Revenue at retail pharmacies and drugstores in China has risen 9.5% annually on average during the past five years, and is expected to be worth $42.7 billion by the end of 2013, according to a report released by market researcher IBISWorld.

Supportive government policies, higher prices at hospital pharmacies and people's increased ability of self-prescription have buoyed the strong growth, the report says.

However, the retail medicine market is not reasonably profitable as its profits are projected to make up just 3.6% of the total pharmaceutical sales in China in 2013, the report notes.

The reason is that retail drugstores are at the bottom of the profit chain that is dominated by drug distributors as well as that the retail sector itself is highly competitive.

It is a fragmented market as the four biggest drugstore chains combined are estimated to represent less than 7% of total revenue. The top four are Sinopharm, Chongqing Tong Jun Ge Big Drugstore, China Nepstar Drugstore and Guangdong Da Shen Lin Drugstore.

Concentration is expected to rise in the years to come as the government has imposed stricter business practices to help large industry players consolidate the market.

Overall, revenue from medicines sold at hospital pharmacies account for more than 60% of total revenue as the severely criticized mechanism leads to hospitals making money through selling drugs rather than providing medical services.

The Chinese government is drafting rules to change how hospitals obtain income with a focus on providing medical services instead of selling drugs, which is set to leave behind opportunities for the retail drug market.


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