Recruiting in China

An yhd.com banner displays at an exhibition on June 28, 2014 in Nanjing, Jiangsu province.

Analysts: Pharmaceutical retailers may face technology-driven shakeup

Yhd.com, a Shanghai-based online supermarket controlled by Wal-Mart Stores Inc, has been given permission by China's Food and Drug Administration to sell over-the-counter medicines online, a first in the nation.

The FDA in late July included Yhd.com in an online medicine retail pilot project. With the license, all the third-party pharmaceutical retailers that have set up online shops on the company's website are allowed to sell medicines directly to consumers.

Previously, they could sell only certain categories of health and beauty products such as medical devices and cosmetics.

At present, however, only OTC drugs can be sold online. Prescription drugs, which account for the majority of China's massive pharmaceutical market, are not included in the project.

Many of the big names in China's e-commerce industry, such as JD.com Inc, are going through the application process, hoping to tap into the online medicine industry. But analysts warned that there are many hurdles, particularly at the policy level, that stand in the way of profit.

According to a press release from Yhd.com on Wednesday, more than 10 pharmaceutical retailers have already set up online stores on its platform, which has more than 60 million registered users. Yhd.com said that it expects to add another 50 pharmaceutical retailers by the end of year.

It has set an ambitious goal of having 200,000 OTC medicines by the end of the year, said the company.

Vice-President Liu Tong said that getting permission to sell OTC drugs online will expand the company's business portfolio and help it provide better one-stop shopping for customers.

Most important, with the help of the Internet, customers anywhere can easily buy safe drugs at reasonable prices, said Liu.

"By setting up stores on Yhd.com, pharmaceutical chain stores can effectively reduce their operating costs, therefore eventually lowering the prices of medicines," said Liu.

The Internet has revolutionized many traditional sectors, such as retail, videos and finance, and created high-growth sectors.

China's e-commerce market is already the world's largest. And traditional brick-and-mortar stores must change or be left with a decreasing retail market, experts say.

Will the Internet work the same magic with the pharmaceutical industry? Probably not, at least in the short term, said analysts.

Lu Zhenwang, an independent Internet expert and chief executive officer of the Shanghai-based Wanqing Consultancy, said that the nation's pharmaceutical market is valued at more than 1 trillion yuan ($162.5 billion) annually, but OTC drugs only account for 20 percent of the total.

"The prices of OTC medicines are usually not very high. If you include the delivery cost, the medicines you buy online may even be more expensive than those you buy at local pharmacies," Lu said, adding that the market also excludes those with acute conditions who cannot wait for delivery.

Qiao Yu, an analyst with IT consultancy Analysys International, said those with chronic diseases are often elderly people who are not tech-savvy enough to place orders online in any case. And some people may also shy away from buying drugs online because they worry that insurance will not cover the bill.

Despite these challenges, many e-commerce companies and pharmaceutical retailers still see online medicine as a strategic sector. "With the continuation of medical reform, there's hope that the government will allow the sale of prescription drugs online, which will quickly make the market more dynamic," Qiao said.