When EQT Greater China II acquired co-ownership in LaoBaiXing (LBX) in 2008, it was one of China’s largest and fastest expanding pharmacy chains, but it was also burdened with substantial growing pains. With support from EQT, LBX has modernized operations, brought in best practices from successful international peers and re-accelerated growth via organic openings and add-on acquisitions. An IPO is planned for the near future.

In 2008, China’s second largest pharmacy chain, Hunan LaoBaiXing (LBX) suffered the pain that came with a high growth rate. Profitability was declining and the road-map for growth was somewhat erratic and unclear. This led LBX’s major shareholder to start looking for a partner which could contribute financial strength and, more importantly, experience in growing successful companies.

EQT Greater China II acquired a 45% stake in LBX and became the single largest shareholder. A new Board of Directors with extensive experience from retailing and procurement was appointed, including retail expert Bjarne Mumm as well as drug distribution industry veteran Peter Zuellig – all Industrial Advisors from EQT’s independent Industrial Network. The management team was strengthened by a new CEO, CFO and central procurement executive. 

The strategy was clear from the beginning: accelerate growth and restore and improve profitability. The key strategic components were organic growth in combination with selected acquisitions in order to expand the geographic footprint, with improved product assortment structures for procurement efficiency and operational excellence.

LBX is the leading chain in several regional markets, with a value-for-money, clear cost leadership positioning. It has approximately 620 stores in 12 provinces and three autonomous municipalities across China. From 2008 to 2011, LBX has opened around 75 new stores each year and, although much of the expansion is organic, LBX has also successfully completed five add-on acquisitions, making LBX the leading pharmacy chain in new geographies. The acquisition of a Chinese medicine manufacturer, which supplies tailor-made products to LBX, also helped the company to integrate along the value chain.

LBX offers competitive prices, in-store consultation services by pharmacists and membership programs that attract customers and strengthen customer loyalty. Its product offerings include pharmaceuticals, traditional Chinese medicine, nutritional supplements, medical equipment and personal care products.

Since EQT Greater China II’s investment, major efforts have been made by the company to improve customers’ shopping experience and attract new customers by upgrading and refurbishing stores with LBX’s new brand image. A new generation of stores has also been launched with the support of Simeno, a leading drugstore chain in Western Japan. New generation stores have achieved higher same-store sales growth versus stores with an older format and design. Sales of products with higher margins, including LBX’s own brands, have also increased from 21% of sales in 2007 to over 40% of sales in September 2012. Furthermore, the Board and management have systematically introduced best practices from Europe and other parts of Asia in procurement, logistics and supply chain management, store format, product strategy and category management.

LBX has been ranked as one of the top two pharmacy chains since 2008, based on the “Top 100 China Retailers” ranking by the China Chain Store & Franchise Association. Since EQT Greater China II invested in LBX in 2008, sales have grown by an average of 13% per year and EBITDA by 26% per year in USD terms. Net profit has quadrupled from 2007 to 2011 in USD terms.

LBX has filed for an IPO on the Shanghai Stock Exchange in early 2012. EQT Greater China II will remain as a major shareholder after the potential listing.

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