Tongrentang: Traditional, but not stuck in the past

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

After experiencing ups and downs over the centuries, Tongrentang today not only preserves its image as the world's largest producer of traditional Chinese medicines, 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 plan, it has to take new steps forward," said Song Tong, sales manager of Beijing Tongrentang Health Pharmaceutical Co Ltd.

Herbal supplements

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

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

Song said that Tongrentang's drug business has been slightly affected by the rising costs of raw materials in recent years. However, the company has maintained good growth momentum in the past decade thanks to its fast-growing healthcare business.

In 2003, Tongrentang Health's revenue was 180 million yuan ($28.6 million). But in just eight years that figure soared to 5.6 billion yuan in 2011, making a major contribution to Tongrentang's profits.

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

"The rising health awareness among Chinese people in recent years has provided Tongrentang Health with an unprecedented opportunity for development," Song said.

She said that previously healthcare products only experienced sales booms during holiday seasons because people purchased the items as gifts. But in the past two years, an increasing number of consumers have bought healthcare products for personal use.

"Unlike medicine, everyone can be potential consumers of healthcare products. Therefore, with a population of more than 1.3 billion, the Chinese market for healthcare products is huge," Song said.

She said Tongrentang Health is aiming for sales revenue of 10 billion yuan by 2015. To help realize that goal the company plans to expand its market presence by increasing the number of its chain stores to 1,700 in the next three years from the current 1,200, 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 ignore," Song said.

Huge demand

"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 said.

To expand production capacity, following the establishment of production bases in Chengdu, Sichuan province and Fuzhou, Fujian province, Tongrentang Health began building a new base in Beijing's Yizhuang district at the end of 2011. Covering an area of 9 hectares, the 1 billion yuan production center is expected to begin operations within three years.

And even though Tongrentang is a centuries-old company, it isn't resting on its laurels. Tongrentang Health began testing the waters for online sales in 2008. In 2011, the turnover of the online business reached 17 million yuan. "Although it is quite small compared with that of direct sales outlets, online sales revenue has snowballed exponentially year by year," Song said.

As an increasing number of 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 domestic market.

"Chinese consumers believe that, compared with imported Western nutritional products made from chemical compounds, the formulas for traditional Chinese medicine are more natural and can more easily be absorbed by the body."

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

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

In 2010, Tongrentang Health became the exclusive dealer for the Ginseng Board of Wisconsin Inc. The company deals directly with Wisconsin farmers to supply Chinese consumers with the sought-after root at a relatively low price.

China Daily

(China Daily 03/03/2012 page10)