Pharmaceutical distribution alliance


Pharmaceutical firms have to invest in marketing and distribution, so this trend will promote merger and cooperation (M&A).

OTC trend

Domesco Medical Import – Export Joint Stock Company (DMC) will deliver the functional food distribution segment to Digiworld (DGW). This is unofficial information but is likely to happen.

If the cooperation becomes a reality, this will be the first time after 28 years of establishment, Domesco uses outside services to distribute products. So far, Domesco has distributed by itself with a distribution network across 63 provinces, 12 branches nationwide and reaching 18,500 customers.

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However, as the company has the advantage of special treatment drugs, for a long time, Domesco is stronger in distribution through ETC channel (selling prescription drugs, through bidding). The evidence is that in 2016, this channel of Domesco achieved growth of more than 29%, while the OTC channel (pharmacy, non-prescription channel) only increased by about 4.7%.

But over the past 3 years, ETC channel has been increasingly narrowed due to fierce competition from foreign firms. Domestic companies have found a new direction is to expand OTC channel. The survey of Vietnam Report shows that, in addition to prioritizing product innovation research, the second biggest concern of pharmaceutical enterprises is the development of OTC channels. Sales of pharmaceutical companies are also mainly from the OTC channel, accounting for 82% of total revenue in Imexpharm (IMP), 90% in Hau Giang Pharmaceutical (DHG) and over 80% in Traphaco (TRA).

Domesco wants to increase its revenue in 2018 to nearly 1,500 billion VND, which is approximately 10% increase compared to last year, the company must increase sales in the OTC channel. This is probably one of the reasons for Domesco to cooperate more with Digiworld in the functional food segment.

If Vietnam’s pharmaceutical market to 2021 is estimated at about $ 7.7 billion, the figure for the whole healthcare sector is $ 24 billion (according to research by BMI, Frost Sullivan and World Bank). The attraction for the functional food segment is that the gross profit margin is usually high, over 50%. Therefore, many international firms such as Amway, Tiens Vietnam, Herbalife, Unicity Vietnam, Synergy, Aloe Trading, Blackmores are all present in Vietnam. Domestic companies such as Hau Giang Pharmaceutical, Imexpharm, Domesco, Traphaco … also seek to promote functional foods.

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But the market for functional foods is not easy to squeeze in. According to preliminary statistics, thousands of companies have joined this district, with more than 20,000 products traded in the market. In which, there are many products of the same type and same use. Therefore, according to an industry representative, it is important for companies to advertise their brands in the midst of a forest of fierce competition products.

This is a very difficult problem for Vietnamese businesses. Because the market sentiment is to prefer foreign products and foreign products often have more eye-catching packaging. Another difficulty is that domestic enterprises are not good at distribution. Due to limitations in distribution, many products of Vietnamese pharmaceutical companies, despite their good quality and cheaper prices, still have stuck output.

In Vietnam, there are more than 300 foreign companies involved in pharmaceutical distribution. DKSH Holdings, Zuellig Pharma, Mega Products and Diethelm alone account for the majority of the market share.

Currently, only a few domestic companies such as Hau Giang Pharmaceutical, Traphaco … are methodical marketing and organizing a professional distribution system. Hau Giang Pharmaceutical owns a distribution system with 12 subsidiaries and 24 branches nationwide. Traphaco has also developed a network of more than 24,000 pharmacies, which are present in more than half of the total number of pharmacies in Vietnam. From here, Traphaco not only sells its own products, but also distributes the products of Natural Factors (Canada), Novartis (Switzerland).

But according to a representative of a distribution company, building a distribution system by itself like Traphaco costs a lot of investment, takes time, effort and not everyone is successful. These firms also do not accept distribution for competitors’ products. Therefore, in order to sell products, many pharmaceutical companies have to use the distribution services of outside partners. In Vietnam, there are more than 300 foreign companies involved in pharmaceutical distribution. DKSH Holdings, Zuellig Pharma, Mega Products and Diethelm alone account for the majority of the market share. In addition, there can be more names like Mesa who are distributing products for Blackmores (Australia).

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Handshakes

Domestically, hundreds of units have also participated in pharmaceutical distribution. Central Pharmaceutical Company II, Vimedimex, Dapharco, Khuong Duy, Hapharco, Eco, Sapharco … are prominent names. But it can be seen that Vietnamese pharmaceutical distributors currently only accept sales duties. Rarely is there any unit in charge of marketing strategy, advertising, after-sales … like foreign distributors.

Therefore, when Digiworld followed the model of providing MES services as foreign distributors, the company soon obtained contracts with Vinamedic (Kingsmen), Thong Nhat Pharmaceutical (non-prescription drugs), Phu Bao (export medical page). It is expected that Digiworld will have more distribution and marketing contracts for a large functional food company in Singapore.

Hundreds of units are involved in pharmaceutical distribution.

Digiworld is the company that distributes technology products. But facing the opportunity from the health care market, this company has encroached on pharmaceutical distribution and has access to 5,000 pharmacies. By 2019, the company’s goal is to increase the network to 20,000 pharmacies.

If successful, this will be the strength for Digiworld to have diversified distribution contracts. In addition to Digiworld, The Gioi Di Dong and FPT Retail are also implementing investment projects in the chain of pharmacies. If The Gioi Di Dong acquires the pharmacy chain Phuc An Khang, FPT Retail will invest in the pharmacy chain of Long Chau. But unlike Digiworld, these two companies go to retail and will compete with many units such as Phano, Eco, Pharmacity …

On a more comprehensive level, recently, DHG Pharma has also cooperated with Vinamilk in all three areas: branding, coordinating in raw materials and exploiting the power of the specific distribution channels of each party. Clearly, businesses are aware that, in addition to product quality, they need to pay attention to how to help consumers recognize products. To do this, firms must invest in marketing and distribution. This has promoted and will promote merger and cooperation (M&A) cooperation between companies.

Ngoc Thuy
* Source: Investment bridge

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