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China's Drug Retailers Rise to Foreign Challenge
Chinese pharmacies are undergoing a dramatic transformation as the retail medicine market prepares to open to foreign competition from January 1, 2003.

More and more Chinese patients are willing to buy medicines in convenient drugstores instead of taking the trouble to register and queue in hospitals. Meanwhile, a large number of wholesalers have also plunged into retailing due to the high returns.

Experts consider that these two factors have contributed to the rapid growth of China's medicine retail industry, in which chainstores are playing an increasingly important role.

Statistics show that China now has 196 pharmaceutical enterprises with chainstores, reporting an annual sales volume of nearly 8 billion yuan (967 million US dollars).

Tao Jianhong, an official with the State Drug Administration, said that the retail operation with non-prescription medicines would become a major player in the domestic pharmaceutical industry, though it was still not ready to contend with foreign rivals.

Tao said most of the drug chainstores scattered around the country were small and lacked advanced information technologies and management skills. Their sales only accounted for 15 percent of the whole in the country.

Peace Pharmacy, China's largest drug store based in southwestern Chongqing Municipality, only has 300 chainstores. The scale of most domestic drugstores is far smaller than that of their American counterparts, which usually have thousands of outlets.

Experts predict that with advanced information technologies, supply chains and retail management, foreign pharmacies or joint ventures will snatch a considerable market share from domestic medicine retailers after they enter the Chinese market.

Zhu Dan, board chairman of the Shenzhen Nep-Star Medical Company, considered it hard for domestic drug retailers to compete with foreign enterprises by relying on rapid expansion at low cost. More high technologies should be introduced into China's drug retail operations.

Besides medicines, medical equipment also sells well in China's drugstores. Insiders figure that the sales volume of medical equipment will keep a growth rate of 12 percent in the next three to five years.

More Chinese consumers had begun to favor high technology products for self-diagnosis or self-healthcare, said Zhu. Domestic drugstores should establish new marketing concepts, increase technology contents and improve service levels.

Chinese medicine retailers have long been aware of the challenges of by China's entry into the World Trade Organization and have stepped up their expansion.

Domestic pharmaceutical giant Sanjiu Enterprise Group plans to open 8,000 to 10,000 outlets at a cost of 1.3 billion yuan (157 million US dollars). Nep-Star is also preparing to establish 5,000 to 10,000 chainstores in the next two to three years.

Rapid amalgamation and expansion in the medicine retail industry is expected to gradually kill off small drug stores. "To establish chainstores has become an important approach for pharmaceutical enterprises to forestall the medicine retail market, " said Tao Jianhong.

(China Daily June 26, 2002)

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