Can unmanned medicine vending machines be done in a big way?

"In the future, every pharmacy can achieve 24-hour unmanned drug sales." Richard Liu, the chairman of JD.com, posted this message on social media as early as 2017.

It wasn't until June 2024 that, in order to meet the public's 24-hour medication needs, the Beijing Municipal Drug Administration issued the "Beijing Municipal Provisional Regulations on the Establishment of Self-service Drug Vending (Collection) Machines by Retail Drug Enterprises (Draft for Comments)" (hereinafter referred to as the "Draft for Comments").

"It's been a long wait," said an individual from the internet pharmaceutical industry, whose company once laid out a business plan for unmanned drug vending machines, but he felt that the wait for the policy "east wind" was too long.

Since 2017, unmanned drug vending machines have gradually become popular, taking off alongside the concept of new retail. Self-service drug cabinets directly for consumers, as well as "large-sized" smart drug cabinets that are used for drug distribution in pharmacies and storage, and drug management in clinical departments, have all rushed into this new track. Moreover, in addition to some professional equipment companies, JD.com, Alibaba, Meituan, and others have also successively entered the field, and some newcomers such as Kuai Fang Pharmaceutical and Yao Bian Li have also obtained their first round of financing.

It can be anticipated that smart drug cabinets will change the ecosystem of the drug supply chain. Therefore, pilot programs and policy regulations around smart drug cabinets have been introduced in various places. However, the development of this new track is accompanied by high trial and error costs. In this volatile market, some people have withdrawn, while others have seen new opportunities.

Smart cabinets lose to the night watchman.

"The entire industry is still in its infancy, and it can be said that there is no leading company, and the market share is relatively fragmented," said a person from a smart drug cabinet enterprise.

In the middle of the night, if you have a toothache and can't sleep, you can't bear it. The first pain point that unmanned drug vending machines target is the need to buy medicine at night.

High night-time operation costs, unstable order volumes, and personnel safety have always been concerns for offline pharmacies, and the same is true for online drug sales platforms. In 2021, the total number of retail pharmacies in China reached nearly 590,000, and according to a report by iMedia Consulting, the number of 24-hour pharmacies was nearly 8,000 that year, with the proportion of night pharmacies being only 1.4%.In a prefecture-level city in the northern province with a population of about 4 million, just three years ago, there was only one 24-hour pharmacy in the urban area, making it imaginable how difficult it was to buy medicine at night.

The unmanned medicine vending machine, similar to a 24-hour self-service ATM, occupies an area of one or two square meters, saves labor, is conveniently flexible, and is safe and easy to monitor, seemingly providing a perfect solution for pharmacies.

In fact, as early as 2002, the first self-service medicine vending machine was introduced in Shanghai, where Shanghai First Pharmaceutical placed such machines in 53 of its chain pharmacies. However, in that era when coin recognition features had just emerged, consumers were not enthusiastic about this new model of purchasing medicine. After operating for a while, the self-service medicine vending machines gradually faded from public view.

This niche market remained dormant until 2017 when the internet's transformation of the retail industry was in full swing. According to data from the consulting firm Frost & Sullivan, the market size for outpatient pharmacy automation was about 830 million yuan in 2018. Although small, it holds significance for long-term development.

"When the project of the unmanned medicine vending machine was first discussed, the boss was impressed," said a manager of a chain pharmacy, sensing that many pharmacies were eager to try it out.

Having found a foothold in pharmacies, capital has been vigorously promoting it. In JD's initial plan, the first batch of JD X unmanned medicine cabinets was to be promoted and tested in ten thousand pharmacies on the JD Health's platform, Yaojingcai; Ele.me, in collaboration with Zhengzhong Technology, launched a 24-hour medicine vending machine in 2018 and, in partnership with several chain pharmacies, planned to deploy ten thousand units nationwide that year.

However, upon closer examination, pharmacies found it not cost-effective.

In the only 24-hour pharmacy of the aforementioned prefecture-level city, "the revenue for one night is about 300 yuan, and the monthly turnover is less than 10,000 yuan. But an automatic medicine vending machine costs 20,000 yuan and can only hold over-the-counter drugs. If really deployed, each machine would not even sell 300 yuan a day. In comparison, it's more economical to hire a retired person for the night shift at a cost of 2,000 yuan a month," said the manager of the chain pharmacy.

Switching to a large city with a dense population, the situation investigated by the smart medicine cabinet company in a provincial capital in the northeast is that pharmacies are densely packed and competition is fierce, with most pharmacies operating 24 hours. The commonly used medicines at night are no more than pain relief, antipyretics, and emergency contraception, and a gatekeeper could handle these, making the unmanned medicine vending machine difficult to promote.

According to a report in "China Entrepreneur," the price of JD's smart medicine vending cabinets exceeds 100,000 yuan, while the market average at the time was also between 30,000 and 50,000 yuan.The technical barrier for manufacturing smart medicine cabinets is not very high; the most technologically sophisticated part lies in the accompanying software applications, such as integrating with various systems of pharmacies and hospitals to accurately obtain and execute patient medication information in outpatient clinics, wards, and operating rooms.

In shopping malls, subways, and airports with higher daytime traffic, there are businesses testing the waters. Kuai Fang Medicine Delivery started deploying unmanned smart lockers in office clusters like Galaxy SOHO in Beijing in 2019, selling not only medical devices but also a variety of products including food, beauty, personal care, and home products.

The aforementioned chain pharmacy also placed a medicine vending machine at the exit of a high-speed train station in a provincial capital city, which is close to an old commercial center and a concentrated area of old, dilapidated rental housing with high foot traffic and low demand for medical insurance payments. The demand for emergency medicines and private goods is greater, making it an ideal location after careful selection.

However, after selling for a period, it was found that the well-selling cold and gastrointestinal medicines in the cabinet have low gross margins, and the market for surrounding family planning supplies is already saturated. In addition to the rental cost, the restocking cost for the external vending machine is also high, especially when only one type of medicine is sold out and only one needs to be replenished, which will further increase the cost.

"In the end, the profit is only enough to cover the electricity bill," said a manager of the aforementioned chain pharmacy.

The unmanned medicine vending machine projects of JD.com and Alibaba both ended without success. The Beijing Herbal Convenience Intelligent Technology Co., Ltd., which laid out smart medicine cabinets, has not had any new news since its A-round financing of 30 million yuan in October 2019. Beijing Kuai Fang Technology Co., Ltd. announced the dissolution in January 2024.

How much cost can a cabinet save?

In the winter of 2023, a self-service medicine dispensing machine was placed in the pediatric outpatient department of the Changying Campus of Beijing Chaoyang Hospital. In May 2024, during a hospital exchange activity, it attracted the attention of peers who carefully examined it from all sides and inquired about its application.

This self-service medicine dispensing machine was put into use during the peak period of respiratory infectious diseases in 2023. Chang Hesheng, the deputy director of the pediatrics department of Chaoyang Hospital, introduced that at that time, the pediatric consultation volume was very large. The hospital's pharmacy department allocated the only small self-service medicine dispensing machine to the pediatrics department and started the smart pharmacy model of a distributed pharmacy. Every evening at 5 o'clock, the self-service medicine dispensing machine opened on time. After paying, parents could scan the prescription or receipt at the self-service machine, and the medicine could be collected in just a few seconds, almost without queuing, which greatly reduced personnel contact and cross-infection.

The pediatric outpatient department was originally on the first floor closest to the outpatient pharmacy, but in the evening, the families of the children had to go to the emergency pharmacy on the first basement floor to collect the medicine. With this self-service medicine cabinet occupying less than 10 square meters, during the peak of the consultation, it could handle hundreds of prescription orders in one evening. The pharmacy department only needed to replenish the medicine once a day and perform daily equipment monitoring, reducing the families' toil.In fact, in hospitals with intensive medication use, intelligent drug cabinets save costs and show significant effects. In 2011, Peking Union Medical College Hospital was the first in China to introduce intelligent drug cabinets for the dispensing of drugs in general surgery and hematology departments. Before that, 60% of nurses in general surgery believed that the time spent on drug collection each day was more than one hour, and 90% of nurses thought they had to go to the pharmacy to collect drugs at least twice a day. After using the intelligent drug cabinets, 100% of nurses believed that the time spent on drug collection each day was less than one hour, and 70% of nurses thought they had to go to the pharmacy to collect drugs no more than twice a day.

An article published in "China Pharmacy" introduced that after the University of California, San Francisco, with 44 beds in its cardiovascular surgery department, introduced intelligent drug cabinets, the average number of full-time employees for drug supply, inventory, and dispensing was reduced by 0.5. According to the salary standards of the hospital, introducing this project can save nearly one million US dollars in labor costs within five years.

Of course, the more powerful the functions of the intelligent drug cabinet, the higher the cost. "The largest intelligent drug cabinet is the pharmacy's drug dispensing machine, with a price of 3 million to 5 million yuan. The person in charge of the intelligent drug cabinet enterprise mentioned that usually, if the average daily outpatient prescription is less than 1,500, one machine in the outpatient pharmacy is enough. The larger the outpatient volume, the more machines are needed.

At present, the market penetration rate of intelligent drug cabinets in China is still relatively low. According to a survey in the United States, by 2013, about 80% of hospitals were equipped with intelligent drug cabinets, among which the equipment rate of intelligent drug cabinets in hospitals with more than 600 beds reached 91.7%. According to Frost & Sullivan's statistics, by the end of 2018, the overall penetration rate of automated equipment in China's outpatient pharmacies was about 20%.

In recent years, the high incidence of respiratory infectious diseases has actually given intelligent drug cabinets a chance to promote. Reducing contact between people has become one of its advantages. Gao Zheng, the general manager of Youyao Cabinet, introduced that since 2020, unmanned drug vending machines have been laid out in pharmacy scenarios, and during this period, there was also a period when masks, disinfectants, etc., were distributed to nearby residents through unmanned drug vending machines.

A self-service drug dispensing machine that can hold up to 76 kinds of 3,000 boxes of drugs, with a drug dispensing speed of 15 seconds per prescription (an average of 4 boxes of drugs). In 2022, Changzhou First Hospital's fever clinic introduced such a machine to achieve a "24-hour unmanned isolation pharmacy."

The performance of leading companies once rose accordingly. In 2021, Ailong Technology (688329.SH) achieved a total business income of 389 million yuan, a year-on-year increase of 25.6%, which was the highest increase in the previous five years; Jianmai Information (605186.SH) achieved a business income of 490 million yuan, a year-on-year increase of 70.79%.

Convenient medication for patients in remote areas has also become an opportunity for companies. Jianmai Information attributed its 2021 revenue to the successful acquisition of a large order for the Hubei Provincial Health Committee's grassroots mobile medical health service vehicle project (mobile medical equipment), achieving a good start for the company's hospital market business and the "To-G" model.

The "Draft for Comments" in Beijing also mentioned the establishment of self-service drug vending machines in communities and townships, clearly stating that chain pharmacies with more than 15 stores can set up self-service drug vending (dispensing) machines in pharmacies, large transportation hubs, tourist attractions, large shopping centers, hotels, residential communities, community medical institutions, township three-level (village) health service centers, and other areas.

Exploring new opportunities.Although the growth rate of the intelligent medicine cabinet market is not rapid, some new opportunities in the industry are beginning to emerge. To strictly prevent the diversion of narcotic drugs and Class I psychotropic substances (hereinafter referred to as "narcotic and psychotropic drugs") into illegal channels, the National Health Commission issued the "Notice on Strengthening the Management of Narcotic and Psychotropic Drugs in Medical Institutions" in 2020.

In this context, "intelligent medicine cabinets for narcotic and psychotropic drugs have become the fastest-growing category," said a person from the intelligent medicine cabinet company. In fact, the management standards for narcotic and psychotropic drugs in hospitals are increasingly high. Some hospitals were not doing well originally, and relying entirely on manual labor would be very labor-intensive. Therefore, there is a clear demand for such assessments, and intelligent medicine cabinets can help hospitals improve their services, which increases the motivation to purchase.

However, unmanned drug vending machines in the retail sector find it difficult to enter the hospital market. A person from a retail drug vending machine company said, "We have tried to cooperate with hospitals in new first-tier cities, but the initial public relations costs and overall expenses are too high, making it unsustainable."

Fortunately, the convenience of online drug sales is also driving the development of the retail market. According to an iMedia Consulting report, in 2021, China saw an increase of 6,000 24-hour pharmacies, mainly thanks to the development of online platforms.

Now, delivery personnel can pick up medicine at self-service drug vending machines when they arrive at the store. The delivery personnel do not need to consult with a pharmacist, and the self-service model eliminates the need for queuing, which is more suitable for them. In addition, the integration of online drug purchases with medical insurance payments is becoming increasingly convenient for patients.

In recent years, multiple regions such as Gansu, Hainan, Sichuan, Fujian Zhangzhou, and Shandong Qingdao have issued documents supporting drug retail companies to set up dedicated drug sales counters (automatic drug vending machines). Many areas have also expanded the range of drugs available for automatic vending from Class B OTC to Class A OTC, and even to prescription drugs.

For example, Hubei supports social pharmacies with qualifications for online drug sales to set up remote medicine cabinets (24-hour unmanned drug vending devices) to provide automatic drug vending services. The range of drugs sold in remote medicine cabinets is classified according to the level of pharmaceutical services. According to regulations, selling prescription drugs in remote medicine cabinets requires advanced pharmaceutical services.

Regarding the most concerning issue of profitability for retail pharmacies, the solution explored by Youyao Cabinet is that the cost of the medicine cabinet is borne by Youyao Cabinet. "By operating in a joint venture with pharmacies, Youyao Cabinet is responsible for the cost of the intelligent medicine cabinet and the overall management and operation of the business. The pharmacy's job is only to restock, and both parties will share the profits from drug sales. By completing sales during the pharmacy's off-hours, the goal is to share the interests and risks with the pharmacy."

Of course, the transaction volume and profit margins also vary. After exploration, Youyao Cabinet, where Gao Zheng is located, found that "cooperating with chain pharmacies that have strong management levels and corporate execution capabilities is more likely to produce cabinet efficiency and increase sales volume."New opportunities have led originally in-hospital market-focused leading companies to start extending into retail business. In May 2024, Jianhui Information announced the completion of the acquisition of Meituan's smart retail pharmacy project from Beijing Sankuai Online Technology Co., Ltd. for 13.506 million yuan. Just a year prior, Meituan Pharmacy partnered with Hua Shi Pharmacy to launch Shanghai's first "24-hour smart pharmacy," setting up 24-hour fully automatic unmanned self-service medication purchasing equipment at the entrance of the pharmacy.

The common challenge faced by the industry is to continue exploring a viable unmanned pharmacy vending machine business model.