchen Best Health's online revenue increased by 15.5%, surpassing its offline revenue for the first time, both profits and cash flow declined. The main reason is the high cost of online traffic: the company invested heavily in live broadcasts and influencer promotions to engage with consumers on platforms like Douyin and for cross-border e-commerce. The semi-annual report shows that platform fees increased by 61.31% year-on-year (to 666 million yuan), and overall sales expenses rose by 25.25%. Marketing expenses as a percentage of revenue also increased from 34.9% to 42.1%, meaning that for every 100 yuan earned, 42 yuan was spent on marketing, significantly reducing profits.
Additionally, despite higher online revenue, the actual cash received was low: operating cash flow was only 178 million yuan (a year-on-year decrease of 72%). This is because many online sales involve shipping products before receiving payment, and the high marketing investment slowed down the cash recovery process.
2. Distributors are reluctant to pay in advance; the company has to rely on credit sales
Distributors' confidence in Tongchen Best Health is declining. A clear indication of this is the decrease in contract liabilities (advance payments made by distributors): from 1.1 billion yuan at the end of 2023, it dropped to only 340 million yuan by mid-2026. Meanwhile, accounts receivable (money owed by distributors) increased by 81% (from 275 million yuan to 499 million yuan). The reason for this is the continuous decline in footfall at physical pharmacies and the lukewarm demand for health products. Distributors are cautious about holding large inventories and incurring losses before the products expire, so they prefer not to make upfront payments. To maintain offline sales, Tongchen Best Health has had to relax its credit policies, allowing distributors to sell products first and pay later. This not only affects cash flow but also indicates weakness in the traditional offline distribution channels.
3. Most of the 85 new products were unsuccessful; only a few were successful
To turn things around, Tongchen Best Health launched 85 new products last year, but the results were mixed. A few key products, such as the Blue Can Protein Powder and Jianliduo Glucosamine, performed well, driving capsule sales by 15.98% and contributing nearly 20% of total revenue. However, most of the new products were minor tweaks to existing formulas or dosage forms, aimed at filling niche markets without generating significant sales volumes. Experts point out that in mature industries, competition focuses on creating highly successful products that consumers buy repeatedly. These new products have not only failed to sell well but also increased inventory and operational costs, further discouraging distributors from holding large inventories.
4. The key to breaking the cycle: move away from spending on traffic and build user assets
In the past, Tongchen Best Health relied on expanding its offline channels and advertising for growth. However, with stricter regulations and higher online traffic costs, this approach is no longer effective. To overcome these challenges, the company needs to:
- Create highly successful products that can consistently sell well in physical pharmacies and encourage distributors to stock them.
- Engage with users through membership programs to increase repeat purchases (for example, encouraging customers who bought protein powder to buy probiotics). This will transform short-term traffic into long-term user loyalty, reducing the need for constant investment in acquiring new customers.
If the company continues to rely on spending money to acquire traffic, it is merely shifting the costs associated with its offline channels online without gaining a true competitive advantage.
5. Can the offline channel still be saved?
Offline revenue decreased by 4.85% year-on-year. Traditional bestsellers, such as older protein powders, are struggling to sell. Only the Jianliduo Glucosamine product has been a success, entering 152 chain pharmacies and driving brand growth by 4.12%. However, one successful product is not enough to revive the entire offline business. Tongchen Best Health needs to find ways to make more of its new products sell well in pharmacies and reduce distributors' inventory pressures to rebuild their confidence.
Conclusion
Tongchen Best Health's online transformation has led to increased revenue, but it comes at the cost of high expenses. To achieve true profitability, the company must shift from a channel-driven approach to a product-and-user-driven strategy. This means focusing on creating highly successful products and building customer loyalty rather than launching many ineffective new products. Otherwise, growth will remain superficial and not generate substantial profits.