Pharmacy agency operation implementation plan and model

With the continuous development of China's pharmaceutical e-commerce industry and the promotion of the epidemic, the proportion of pharmaceutical e-commerce sales in the total pharmaceutical industry sales has also continued to increase. China's pharmaceutical e-commerce market share increased from 1.5% in 2012 to 11.4% in 2020.

1. Core Summary

1. Market size

With the continuous development of China's pharmaceutical e-commerce industry and the promotion of the epidemic, the proportion of pharmaceutical e-commerce sales in the total pharmaceutical industry sales has also continued to increase. China's pharmaceutical e-commerce market share increased from 1.5% in 2012 to 11.4% in 2020.

Analysts from iMedia Research Consulting believe that with the changes in consumer behavior, the continued development of Internet medicine, and the integration of medicine-to-drug and medicine-to-doctor, medical e-commerce will further demonstrate its vitality.

Among them, the domestic instant pharmacy market size of O2O drug delivery has grown from RMB 800 million to RMB 23.14 billion from 2015 to 2021, with an annual compound growth rate of 72.4%, and is expected to reach RMB 138 billion per year in 2030.

2. Business Model

Traditional regional small and medium-sized pharmacies cannot compete with large chains online. They are at a disadvantage in purchasing goods due to their size advantage. Their overall market share is gradually declining due to the squeeze of large chain stores such as Neptune Star, JD Health, and Dingdang Medicine.

Pharmacy agency operations are more focused on brand upgrades, third-party agent merchant cooperation, and opening brand chain stores on O2O platforms such as Meituan, Ele.me, and Baidu Health for O2O sales.

There are four main advantages of the pharmacy agency operation plan :

• Procurement has more advantages, gathering the purchasing needs of small and medium-sized pharmacies in a large area.
• More efficient understanding of traffic: The professional operation data team has expanded online O2O scenarios for small and medium-sized businesses that have not been integrated into platforms such as Meituan and Ele.me, and the coverage radius has been increased to more than 3 kilometers from the pharmacy radius.
• Online conversion rate is more professional: diversified marketing tools reach users more efficiently, and user subsidies improve customer acquisition efficiency.
• Improve user LTV in multiple ways: fine-tune user operations to improve old customer loyalty, and provide lifecycle tools such as private domain operations.

2. Market Status and Problems

Data shows that in the first half of 2021, the platform with the highest usage rate among medical e-commerce users was Ali Health, with a usage rate of 46.8%, followed by Meituan and JD Health, with usage rates of 38.3% and 37.9% respectively.

Since traditional offline pharmacies lack the scale to sell their products on major platforms, some of them have been removed from the shelves due to lack of operational capabilities after being listed, basically saying goodbye to online orders.

1. Pain points of traditional small and medium-sized pharmacies

• The user coverage of offline channels is limited, and platforms such as Meituan and Ele.me are not connected.
• Lack of professional operations and data talent teams.
• There are few channels to reach users and marketing campaigns are not precise.
• Procurement lacks scale advantages.
• It is difficult to acquire new customers.
• The churn rate of old customers is high.

2. Direction of agency operation empowerment

Affected by the epidemic, mobile Internet and O2O home delivery user habits, and capital boost factors, online O2O has flourished. However, due to a series of internal factors, ordinary small and medium-sized pharmacies are unable to connect with new development momentum in terms of resources and capabilities, and are showing a trend of being gradually abandoned by users.

3. Model Competition Landscape

Offline pharmacies are mainly divided into chain pharmacies, franchise chains and community single stores. The three types show a gradual downward trend in terms of popularity, number of sku, daily activities, etc.

on-line

4. User Demand and Consumption Classification

Whether online or offline, it is all about meeting users' needs for more, faster, better and cheaper, and the order is as follows.

The income distribution gap in our country is relatively large, showing a trend of consumption stratification.

According to iResearch survey data, when shopping for medicines online, there are significant differences in the factors that consumers in first- and second-tier cities value compared to consumers in lower-tier cities. Consumers in first- and second-tier cities pay more attention to drug quality, whether the brand is well-known, and delivery speed, while consumers in lower-tier cities pay more attention to product prices, discounts, shipping costs and other benefits.

First- and second-tier users are more concerned about:

Drug brand => drug price => delivery speed => product variety

Users in third-tier cities and below and county towns are more concerned about:

Drug price => drug brand => delivery speed => category sku richness

5. The value of pharmacy agency operation

Scale effect : supply procurement, platform resources, regional resource complementarity, and regional resource collaboration have advantages.

Platform resources : It is easier to reach the cooperation threshold of large platforms and obtain platform resource support, including marketing resources, platform service agreement discounts, delivery agreement discounts, new store support, etc.

Online and offline integration : Offline capabilities serve online users, and online traffic distribution is imported into offline to drive offline sales.

Integrate traffic to sell goods : unified promotion and traffic support for categories/brands of medicines.

Data support : Data supports regional pricing, stocking, and product selection.

Integrate the supply chain and reduce losses: predict regional stocking orders and purchase medicines in a unified manner.

From the perspective of platforms such as Meituan Medicine and JD.com:

• Help them provide pharmacy supply density and prevent themselves from being hijacked by pharmaceutical giants.
• Reduce the BD and business costs of large platforms and only need to connect with the operating companies.

From the perspective of small and medium-sized businesses:

• You will have the opportunity to join the platform to gain traffic, and you can join with one click and the fee will be lower.
• We have professional operational human resources, data resources and a unified brand.
• Procurement has more advantages.

From the perspective of the agency operation company:

• Light asset operation, no drug inventory involved.
• It can be started quickly and easily replicated across the country.

6. Leading companies in the pharmacy agency industry

Chengdu agent-operated Quan Pharmacy originally operated a free chain of pharmacies, and later invited small and medium-sized stores to join, using a unified brand logo and inventory procurement and sales system. In June 2019, it started O2O agent-operated business. As of November 2020, the number of agent-operated stores has grown to more than 15,000, and the number of employees of agent-operated Quan is 3,106 .

Linyi Express Pharmacy was established in Hefei Pharmaceutical Industrial Park in 2019 and has established branches in Henan, Shandong and Jiangsu. Since its establishment, it has signed contracts with over 100 chain drugstore brands, empowered over 10,000 drugstores, and covered more than 100 cities across the country. By building a pharmaceutical B2B supply chain + operation integrated empowerment platform that links the upstream and downstream of the industry, it achieves accurate matching of industrial resources and enables win-win results for all parties in the ecosystem.

7. UE model for agent operation

For offline traditional stores, agency operation is a purely incremental operation, which can be estimated based on the public data of the listed company Quanyuantang (833409). Currently, the number of orders per day is about 2-3.

As of March 2021, the average daily order volume of Quanyuantang's agency-operated stores has increased to 2~3 orders per day.

In order to make merchants aware of the store, the average daily orders should be at least 2-3, the monthly orders should be 50, the unit price should be 40 yuan, the monthly revenue should be 2,000 yuan, the merchant gross profit margin should be around 30%, and the merchant profit should be 600 yuan/month.

From the perspective of agency operation, a single store can charge 5%, about 100 yuan, and the entire model is sustainable.

Single store indicators

8. Key success factors of agency operation

Due to the issue of pharmacy operating qualifications, the basis for being able to operate on behalf of others is that you first have the qualifications to operate your own chain store, and at the same time have certain relatively successful operating experience. By sorting out the common characteristics of self-operated stores and O2O agent operations, you can empower agent-operated pharmacies.

9. Product Management - Online and Offline Differentiation

The online and offline channels target different customer groups, so the online and offline varieties are quite different ; the overlap between online key varieties and offline key varieties does not exceed 20%; for example, the online hot product: Orlistat/Artificial Tears Haichang.

There are obvious differences in the varieties online and offline at different times : different medicines are recommended at different times.

The number of online and offline varieties reaches 30,000+.

Main popular varieties:

• Based on the popularity of the products and the customers’ acceptance of profit-sharing, if the customers are willing to make profit-sharing, we will select 200-300 top products and follow the market price; if the customers are not willing to make profit-sharing, we will select a maximum of 10-50 products;
• The price you follow is not necessarily the lowest price in the market. For example, if the lowest price in the market is 8km away and the second lowest price is 500m away, then you should follow the second lowest price in the market.
• O2O pricing does not compete on low prices: In the actual sales process, the price of medicines in O2O online stores is higher than that of the same sku in other stores.

10. Pharmaceutical services: improving the user's drug purchasing experience

Medication consultation is an important part of the service provided by the agent Quan Moumou : this service is provided in multiple channels (O2O, B2C, official accounts, mini programs, telephone), and users are made aware of consultation through multiple touchpoints in different scenarios, mainly including medication consultation, online prescription supplementation, and prescription review services.

Scale: 200+ pharmacist teams (including pharmacists, health consultants and chronic disease experts in the online retail pharmacy. 75 of them are licensed pharmacists in China), providing consulting services in different departments. The current average daily reception volume of the pharmacist team is 300+

Contact method:

11. Order Integration - Improve In-Store Order Acceptance Efficiency

The general manager of the agency operation, Quan Moumou, said that it was a self-developed middle-office system, and the system name was: Jiugongge System.

• Connect the middle office system: Integrate orders from multiple platforms, eliminating the need for multiple apps to receive orders, and reducing the pressure on store clerks to pick goods.
• Real-time inventory refresh: The products on the platforms are synchronized with the inventory of physical stores in real time to ensure the accuracy of the products on sale.

12. Membership system - multi-platform membership system is connected

The agent-operated Quan Moumou’s membership system has been connected to multiple platforms: The agent-operated Quan Moumou attaches great importance to the construction of the membership system. Users can register as members on both the self-operated (WeChat) platform and the third-party platform, and the membership numbers of multiple platforms can be automatically unified through mobile phone numbers. However, the linkage between the membership systems of each platform (such as points, etc.) and the linkage between online and offline need further study.

Membership benefits: The membership benefits of agent operator Quan Moumou are mainly the price advantages of goods, but the specific implementation forms (free delivery, coupons, etc.) are different on different platforms.

The agent Quan Moumou attracts users to register as self-operated members through rich touchpoints and attractive registration benefits: in-store materials & O2O merchandise materials are promoted to self-operated members, and newly registered members enjoy benefits such as instant registration discounts, multiple coupons, and points.

The agent Quan has done a good job in promoting the rights and interests of self-operated members, so that members can clearly feel the price benefits of being a member, thereby maintaining a high level of repurchase stickiness: the store has materials displaying member prices, member discounts, etc., and the WeChat mall has a separate display of member rights and interests.

The agent operator Quan is trying to connect the systems of members registered on different platforms. We can continue to pay attention to whether this strategy can form an online and offline linkage effect. For example, whether members can get free shipping benefits online by earning points for offline drug purchases, and whether points earned by online drug purchases can be used to redeem goods offline.

Number of self-operated members: The agent operator Quan Moumou did not obtain a large number of self-operated members (lower than the number of members in a single store of the leading chain) through multiple touchpoints and multiple benefits. The price advantage of medicines may not be as good as that of the leading chain, but the idea of ​​member acquisition is worth learning from.

Data source: Xinbang, Xigua Data

13. Methods of implementing agency operation

1. Initially charge the lowest commission in the industry

The agent operator Quan collected commission: The agent operator Quan collected 10% of the GMV of the pharmacy's O2O transactions: 5%* of which was used to pay the O2O platform commission, and the remaining 5% was the agent operation income (*the agent operator Quan chose "self-dispensing" when cooperating with the O2O platform, and the O2O platform commission was negotiated to 5%).

Industry commissions: If the pharmacy signs a contract with the platform itself, it must pay the O2O platform a commission of 15%-20%.

For the delivery service of Quan Moumou, choose Dada or a regional delivery company, e.g. Haikui (one of Meituan’s delivery agents)

2. Operate a city as a chain

Eg: There are 7 chains in Hangzhou, and the areas covered by their stores overlap. The whole city can be regarded as one chain, without focusing on a particular customer, in order to gain market share in the entire city.

• Store location: Develop operational strategies based on market capacity, competition, and supply conditions.
• Market capacity: Use crawlers to crawl the locations and sales of O2O stores in different regions throughout the city to determine the market size.
• Competitive situation: competitors’ sales volume and market share.
• Supply inventory: Select areas where competition is weak and recommend BD to expand stores.
• Determination of key stores: eg: if there are many competitors within 3 kilometers of the store, and the store has only a few hundred SKUs and the business hours cannot be extended, then it will not be operated as a key store; on the contrary, if the market capacity is considerable, there are no strong competitors in the surrounding area, and the store SKU can have 2-3k, it can be selected as a key store.
• Product strategy: Based on the inventory situation of the entire city, if the inventory of gynecological drugs in one store of customer A is insufficient, the gynecological drugs in the nearby stores of chain B can be allocated with a prominent price advantage.

3. Organization of pharmacy O2O agent operators

Each offline new retail pharmacy needs to have dedicated new retail operation personnel. The following are the project personnel configured by Quan Moumou O2O to operate a chain brand, and it is required that the stores operated by the agency have dedicated support.

4. Select cooperative customers

• The agent operation will give priority to cooperating with clients with good geographical locations, such as: stores located in the city center, business district, etc.
• Small and medium-sized chains with more than 20 stores need to cover the distribution area of ​​at least one region or one city.
• It is best that the coverage areas of cooperating customers do not overlap or complement each other.

14. Development issues of the pharmacy agency operation industry

The essence of a pharmacy operation company is a bridge that connects traditional small and medium-sized pharmacies and various O2O platforms.

For O2O platforms such as Meituan and Ele.me: currently, categories such as buying medicine are new growth points for their traffic, with huge investments, and there is a widespread demand for diversified supply from pharmacies. Once they enter the profit period, their corresponding commissions may increase due to their greater voice, further compressing the profits from agency operations.

For small and medium-sized pharmacies: there are problems such as weak management capabilities, weak Internet technology capabilities, low profit levels, and major problems with education, communication, and coordination capabilities.

For agency operation companies: the profit of a single store is relatively small, so scale is naturally needed, which further requires higher requirements for management capabilities, data capabilities, middle-office capabilities, system intelligence, etc., and the pressure on their organizational capabilities is relatively high.

15. Conclusion

The overall environment of the agency operation market continues to improve. With the continued development of large-scale O2O platforms, traditional small and medium-sized pharmacies are insufficiently competitive, and their data capabilities and service capabilities need to correspond to agency operation services.

The agency operation business model is purely incremental for traditional small and medium-sized pharmacies and has a large room for development. Against the background of the continuous increase in online drug purchases by overall users, agency operation through chain operations, digitalization, and empowering users to get closer to the community is a trend.

Judging from the data of listed companies operating on behalf of others, the overall growth rate is relatively high and the sustainability is good. There are many profit points, including supply chain procurement, intelligent system services, and especially the commissions on orders from the agency-operated o2o platforms.

Author: Kindness Review

Source: Kindness Class Review