Ain Holdings, the largest company in the dispensing pharmacy industry, acquired the household goods company Francfranc this summer. The dispensing business accounts for nearly 90% of the company’s sales, and recent results have been strong with double-digit percentage growth compared to the previous year.
Looking at the performance of other major dispensing companies, many of them have increased sales and profits. The industry appears to be doing well, but when you look at the changes surrounding dispensing pharmacies, you can see the convincing reasons why top runner Ein is focusing on the retail business.
After graduating from Keio University’s Faculty of Science and Engineering, he worked at a foreign IT company before starting an e-commerce company selling baby clothes. Although the company faced bankruptcy three times due to inventory problems, in the process it created a retail management model that is resilient to external factors and unpredictable changes. We turned this model into a cloud business in 2017 as “FULL KAITEN.” Approximately 200 brands are currently using it.
Although the market size is expanding, the “unit price” is decreasing.
Trends in dispensing medical expenses and prescription unit prices.
For many people, the only time they visit a dispensing pharmacy is when they go to a hospital or clinic to get a prescription or to pick up their medicine. However, when viewed as an industrial “market,” the size of the market is expanding as the number of elderly people increases and medical costs expand.
According to statistics from the Ministry of Health, Labor and Welfare, the total dispensing medical expenses in fiscal 2023 (Reiwa 5) amounted to 8,307.7 billion yen, an increase of 5.4% from fiscal 2022. The total sales value of drugstores in fiscal 2023 was approximately 8,520.3 billion yen (commercial statistics), so the market size of dispensing pharmacies, including front-of-house pharmacies and in-hospital pharmacies, is approximately the same level as drugstores. Masu.
However, from 2021 onwards, the unit price of prescriptions continues to decline. The revision of medical fees has had the effect of stricter requirements for various additions.
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Major companies experienced significant increases in sales and profits
Sales of five major dispensing companies. % is the rate of increase/decrease from the previous period. Welcia Holdings’ sales are from the dispensing division. Profits were not disclosed. Consolidated sales for the four companies other than Welcia.
So what does the industry map look like? We have listed the top 5 companies in terms of sales based on their financial results for fiscal year 2023 (ending March 2024).
For the four companies other than Welcia Holdings, dispensing pharmacies account for around 90% of total sales. On the other hand, Welcia’s product sales (drugstore business) account for approximately 80% of its total sales, and its dispensing department alone ranks third in the industry.
All companies saw an increase in sales, with the top companies Ain Holdings and Welcia posting double-digit sales increases. Sales growth rates for Nippon Chouzai, Qol Holdings, and Medical System Network also exceeded the previous year’s rate.
Ordinary profit increased significantly except for Qol. Qol’s profit appears to have decreased due to a decline in prescription unit prices and a rise in costs in the medical products manufacturing and sales business.
Although the dispensing pharmacy industry is performing well, there are also issues with inventory policy.
We have summarized in a graph the trends in GMROI for four companies, excluding Welcia Holdings, which was unable to obtain inventory levels (inventory assets) only for the dispensing department.
GMROI, a major dispensing company.
*GMROI… An indicator that shows how much gross profit was achieved with less inventory. Gross profit margin on capital invested in products. Released on February 26, 2024 “What’s so great about Yutori and I-ne, who are doing well? Points that give it an overwhelming victory over Uniqlo and Shiseido‘ is explained in detail.
Medical System Network is by far the highest, followed by Qol Holdings and Ein Holdings.
Medical Systems’ high GMROI stems from its unique business model. In addition to our 12 consolidated subsidiaries operating pharmacies in various locations, we also support independent community pharmacies with DX (digital transformation), pharmaceutical purchasing, and a receipt system (a system that automatically creates medical fee statements). Unnecessary sales contribute to profits.
Ain and Nippon Choyaku are two companies in terms of sales, have a large number of stores, and have a relatively large responsibility for supplying products to patients. Due to the nature of the business, where stockouts cannot be tolerated, it is inevitable that there will be a large amount of inventory, but I think there is room for improvement in terms of inventory efficiency.
The dispensing businesses that will survive…
At first glance, the dispensing industry appears to be doing well, but due to the following factors that we have seen so far, it cannot be said that the outlook is bright.
- Decrease in profit margin due to revision of dispensing fees
- Decrease in prescription unit price
- System investment required for DX support
- Deterioration of cash flow due to excess inventory to avoid stockout risk
In the dispensing pharmacy industry, the combined sales of the top six companies amount to approximately 1.4 trillion yen, accounting for only 16.7% of the total market (8,307.7 billion yen), and independent pharmacy chains in each region are filling the gap between the big companies. It’s a state where the group is sewn together and divided.
Those who will survive the current competition will be broadly divided into major national chains that have acquired mid-sized and smaller companies, top regional companies that handle prescriptions from various medical institutions, and small pharmacies that can move quickly.
Is there a way out by annexing it with a drug store?
Ain Holdings’ profit margin by business.
Under these circumstances, major companies are focusing on expanding their retail business (drugstores).
Ain Holdings has clearly announced plans to expand its top line by increasing the number of retail stores by 8 to 89 stores by April 2025.
As of the end of April 2024, the company has 1,231 dispensing pharmacies and only 81 retail stores, and sales are less than 10% of dispensing pharmacies. The company became a hot topic when it announced its acquisition of Franc).
Retail is promisingis. This is obvious when you look at the profit margin by business (based on ordinary income).
In FY2020 (April 2021) and FY2021, the number of visitors decreased due to the impact of the coronavirus pandemic, resulting in a deficit, but from FY2022, when the situation was under control, we turned to a profit. In fiscal 2023, the profit margin increased to 10.0% due to the effect of an increase in sales of more than 20% compared to the previous fiscal year, exceeding the profit margin of our main business of dispensing. The same trend holds true for asset efficiency. The graph below compares ROA (return on total assets) by business based on ordinary income.
Ain Holdings’ ROA by business.
In fiscal 2023, retail ROA outperformed dispensing ROA by a large margin. Assuming you invest the same amount in stores and employees,Drugstores earn 1.6 times more profit than dispensing pharmaciesThat’s what it means.
AIN acquired interior goods company Francfranc and merged with it in October 2024. Ainz & Tulpe, a drugstore operated by Ain that specializes in cosmetics, and Francfranc have similarities in store area and customer base, but the products they sell are complementary and do not overlap. We expect synergies that leverage the strengths of both brands.
Drast major strengthens dispensing pharmacies
On the other hand, drugstores are also paying attention to dispensing pharmacies.
Welcia Holdings, the leading drugstore company, has prioritized increasing the number of stores with dispensing facilities this fiscal year, and is focusing on strengthening interpersonal operations and providing online medication guidance. Having a dispensing pharmacy attached to a drugstore has the effect of encouraging “bundling purchases” of food, drinks, and daily necessities while waiting. Welcia’s target for dispensing sales in fiscal 2024 is 278.5 billion yen, an 8.4% increase from the previous fiscal year, which is expected to be faster than the company’s overall sales (5.7% increase).
In addition to Welcia, other companies such as Matsuki Yokokokara & Company are also focusing on providing dispensing facilities. Dispensing accounts for 16.39% of the company’s product sales (FY2023), and there is still room for growth.
We are also proceeding with M&A, and in 2024 we acquired K-Port, which operates drug stores and dispensing pharmacies mainly in Ota, Shinagawa, and Meguro wards.
Matsuki Yokokokara’s strategy is characterized by “LTV*maximization.” The app seamlessly connects drugstores, e-commerce stores, and dispensing pharmacies, encouraging customers to use each other. In dispensing, DX support holds the key to increasing LTV, such as eliminating waiting times with online medication guidance and electronic prescriptions, and delivering prescription drugs using Matsuki Yokokokara Q, an instant delivery service that uses the store network as delivery bases.
*LTV (life time value): The profit that a customer brings to your company from the time they start doing business with you until the end of the transaction.
The dispensing and drugstore industry is in a state of confusion. Keep an eye on the movements of promising companies.
(Edited by Sakka Tsuchiya)
Source: BusinessInsider
Emma Warren is a well-known author and market analyst who writes for 24 news breaker. She is an expert in her field and her articles provide readers with insightful and informative analysis on the latest market trends and developments. With a keen understanding of the economy and a talent for explaining complex issues in an easy-to-understand manner, Emma’s writing is a must-read for anyone interested in staying up-to-date on the latest market news.