China's Nepstar pharmacy chain a hot bet?

China’s pharmacy business is highly fragmented and seems set for consolidation as seen in most major markets and with 2,700 outlets already, Nepstar may be in the best position to drive this according to experts.

Established in 1995, the green Nepstar store is becoming a familiar sight in many Chinese urban neighborhoods.Logo

Nepstar is the only retailer to have successfully negotiated discount purchasing agreements with drug manufacturers and it has aggressively introduced private label products (with big profit margins) into its stores.

Much like American drug stores, Nepstar sells a lot more than just prescription drugs. In fact, only 20% of 2008 sales were pharmaceutical drugs – over-the-counter drugs (38% of sales) and nutritional supplements (21%) are even bigger sellers.

With its masive and growing Silver society, there will be huge demand for prescription drugs, over-the-counter drugs, and nutritional supplements.There’s also China’s fast-growing middle class has the money to spend on better health care.

When Nepstar went public in October 2007, it had 1,800 stores in 62 Chinese cities. At the end of 2008, that number had grown to 2,700 stores in 76 cities – making Nepstar the largest drug store in China.

The Chinese government recently announced a sweeping reform of its health care system. Its pledge: to provide basic health care to 90% of Chinese by 2011 and comprehensive coverage by 2020.