FPT Retail establishes clear lead in drugstores race

FPT Retail, Vietnam’s second largest electronics retailer, announced mid-May that it has opened over 100 drugstores in over 30 provinces and cities, each selling prescription drugs, over-the-counter (OTC) medicines, functional foods and cosmetic products.

Mobile World, the country’s top electronics retailer, only operates 20 drugstores in Ho Chi Minh City. The stores have a total daily traffic of 4,000 visits, according to the company’s website.

Both retailers had entered the pharmaceutical retail market in late 2017, each acquiring their own chain of drugstores, hoping to cash in on a rapidly growing domestic appetite for healthcare and cosmetics products.

Mobile World was initially more aggressive in its approach, taking a 49 percent stake in the Phuc An Khang drugstore chain for an undisclosed sum. The chain was already operating the same 20 stores it has now, except that the name has changed to An Khang.

Nguyen Duc Tai, Chairman of Mobile World, had said then that the company planned to invest a further VND500 billion ($21.47 million) to gradually acquire a controlling stake in the pharmaceutical retail chain, and was eyeing an expansion to increase the number of stores to 100 in Ho Chi Minh City.

A drugstore of Mobile World in Ho Chi Minh City. Photo by VnExpress/Quynh Tran.

"Healthcare is a big market in Vietnam. Apart from Western medicines and vitamins, functional food is a future trend," Tai had said.

FPT Retail was more tentative when it invested an unspecified sum for a 75 percent stake in the local Long Chau chain, which only operated four stores. Commenting on the acquisition at the time, Nguyen Bach Diep, Chairman of FPT Retail, had said that the investment was made via contribution of "personal capital" and did not affect the company’s core business activities.

FPT Retail had wanted to enter a market that was worth "around $5 billion, which had not yet identified a clear leader," she said.

Vietnam’s pharmaceutical market is likely to grow to $7.7 billion by 2021 and $16.1 billion by 2026 from around $4.7 billion in 2017, with an average CAGR (compound annual growth rate) of 11 percent per year, according to market research firm IBM Research.

After operating Long Chau for a year, FPT Retail established a subsidiary to manage the drugstore chain with a chartered capital of VND100 billion ($4.3 million). The chain had expanded to 26 stores with an average monthly revenue of VND2 billion ($86,000) per store by the end of 2018, according to FPT Retail’s publications.

Big plans get bigger

Now, with over 100 outlets in operation, FPT Retail recently announced plans to double the number of drugstores to 200-220 by the end of the year, aiming to acquire 30 percent of the domestic drugs market over the next 2-3 years, earning revenues of around VND5 trillion ($215 million).

Diep said the pharmaceutical retail market was of roughly the same size as the mobile phone industry but was not dependent on the national economic situation. Its growth was guaranteed to maintain double figures, particularly with Vietnam’s spending on these products still at a low level. 

FPT Retail’s drugstore chain earned revenues of VND500 billion ($21.47 million) in 2019, but suffered a pre-tax loss of VND40 billion ($1.72 million), according to financial statements.

The company said the chain made another VND240 billion ($10.3 million) in the first quarter of this year, but did not say if it made any profit or not.

Meanwhile, the An Khang chain is yet to prove profitable for Mobile World. According to the company’s first quarter financial statements, the company recorded a VND1.4 billion ($60,100) loss, attributed in proportion to its 49 percent shareholding in the drugstore chain.

Cumulatively, Mobile World has lost nearly VND7 billion ($300,000) in An Khang since its 2017 acquisition.

However, according to Mobile World’s management, expansion of the drugstore chain was "put on hold" to assess risks, contrary to their previous expansion plans. Nguyen Duc Tai, Chairman of Mobile World, said in an interview earlier this month that regulations governing the pharmaceutical industry were till vague, so his company was not ready to raise its stake to above 49 percent.

For instance, Vietnamese regulations require individual licensed practitioners and not businesses to stand legally responsible for each outlet, which could give rise to a lot of legal risk, he said.

"An Khang was not bought as a financial investment for reselling. It is still an interesting field, and Mobile World is ready to step up investment when regulations are clear and appropriate with corporate governance principles," he said, adding that the company was directing investments towards retail groceries instead.

Vietnam's pharmaceutical market sales are estimated at $6.5 billion in 2019, with hospitals accounting for 75 percent, according to securities firm Viet Dragon Securities.

The Ministry of Health estimates that Vietnam had around 57,000 drugstores last year, most of them small businesses run by families.