Following a period of policy and economic headwinds coupled with a wave of store closures, the retail pharmacy sector has seen both its fundamentals and valuations reach a bottom.
From an industry-wide perspective, the accelerated clearance of underperforming stores is amplifying the advantages of leading players, while signals of an improving policy environment are clear. Concerns such as extreme price comparisons have been alleviated, and digitalization is optimizing regulatory approaches. Furthermore, policies are gradually opening up for the sale of non-pharmaceutical products, with companies actively exploring new retail formats to establish a second growth curve.
Leading pharmacy chains are ushering in a definitive performance inflection point by resuming expansion. Against a backdrop of overall economic pressure and the exploration of new business models, the strengths of market leaders—encompassing refined management capabilities, channel bargaining power, and expansion potential—are poised to become more pronounced, with same-store sales also expected to gradually recover.
Key Points from the Analysis
The industry has weathered a trough in policy and economic conditions along with a store closure wave, with both fundamentals and valuations having bottomed out. Industry-wise, the accelerated clearance of stores is amplifying the advantages of leaders, and signals of a favorable policy shift are clear. At the individual company level, leading pharmacies are showing positive changes in both external expansion and internal growth, with diversified sales opening up long-term space. Investment opportunities among the leaders warrant attention.
Policy Environment Improving from a Low Point
Since 2024, regulatory scrutiny on retail pharmacies has intensified, with market concerns arising from medical insurance spot checks and drug price comparisons. Coupled with slowing market growth, the retail pharmacy sector faced overall pressure in 2024-2025. From 2026 onward, the concept of "health stations" introduced in a nine-ministry document has affirmed the value of the retail pharmacy channel. Simultaneously, with the optimization of regulatory tools like traceability codes and improvements in fairness between online and offline oversight, compliant leading pharmacies stand to benefit.
Industry Consolidation Accelerates, Optimizing Supply Structure
Firstly, according to CIC data, net store reductions exceeded 3,000 per quarter in 2025, with the scale of closures showing a fluctuating but increasing trend quarter by quarter. In Q3 2025 alone, nationwide pharmacy closures reached a high of 16,471, setting a recent record for single-quarter closures, while 7,671 new stores opened, resulting in a net reduction of 8,800 stores for the quarter.
Secondly, the closure wave essentially represents the cyclical bursting of a store count bubble, with policy and economic conditions acting as accelerants. The number of retail pharmacies had stabilized around 2015. However, post-COVID-19, small chains and independent stores strengthened their short-term cash flow through pandemic supplies and specific medications, slowing their exit, while large pharmacy chains accelerated land-grabbing and store openings, leading to an inflated total industry store count.
Thirdly, in the post-2024/2025 policy era, factors including the overall underwhelming implementation of outpatient pooling policies, market contraction, and price comparison policies and spot checks triggered the pharmacy industry's closure wave, with leading chains proactively closing stores to enhance efficiency.
Leading Pharmacies Resume Expansion, Performance Delivery Underway
Firstly, in 2024, leading pharmacy chains began actively optimizing their store networks, shifting from "rapid expansion" to "quality and efficiency improvement." For instance, Yifeng Pharmacy closed 1,078 stores in 2024 while adding 1,686 directly-operated and 826 franchised stores. In 2025, it closed 547 stores and added 193 directly-operated and 501 franchised stores.
Secondly, as most closed stores were loss-making yet revenue-generating, the pace of closures and the significant slowdown in new openings impacted revenue in the short term (revenue growth faced pressure in 2025, with Yifeng Pharmacy reporting a 1.54% year-on-year increase, Dashenlin at 3.80%, Lao Bai Xing at -0.54%, and Yixintang at -3.69%). However, the positive effect on profits is gradually materializing. Combined with cost-reduction measures like rent reductions, leading pharmacies are seeing profit releases (Yifeng Pharmacy's 2025 adjusted net profit attributable to the parent rose 7.65% year-on-year, while Dashenlin's surged 38.36%).
Thirdly, considering that leading pharmacy chains are largely concluding their store closure phase and beginning to restart expansion in 2026, a revenue inflection point is anticipated this year, driven by both external expansion and internal same-store sales improvement.
Risk Warnings
Potential risks include medical insurance regulatory changes, price comparison and cost control measures, slower-than-expected prescription outflow, intensified competition, and compliance-related incidents.
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