Make a Switch to TCM

Soaring prices of TCM raw materials

The price of Traditional Chinese Medicine(TCM) raw materials， such as radix pseudostellariae， hiked dramatically since 2010. More and more TCM companies feel more and more pressure in business: costs are up， and profits are down. In July 2011， Jiangzhong Pharmaceutical， a local TCM company， had to declare to raise the retail price for its two most popular TCM OCT， Jiangzhong Jianwei Xiaoshi Tablet (a digestion aid)， and Compound Sarcandra Glabra Tablet， even though the sales of digestion tablets had grown by nine times in 10 years.

However， the rising sales didn’t dramatically increase profits. Its third quarter report of 2011 showed that Jiangzhong’s profit was pale. The first three quarters of the operating cost reached RMB 995 million， an increase of 34.46%， while its operating income was merely RMB 1.54 billion， a drop compared to 2010. Its net profit only yielded RMB 136 million， a drop of 25% compared with the same period last year.

Expanding TCM health product market

On the other side of the coin， the market for Traditional Chinese Medicine health products is rapidly expanding. As of September 2011， China State Food and Drug Administration approved 11，576 kinds of health foods， among which domestic products accounted for 94.4%. According to the China Securities， a local newspaper， the annual growth rate of TCM related products sales is expected to exceed 20% in 2011， including health products， cosmetics， beverages， and so on.

The TCM related products from companies like Tong Ren Tang， Tasly， Dong-e E-Jiao， Guangzhou Pharmaceutical， Yunnan Baiyao， Jiangzhong Pharmaceutical， Mayinglong Pharm， Conba Pharmaceutical， Pien Tze Huang Pharmaceutical， and the Tai Chi group， are already popular in the market. Moreover， the sales of the health products from Wanxi Pharmaceutical， Guilong Pharmaceutical， Xiuzheng Pharmaceutical， Harbin pharmaceutical group are also booming.

The profit made from health products is high. The industry is expanding rapidly in China， and more and more products are launched to the market. The sales of Wang Lao Ji herbal tea of Guangzhou Pharmaceutical Corporation reached over RMB 16 billion in 2010. The sales of Yunnan Baiyao toothpaste exceeded RMB 1.2 billion over the same period， up by about 70%.

China’s current population of seniors over 60 years old has surpassed 178 million. National health awareness and consumption ability on health care continues to grow. This expanding market will further promote the development of health products and TCM industry.

The outlook of the derivatives market of Traditional Chinese Medicine is quite optimistic. It is estimated that the sales of daily chemical products of Traditional Chinese Medicine will increase more than 30% in the next 3 year， and herbal beverages will grow by over 25%. The sales value is expected to exceed RMB 50 billion.

A senior executive from Tong Ren Tang said that it is high time to strengthen and expand the advantages of TCM derivatives. In 2003， Tong Ren Tang began to run a business in the field of TCM health products. During 8 years of existence they’ve opened over 500 special stores and over 1，000 counters have been set up. In 2010， their sales value reached RMB 4.23 billion， contributing 30% of the overall revenue of the company and 40% of the overall profit. Last September， Tong Ren Tang announced that its 10 subsidiary companies would be restructured into the health industry.

Also， last May， Yunnan Baiyao Group proposed a strategy of “New Baiyao， Wider Health Concept”， clarifying its ambition in the health product field.

“A number of health product manufacturers， such as Green A and Wang Hala are preparing for public listing. More traditional foodstuffs companies， such as COFCO and Bright Dairy， are also entering the field of health care products in full speed，” said Wang Dahong， Secretary General of the China Health Care Association. “The future of this industry is optimistic，” Wang added.

More high-end products

Another trend of TCM health products is that more and more high-end and luxurious products are entering the market.

To release the pressure from soaring TCM cost， Jiangzhong Pharmaceutical launched its highend health products， Shen Ling Cao， which was promoted as treasure of TCM culture. Jiangzhong spent five years in research and development on Shen Ling Cao， whose main components are aweto， genseng， and glossy ganoderma， claiming it has the function of anti-fatigue and enhancing immunity system. A single bottle of Ling Zhi Cao liquid is 200ml， which costs about RMB 800， and that is only a one day dose. The product is currently sold in the Beijing， Shanghai， Hangzhou and Chengdu markets.

“I’m not surprised of the price of high-end health products， and for sure it has a place in the market，” said Anna Lee from China Chamber of Commerce for Import and Export of Medicines and Health Products， “I personally know that many people take aweto every day， which costs hundreds of RMB daily. But people believe that it will do them good， and the more expensive， the better.”

Competition from foreign peers

In fact， quite big part of China’s health products market share is taken by foreign capital. 400 foreign-funded enterprises， such as Amway， Sunrider and AVON， sell only 7% of the health products catalogue in China， but harvest 40% of the sales value. In 2010， the sales value of Amway China registered RMB 21 billion， 60% of which was contributed by health products.

“I prefer to buy foreign products as they are more reliable in quality，” said Peng Yuan， a consumer who often travels abroad because of her work， and has a VIP card in hand for GNC， Vitamin Shoppe， and Vitamin World， three major health food store chains in US. Trust is perhaps the biggest obstacle still facing Chinese TCM health product producers.