Four transformations - unlocking success in China's pharmaceutical retail market

Published Date: 9 June 2020

In its latest whitepaper, How pharma companies can address the pharmaceutical retail market transformations in China, the Deloitte China Life Sciences & Health Care (LSHC) Team explores how pharmaceutical companies can address the retail market evolution in China by analyzing three structural market changes and four key industry transformations.

According to the whitepaper, China’s pharma retail market reached healthy compound annual growth of about 8 percent from 2015 to 2019, much higher than the 6.1 percent growth of the pharma market as a whole. New healthcare reform policies gradually implemented by the Chinese government have been accelerating access to drugs in the retail market, away from the traditional in-hospital access. This shift has now been further hastened by the COVID-19 crisis. Although policy measures continue to slow market development, some of these policies are been reviewed and adjusted to the 'new normal'. Deloitte expects a higher growth rate until 2023, with an outflow of prescriptions from hospitals to retail channels as emerging online retail use scenarios set higher requirements for retail strategies.

"There are three main structural bases within the retail market. First, prescription drugs are the main driver of market growth, with an estimated 8.5 percent CAGR until 2023 taking COVID-19's impact into account, in contrast with OTC drugs' growth of slightly above 5 percent," says Deloitte China LSHC Leader Jens Ewert "Second, differences in retail pharmacies' demands between urban and county markets have gradually emerged. The county market is relatively small, but has remarkable potential, particularly given increases in concentration and income per store. Last, policy deregulation accelerated by the pandemic is contributing to explosive growth in online pharma retail sales in China, which are estimated to reach about RMB177 billion by 2028 and account for some 30 percent of total pharma retail sales."

The whitepaper concludes that these structural changes are impacting four important industry transformations: differentiated demand among urban retail pharmacies, an escalating need for effective coverage in county markets, emerging use scenarios for online drug sales, and diversifying collaboration models with retail distributors. All of these transformations require global and domestic players to re-think their market strategies and their technology deployments at speed.

"Urban retail pharmacies’ demands are increasingly differentiated, so how pharma companies empower their chain pharmacy customers to differentiate in competition will be the key to success. In the wake of the escalating need for effective coverage in county markets, pharma companies need to design diverse, innovative models to enhance their coverage," explains Deloitte China LSHC Consulting Partner Pi Tingting. "As for emerging use scenarios for online drug sales, we recommend pharma companies prepare themselves in advance for 'Online Hospital' and 'Online Rx Outflow' scenarios. Meanwhile, to diversify collaboration models with retail distributors, pharma companies should adopt specialized, diversified pharma retail distributorship in urban and county markets to further enhance business."