New players to re-shape pharmaceutical sector

In the final days of 2017, Mobile World Investment Group (MWG) announced its acquisition of HCM City-based Phuc An Khang pharmacy for an undisclosed sum. However, the annual shareholders’ meeting in April approved a budget of VND2.5 trillion (US$110 million) for merger and acquisition (M&A) activity, of which VND500 billion will be pumped into pharmaceutical retail.

Also in early December, chairwoman of FPT Digital Retail JSC Nguyen Bach Diep bought Long Chau pharmacy, HCM City’s biggest drugstore chain. Though saying it was just Diep’s private investment, the deal is speculated as an initial step for FPT Retail to enter the pharmaceutical distribution sector.

Another big electronics retailer, Nguyen Kim Group, in November made a public bid for Lam Dong Pharmaceutical JSC’s shares, following which it is ready to spend about US$3 million to raise its ownership from 24% to over 51.14%. Apart from Lam Dong Pharmaceutical, Nguyen Kim Group is also investing in FT Pharma.

Earlier in August, Digiworld Corp signed up with Vinamedic to distribute food supplements for men.

Vietnam’s pharmaceutical retail sector is considered ‘fertile ground’ for big distributors, with total revenues of up to US$4.7 billion in 2017, up 13% year-on-year, according to Business Monitor International (BMI), and is expected to swell to US$7.7 billion in 2021 and US$16.1 billion in 2026.

Demand for drugs in the country is also rising stably in line with improved income per capita. The drug spending per capita in Vietnam rose from US$9.9 in 2005 to US$37.97 in 2015. With a rapidly ageing population, average spending on drugs is forecast to climb to US$85 in 2020 and US$163 in 2025.

The market holds big potential for retailers to establish their dominance, in the context that drug distribution in Vietnam is still in the hands of private pharmacies with no one seizing a market share of up to 20%.

FPT Retail’s chairwoman Diep in a FPT Retail roadshow in December said the company would make a ‘pilot investment’ in a new retail sector before making an official decision in 2018. She highly valued the pharmaceutical industry with its positive market growth potential.

Meanwhile, Mobile World’s chairman Nguyen Duc Tai has targeted 500 stores nationwide through the acquisition of pharmaceutical brands, especially those with 10-15 stores. However, he said this is a specific industry which needs careful contemplation.

According to Phan Van Hieu, chairman of CVI Pharmaceutical and Cosmetics JSC, this year would not see any big change in the drug distribution market as now is still a period of exploration and evaluating market approach for new players.

“I think the pharmaceutical retail market is not an easy sector for even big distributors such as MWG or FPT. The pharmaceutical market has a lot of barriers and is different from other markets,” Hieu was quoted as saying to the Dau tu chung khoan (Securities Investment) newspaper.

Mai Hai Ninh, a founder of thuocvasuckhoe.com drugstore chain, said the biggest risk for drug retailers is the lack of medical expertise as drug sales depend on prescriptions or just a patients’ declaration on their health status.

“The pharmaceutical industry is a specific industry, so managers and salespeople need to have strong medical knowledge,” Ninh said, adding that training of medical staff requires 2-3 years.

The participation of retail giants with strong financial strength and modern technology and management is expected to create a big push for the drug distribution market but actual changes are expected to take place over the next 5-10 years.