FRT is confident that Long Chau pharmacy chain will break out from 2021 and account for 30% of the market share in the next 2 to 3 years
Recently, due to the Covid-19 epidemic and the directive of social distancing, the locations for Long Chau’s new pharmacies were not licensed, so the opening is slowed down. Although the situation has become stable now, Ms. Diep said, under the current context, it is expected that Long Chau will reach the break-even in 2022 (the initial plan is to incur profits in 2021).
As one of the enterprises behind ICT retail trend, FPT Retail (FRT) had a strong battle phase and ranked second in the market. This is noteworthy, however, after the game of FPT Shop ended, it was also the time when this segment went into saturation stage, and the lack of substitute factors made the business continuously decline.
At the moment, a similar retail strategy is taking place in Long Chau pharmacy chain, in 2020, FRT will focus all of it resources for the expansion phase after finding the secret to success. Concurrently, drawing experience from old lessons, FRT has also prepared the “alternation” via new industries from F.Beauty to Fado (cross-border sales), selling air tickets, motorbike insurance, etc.
On average, a Long Chau pharmacy will reach the break-even after 6 months with the investment costs from VND 400 million to VND 1 billion
Sharing with the shareholders at the Annual General Meeting of Shareholders of 2020, Ms. Nguyen Bach Diep – Chairman of FRT said: “Opening a new business chain will certainly incur losses in a few years, then it will begin to break even. There is a story in the retail industry: one day, the number of new stores opened is less than the number of the existing stores, that is when the break-even is coming, usually.
In particular, when the enterprises decide to expand investment, we do have confidence, which means that we already have the secret to success for the chain. Later, when we reach quite a large scale, the negotiations with the suppliers … will be better. Finally, in terms of administration, the cost we deploy for the back-office team to support the trading will be more optimal. Because the more stores that are opened, the more revenue we can record, while the fixed cost is remained the same, the business efficiency will be improved.”
It can be understood that, at that time, the cash flow will be returned gradually. For example, from the FPT Shop chain, according to Ms. Diep, when the Company starts to generate profits, the profits in the following years will increase dramatically. The same thing happens to Long Chau, in the first year, FRT will have to invest a lot in researching, writing technology software, building call center team, etc.
According to the Head’s calculations, in general a Long Chau pharmacy will reach the break-even after 6 months, which means that it will generate profits after 6 months. Thus, when the number of new stores opened is less than the number of the existing stores, it is time when Long Chau will break even on a comprehensive scale. Currently, the investment cost for a Long Chau pharmacy ranges from VND 400 million to VND 1 billion, in fact, this also depends on the area of the store and its location.
The investment cost for a Long Chau pharmacy ranges from VND 400 million to VND 1 billion.
According to the current context, the break-even will be in 2022
Although being unable to disclose details, Ms. Diep shared that the gross profit margin of pharmaceutical segment is now about 3% higher than that of ICT segment. “That is just the beginning. After the initial investment stage, the business will fight with competitors to attract customers. Then comes the negotiation stage with the customers for better input prices, and self-developing private labels will contribute significantly to the improvement of profit margin.”
Now, Long Chau has reached the milestone of 100 pharmacies, the Company has also decided on 40 locations to open new stores in the second quarter of 2020. Long Chau is selling prescription and over-the-counter medicines, functional foods, cosmetics, and health care products. By the end of the first quarter of 2020, Long Chau has achieved VND 239 billion of turnover, up 20% compared to the that of fourth quarter of 2019, 2.5 times higher than that of the same period in 2019.
FRT has a strategy to increase the coverage of Long Chau pharmacies nationwide, accounting for about 30% of the market share of pharmaceutical industry through pharmacies in the next 2 to 3 years. For the plan to 2021, the chain will officially enter the stage of ‘boom’ when it generates profits for the first year, the number of stores is expected to increase to 420 with the turnover increased by double to VND 4,300 billion. The figure for the following year (2022) will be VND 6,500 billion in revenue and VND 86 billion in profits with 620 pharmacies.
Despite that fact, recently, due to the Covid-19 epidemic and the directive of social distancing, the locations for Long Chau’s new pharmacies were not licensed, so the opening is slowed down. Although the situation has become stable now, Ms. Diep said, under the current context, it is expected that Long Chau will break even in 2022 (the initial plan is to generate profits in 2021).
It is expected that Long Chau will break even in 2022 (the initial plan is to generate profits in 2021).
“We surely have to start as soon as possible in order to have the substitute for the future”
Back to the substitute story, FRT is also currently testing the F.Beauty model. According to Ms. Diep: “Recalling the time when opening FPT Shop, FRT put all of its time to survive and be ranked second. When the investment switched from FPT Shop to Long Chau, the ICT segment saturated while Long Chau had not been generating alternative profits yet, which made FRT face difficulties.
As a result, from such lessons, today FRT has to test in advance and discover the secret to success of the new segment along with the development of Long Chau. This is to ensure that, when Long Chau saturates, we will have another substitute segment.”
At the moment, FRT said it is experimenting with a cautious attitude. This is partly due to the Covid-19 epidemic, the Company does not have many opportunities to invest, research and evaluate much. But, “We surely have to start as soon as possible in order to have the substitute for the future“, Ms. Diep said.
In addition, the Deputy General Director Nguyen Viet Anh said that FRT’s big asset is 600 stores with an average of more than 1 million visitors per month, not to mention the number of online visitors which also reach more than 20 million per month. Together with 5,000 employees, FRT sees an opportunity to sell and cross-sell other products and services.
“For the example of selling air tickets, the number of new airlines opened in Vietnam together with the growth rate of existing airlines show the extremely hot growth of aviation industry. The number of air tickets sold can be estimated to reach 50 million tickets every year. So where have been these tickets bought and sold?”, Mr. Viet raised the issue.
It is estimated that about 20% of the air tickets are sold within the corporate sector, 10 to 15% via online channels (Traveloka, Tiki, etc.). And the other majority of 50 to 60% are sold through fragmented retail agents, which shows that FRT may have the opportunity to restructure the airline ticket market, while the commission for the airline ticket market can be up to hundreds of millions of USD, emphasized by the Deputy General Director of FRT. Besides that, FRT also found many other industries attracting such as motorbike insurance, etc.
Answering the shareholders about the remaining outstanding balance of F-Friends and Subsidy, the management board said that in 2019, the outstanding balance of F-Friends was more than VND 100 billion and was almost provisioned. Accordingly, in 2020, an additional amount of about VND 10 to 15 billion will be provisioned.
Particularly for the F-Friends program, it is still in operation in 2020 but in new directions. Last year, the F-Friends program was ready for bad debts from the beginning, the Company also calculated this debt into the selling price. However, the software lockout error caused the outstanding loan to increase unusually, which made the reality come out of expectation.
In 2020, the software has been handled more stably. The Company has also redesigned F-Friends in the direction of combining with existing instalments to switch the loans to be incurred by the instalment party. The person handling bad debts will now be the instalment party instead of FRT.
Regarding F.Studio chain, Apple products currently account for 30% of FRT’s total digital sales. In general, for Vietnam market, FRT represents about 35 to 40% of the market share of Apple products.
According to Tri Tuc, CafeF
Published May 29, 2020