New solutions for old company

Tongrentang moving beyond TCM consumers

As many traditional brands struggle to revitalize themselves in today's highly competitive consumer market, Beijing Tongrentang, a world-renowned Chinese drug store established in 1669, has already found a solution.

After experiencing ups and downs over centuries, Tongrentang today not only preserves its image as the world's largest traditional Chinese medicine producer, but also strives to consolidate its empire by expanding its business scope from traditional pharmaceuticals to the larger healthcare industry.

"If an old brand wants to keep its vitality and grow stronger in the new era, it cannot always stick to the old business, it has to make new steps forward," says Song Tong, sales manager of Beijing Tongrentang Health Pharmaceutical Co Ltd.

"The rising market demand for healthcare products in China has provided a great opportunity for Tongrentang to extend its industrial chain by developing herbal healthcare products," Song says.

Established in 2003, Tongrentang Health is a subsidiary of Tongrentang that focuses on the production of herbal healthcare supplements. Some of its products are teas or capsules that incorporate Chinese herbal medicine, such as ginseng, caterpillar fungus, mushrooms or flowers.

Although quite young compared to Tongrentang's other businesses, Tongrentang Health has gained a solid footing in China's fledging healthcare supplement industry and established itself as a major player in the market race to cater to the increasing domestic demand.

Song says because of the price hikes of raw materials in recent years, Tongrentang's drug business has been slightly affected. However, the time-honored company has kept a good momentum of robust growth in the past decade thanks to its fast-growing healthcare business.

Song says in 2003 the revenue of Tongrentang Health was 180 million yuan ($28.6 million, 21.3 million euros). But in just eight years that figure soared to 5.6 billion yuan in 2011, making a major profit contribution to Tongrentang.

Song attributes the strong growth to the importance Chinese people place on healthcare.

"Chinese people's rising health awareness in recent years has provided Tongrentang Health an unprecedented opportunity for development," Song says.

She says in the past, healthcare products only experienced sales booms during holiday seasons because people purchase the items as gifts. But in the past two years, more and more consumers are buying healthcare products for themselves.

"Unlike medicine, all people could be potential consumers of healthcare products. Therefore, with a population of more than 1.3 billion, the market for China's healthcare products is huge," Song says.

She says Tongrentang Health is aiming for 10 billion yuan in sales revenue by 2014. To help realize that goal, the company plans to expand its market presence by increasing the number of chain stores from the current 1,200 to 1,700 in three years, particularly in less-developed third-tier cities.

"The demand for healthcare products from people in small- and medium-sized cities is also rising. They are consumers that we can't overlook," Song says, adding that its products cover 90 percent of the major Chinese cities so far, and from this year on it is going to exert more energy to develop the market in the western part of China.

"In some western regions, such as Qinghai and Sichuan provinces, the demand for traditional Chinese medicine healthcare products is huge, and has gone beyond our expectations," Song says.

To expand production capacity, following the establishment of production bases in Chengdu of Sichuan province and Fuzhou of Fujian province, Tongrentang Health began building a new base in Beijing's Yizhuang district at the end of 2011. Covering an area of 121 hectares, the 1 billion yuan production center is expected to start operations within three years.

And even though it is a centuries-old company, it isn't resting on its laurels. Tongrentang Health began testing the waters of online sales in 2008. In 2011, the turnover of this online business reached 17 million yuan. "Although it is quite small compared to that of direct sales outlets, driven by the huge market demand, online sales revenue snowballs exponentially year by year," Song says, adding that the online platform will surely play an increasingly important role in the future.

As more and more foreign nutritional brands enter the Chinese market, Song says she is confident that Tongrentang's position won't be challenged because Chinese herbal products have special advantages in the Chinese market.

"Chinese consumers believe that, compared to imported Western nutritional products made by chemical compounds, the formula of traditional Chinese medicine is more natural and can more easily be absorbed by the human body."

To respond to the market challenges, Tongrentang Health has stepped up new product development efforts and is launching at least 30 new products each year.

"We study ancient formulas and select quality herbs from around the world in an effort to develop affordable products that are best suited to the Chinese people," Song says.

In addition to adding new herbal healthcare products to its catalogues, Tongrentang Health is also committed to introducing more premier natural health items from overseas.

Since late 2010, Tongrentang Health has become the exclusive dealer for the Ginseng Board of Wisconsin Inc. The company deals with Wisconsin farmers directly to supply Chinese consumers with the sought-after root for relatively cheaper prices.

At the same time, the drug company also aspires to promote its healthcare products beyond the boundaries of China.

Song says in the past, most of their consumers in overseas markets were confined to Chinese people, but the situation is now slightly different.

"With foreign consumers' deepening understanding of traditional Chinese medicine, they are more likely to try our products, which prompted us to further develop overseas markets."