Over the past five years, revenue for the pharmacy and drug retailer industry in China has been growing at an annualised rate of 9.5 per cent to an expected $42.7 billion by the end of the year.

The projection was made by market researcher IBISWorld.

Many factors have supported the development of the industry including substantial growth in domestic demand for drugs retailed by drug stores, relatively higher drug prices in hospitals and people’s increased ability to self-medicate.

Additionally, the government’s support for the development of chain drug retailing enterprises has also been a positive influence on the industry.

The pharmacy and drug retail sector is not highly profitable, with profit accounting for just 3.6 per cent of industry revenues in 2013.

Drugstores are at the very end of the distribution chain of drugs, and distributors obtain most profit margins. The low profit margin is also due to the increasingly intense competition among retailers.

In 2013, the combined market share of the industry’s top four firms – Sinopharm, Chongqing Tongjunge Big Drugstore, China Nepstar Chain Drugstore and Guangdong Da Shen Lin Chain Drugstore – is estimated at 6.7 per cent.

IBISWorld expects concentration to increase steadily in the future as large chain drug retailers further increase their outlet numbers and with the expected implementation of new, stricter good selling practice (GSP) measures in mid-2013.

Currently, this industry does not hold a dominant position in drug and pharmaceutical distribution in China. Over 60 per cent of medicines and drugs in China are distributed or retailed through hospitals, which derive income from selling drugs more than from providing medical services.

Upcoming reforms of the healthcare system will include changes of income sources for hospitals and a focus on medical care provision rather than drug retailing. As such, this industry’s share of the drug retailing market will expand, supporting future revenue growth, says IBISWorld.