In the era of Internet consumption, how does health care product respond to the 'battle post' of health food?

At present, China’s health care products market presents a sales pattern dominated by direct sales. The sales of direct sales channels represented by BY-HEALTH and Amway account for nearly half of the market share, while pharmacies and e-commerce channels jointly share the other half of the market share.

According to professional data, in recent years, with the popularization of the mobile Internet, online channels have captured a new round of traffic dividends. There are more and more online shopping platforms with different development models and subdivisions. Social e-commerce, content e-commerce It is constantly rising and fits well with the long-tail needs of consumers of health care products, causing consumption diversion to a certain extent and posing new challenges to the online channel layout of enterprises. The channel share is flowing to non-direct sales or e-commerce channels .

When looking at the development of an industry, we must take leading companies as references in order to see the current situation and future more comprehensively. Let’s take BY-HEALTH as a microcosm to see how channel marketing affects enterprise development and industry structure.

1. Focusing on traditional channels, BY-HEALTH develops rapidly

Looking back at the development history of BY-HEALTH, it is one of the few health food companies in China that has been focusing on the development of pharmacy channels.

In the process of enjoying the economic dividend and brand effect, the company has become the industry leader step by step. From 350 million revenue and 90 million net profit when it went public in 2010 to 7.43 billion revenue and 1.754 billion net profit in 2021. In 10 years, the profit has increased nearly 20 times. Although the competition in the industry is intensifying, the company’s profitability has been relatively stable since its listing ten years ago, and the gross profit margin of sales has remained above 60%.

So, what is the reason for its success?

Interpreting BY-HEALTH’s development model and reports in detail, we can see that BY-HEALTH’s accounts receivable and inventories are very small, accounting for only 2.51% and 7.18% of total assets respectively, showing the company’s strong bargaining power over channels .

Of course, another secret of BY-HEALTH’s success lies in sales through high-margin channels, that is, by fully catering to the strong demand for high-margin products from pharmacy channels, stimulating the distribution and expansion of pharmacy channels, which has led to its rapid growth. The financial report data shows that the number of pharmacy terminals of the company has increased from nearly 3,500 in 2007 to nearly 20,000 in 2014. In the non-direct sales field, the company has taken the lead in gaining an advantage in the industry.

1. Improving online channels to promote marketing transformation, BY-HEALTH’s next topic

But everything will not escape the cyclical law.

During the rising and explosive period of an enterprise, it is natural that “the world will work together”, but once it enters the growth bottleneck period, it is inevitable that “the heroes will not be free”. Only BY-HEALTH of the era, not the era of BY-HEALTH, over-reliance on physical channels will sooner or later make BY-HEALTH fall into unpredictable risks at some point.

With the advent of the Internet consumption era, people’s consumption habits have changed, and the advantages of offline channels are no longer obvious. In 2015, after encountering the “black swan” event of joint boycott by chain channels, traditional medicine terminals were also frantically crowded by e-commerce to varying degrees; in 2016, e-commerce channels in the entire industry surpassed pharmacies to become the No. Two major sales channels.

It is conceivable that with the changes in industry regulation and shopping channels, in 2016, the turning year, BY-HEALTH’s advantages accumulated over the years by building channel and brand barriers are gradually disappearing. As the saying goes, there are channels for success and channels for failure. In the face of drastic market changes, the company had to actively adjust the channel structure.

Reform is imperative.

Since 2017, BY-HEALTH has made an attempt to seek change, continuously increasing investment in online channels, not only inviting traffic stars to endorse, creating an online brand matrix exclusive to young people, and launching targeted marketing; Major domestic e-commerce platforms such as cats have opened brand flagship stores and stepped up brand promotion efforts. The strategic adjustment of innovation and change ushered in the first wave of performance in 2020 and 2021-By-Health’s online channel revenue increased by 62.77% and 45.88% year-on-year respectively.

The development of online channels and the reshaping of offline channels seem to be helping BY-HEALTH to build a new brand influence. However, through careful analysis of financial reports, it is not that simple to find the truth behind the data.

From the growth rate of sales expenses and operating income growth rate, it can be seen that sales expenses, which account for about 30% of revenue, have eroded the new profits brought by online channels, and the investment in e-commerce branding strategy has not formed a high level. The profit conversion rate, Tomson By-health’s operating income growth is almost driven by the increase in sales expenses. The company’s strategic layout and actual effects may appear to be somewhat out of balance.

Therefore, the next topic before BY-HEALTH should be how to optimize and improve online channels so that sales expenses can be truly and effectively converted into net profits. Emphasis on online channels is definitely the general trend. The key is to give online channels a clearer strategic positioning, combine e-commerce models with industry characteristics, discover user needs more accurately, and minimize marketing costs.

1. Summary

According to Euromonitor’s statistics, the scale of China’s health food market will be 216.765 billion yuan in 2021, an increase of 7.39% year-on-year, and it is expected to reach 232.47 billion yuan in 2022. % industry growth level continues to develop positively. With the improvement of health care awareness among young consumers, their demand for other food industries will continue to rise. The normalization of epidemic prevention and control has also made consumers deeply aware of the importance of health.

Stimulated by the continuous expansion of the market space and the heavy demand of young people, the “black swan” of superimposing the COVID-19 epidemic has brought a huge impact on the development of the health food industry. From the perspective of industry development trends, the growth of pharmacies and online shopping The proportion of channel share is changing, and the advantages of e-commerce over pharmacies are expected to be further expanded, which will also promote the development of differentiated large single products in the overall health food industry. However, the epidemic has gradually turned customers who originally belonged to the supermarket and pharmacy models to online, bringing more customer traffic to the e-commerce model.

From this, we can also foresee that the evolution of the channel structure will inevitably lead to new changes in the industry’s competitive landscape, and will also drive the further improvement and optimization of BY-HEALTH’s channel strategy.

Author/Walking Hengtian

Text | Songguo Finance (ID: songguocaijing1)