Chinese Mandarin - Wal-Mart lessons for local pharmaceutical chains

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BIZCHINA / Review & Analysis

Wal-Mart lessons for local pharmaceutical chains

By Qian Zisheng (China Daily)
Updated: 2007-09-13 13:36

It's time for Chinese pharmaceutical chains to learn from international
retailing behemoths like Wal-Mart.

Last year, US-based Wal-Mart topped the Fortune 500 list, which pegged
the world's largest retailer's revenue at US$351.1 billion, an increase
of 11.2 percent over the previous year, with a profit of US$11.3 billion.

The seemingly less profitable retailing business surprisingly leaves many
big American names like General Electric and General Motors behind in
profit figures. There are reasons for this success. Low price is one of
them.

In all markets, price is always an important, if not the most, tool to
attract or drive away customers. Sam Walton, founder of Wal-Mart, was
wise enough to realize he could please his customers by passing on the
savings to them and earn his profit through bigger volumes.

The low-price strategy has been copied around the world since early 1962,
when the first Wal-Mart outlet was launched in Rogers, Arkansas.

But how can prices be kept down? This brings us to another equally
important Wal-Mart strategy - maximum cost cutting.

Wal-Mart opens as many stores as possible in a specific region. This
effectively weakens the competition in the local market by slowing down
the expansion of other retailers. More importantly, it brings in a more
efficient logistics system and scales down the transportation costs.

The large number of stores and the bulk buying also put Wal-Mart at a
more advantageous position to bargain with suppliers for cheaper deals.

Of course, it's not merely thrift that pushes Wal-Mart ahead of its
competitors. The American retailer has been highlighting the value of its
staff and makes it a point to keep them happy.

On the other hand, there are lessons to be learnt from Wal-Mart's
setbacks in China.

Wal-Mart here insists on the unified settlement of accounts, which means
the cash flow in all stores will eventually go through the China
headquarters. This, in turn, means loss of tax revenue for local
governments, and is the reason why most of them cold-shoulder Wal-Mart,
hindering its expansion.

The slower expansion and the consequent small number of stores makes it
difficult to guarantee the same efficient logistics system as it enjoys
worldwide, let alone cost controls.

For Chinese pharmaceutical retailers, the Wal-Mart story is worth bearing
in mind.

There are numerous pharmaceutical retailing brands but most share common
problems such as a lack of core value or brand promise, like Wal-Mart's
low price, that could easily set themselves apart, insufficient qualified
brains capable of finding the niche market and innovative corporate
strategy, roughly designed talent training programs, empty words on both
internal reward and punishment initiatives, and sales commissions that
lead to high retail prices.

The problems are exactly where the gap lies and what Chinese
pharmaceutical retailers should get rid of to raise their bottom line
amid fiercer competition.

Take Jiangsu Drug Store Federation for example. There are 33
pharmaceutical brands in the province that have a network of 1,500 stores
in total.

I was part of a group of industry experts that recently participated in
overhauling a pharmaceutical chain that resulted in rocketing revenue and
profits.

After having studied the practices of international retailers, the group
carried out a brand repositioning campaign internally, and then, before
the new brand made its debut, conducted training to make employees fully
involved in the campaign, telling them what the brand stands for, what
they are expected to do and what they are not.

Everyone was asked to send a report analyzing the job they are involved
in and suggest solutions to support the new corporate strategy.

A series of rewarding tools were also designed to motivate the staff to
work harder and convince them that they can benefit from the strides the
company makes.

The headquarters was made responsible for 70 percent of pharmaceutical
purchasing and individual stores for the rest.

Wal-Mart's other practices, like freeing suppliers of entry fees, helping
them improve the product quality and design, and online information
sharing, were also adopted.

The author is a senior marketing consultant in China's pharmaceutical
industry and is now executive general manager of Jiangsu Drug Store
Federation

(For more biz stories, please visit Industry Updates)

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