Opportunity Snapshot: Retail Pharmacies in Asia

May 29, 2018
Jude Uzonwanne, Principal, Consulting Services, Asia Pacific

From Watsons in Singapore to Guoda Drugstores in China to Century Healthcare in Indonesia, Asia’s retail pharmacy market is emerging as one of Asia’s hot healthcare opportunities. IQVIA estimates Asia’s annual pharmaceutical market is worth ~$35B as of 2017.  The majority of drug retailing goes via hospital and retail pharmacy channels.  On average across the region, retail pharmacies account for 71 percent of sales; hospital pharmacies 29 percent.

There is significant variance country-to-country however.  At one end is Thailand, with 80 percent hospital sales.  At the other is the Philippines with 87 percent retail sales.  All other countries lie within those ranges. Fueling this growth are factors such as an expansion in public and private healthcare spending linked to rising gross domestic products and greater household disposable income.

IQVIA recently evaluated the retail pharmacy market to determine if untapped potential exists and where. We found two emerging investment themes: 

  • First, most Asian markets still have room to grow. Today, Singapore has the most pharmacy locations per capita -- 1,540 persons for each pharmacy location.  At the other end of the spectrum is Indonesia, with 6,735 persons per pharmacy, suggesting an opportunity to improve coverage.  The remainder of the region clusters around ~2,220 persons per pharmacy.

    Based on that analysis, we classify the region into three groups: mature (Japan, South Korea, Taiwan and Australia); maturing (Thailand, Malaysia, China); and emerging (Philippines, India, Vietnam, Pakistan, and Indonesia). The “where to play” decision will therefore vary, with emerging markets ripe for a hybrid retail and digital offering. 
  • The second opportunity involves upgrading quality of service. Several countries hold promise for upgrading quality of dispensing, counseling to patients, and other value-added services that can raise cash yields per visit.  These include Pakistan, India, Indonesia, Vietnam and the Philippines.

    To be able to afford upgrading systems means spending more capital. Increasingly that is coming from consolidating players, and using the savings to improve process efficiencies. Consolidation has started in several markets – chains are acquiring independents and upgrading them. In Indonesia and the Philippines consolidation already is advanced and we expect to see more activity in online platforms. India and Pakistan will offer similar opportunities in addition to supply chain realignment and quality management. 

Beyond these two opportunities we see three more potential investment themes emerging over the longer term (the next five years): 

  • Existing offline pharmacists pushing aggressively into online channels, with over-the-counter and consumer health products leading the way.  Major manufacturers will shape this wave, as they seek new ways to counter the impact of Amazon and its regional peers, e.g. Go-Jek and Alibaba. 
  • Online retailers such as Alibaba and JD.com intensifying their push to acquire offline pharmacies and supermarkets to create an integrated online-to-offline offering.  The Chinese market is at the core of these changes; we anticipate that Indonesia and India will rapidly follow. 
  • A range of non-traditional players emerging to reshape patient engagement with pharmacies in such areas as online physician, electronic medical records, genomic-based precision medicine, and pharmacy fulfillment. Companies such as MyDoc, Singapore’s first digital health consultation service, have signaled this trend through its partnership with the Guardian pharmacy chain. 

The pace of innovation and disruption will further intensify these anticipated market and investment shifts.  These include the availability of convenient online payment; sharp growth in smart-phone penetration; a growing pool of pharmacy and healthcare start-ups; and improvements in delivery logistics e.g. use of local postal services.

As investors weigh where to commit capital in the coming years, supporting the evolution of the pharmacy ecosystem is likely to provide opportunities for above-peer rates of return.

Contributor:

  • Steven Harsono
    Head, Public Health Asia

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