Online “blue cap” Health Food Business of Tmall Being Merged by AliHealth at HKD3.8 Billion
 
AliHealth officially signed on May 19 a share subscription agreement with Alibaba group, merging the online “blue cap” health food business of Tmall into AliHealth at a price of HKD 3.8 billion. The deal will raise Alibaba group’s stake of AliHealth from 37.9% to 45.8%, with its voting right rise from around 54% to approximately 59.8%.
 
AliHealth said that the acquisition of target business, on one hand, may bring a wider range of e-commerce business to the online community of medicine and health care, heading for a complete business ecology, as well as developing an organic integrity with other business areas including pharmaceutical e-commerce, smart health service and service platform of product traceability. On the other hand, it can also bring about a revenue growth in a more stable and sustainable way.
 
In spite of its resource superiority owing to the backing of Alibaba group, and a stable growth in health food market in recent years, AliHealth, being a listed company, its acquisition has to be approved by relevant regulators, an e-commerce veteran told the reporter of 21st Century Business Herald. However, the asset injection to AliHealth has received positive response from the capital market. AliHealth’s stock ended up 11.14% on May 19th.
 
Long been Anticipated
 
Released in a statement by AliHealth,in the fiscal year by Mar 31st, 2017, a total of more than 950 merchants sell health food with "blue cap"(the health food registered or filed at China Food and Drug Adminsitration, with a blue cap as its special mark) on the pharmaceutical platform of Tmall , with over 11.81 million active buyers and a transaction volume of around 2.772 billlion yuan of blue cap health food business.
 
After transaction, AliHealth will access to contractual relations with the health food merchants on Tmall’s pharmaceutical platform, offering them a series of value-added services like brand entering and marketing, technical support and etc., charging commissions. Ali financial report showed that in the fiscal year of 2017, the health food business has brought considerable commission of 62.27 million yuan to Tmall platform.
 
It's said that the scheme of asset injection has long been prepared. An announcement issued by AliHealth in Apr 2016 revealed that AliHealth was in a positive negotiation with Alibaba Group to explore the possibility of loading its health food, dietary supplements and traditional nutritional supplement business into AliHealth.
 
On Oct 9, 2016, AliHealth and Tmall pharmaceuticals platform launched together a brand plan called “nourishing China” in cooperation with local governments, brand enterprises, industry associations to label the high-quality nourishing products. At the same time, with the support of its online tracing platform “rest assured with the code”, AliHealth had established the “nourishing China traceability system” to establish correspondence relation between product and its tracing code.
 
Kang Kai, the president of AliHealth and general manager of health affairs department of Tmall pharmaceuticals platform, told the reporter of 21st Century Business Herald that Tmall Pharmaceuticals platform will make some adjustments and explore an in-depth growth route on the basis of business mode of Tmall platform in line with its business development, covering not only pharmaceuticals, but also health food, pharmacist consultation, etc.
 
On Mar.14, 2017, AliHealth announced again in a statement that it would continue seeking accquisition to Tmall’s online business. Signing the share subscription agreement is exactly the specific result of discussions for more than 1 year.
 
The sale of “blue cap” health food accounts for a good share in Tmall pharmaceutical platform, and it has a large growth potential in future, an insider from AliHealth told the reporter of 21st Century Business Herald. It is written in the 2016 China Medical Pharmaceutical Material Association(25.080,0.23,0.93%) industry development status blue paper released early this year,that the consumption share of China’s medicines and healthcare products in pharmaceutical e-commerce platforms has rised from 76.9% to 82.8% in 2016, and will maintain a stable growth in the next 3 years.      
 
An additional revenue to e-commerce business
Analysing from last year’s situation, the “blue cap” deal at the price of HKD 3.8 billion will undoubtedly lead AliHealth to a healthy development path.
 
AliHealth suffered a crisis in early 2016. The drug electronic supervision code which contributes most of the profit was suspended by China Food and Drug Administration, and the acquisition to Tmall pharmaceutical platform was also stucked due to policy and funding issues, etc. AliHealth’s revenue source was once doubted.
 
Moreover, B2C third-party platform trial license came to expiry, thus online operation was suspended from May 2016. The e-commerce platform, including Tmall pharmaceutical platform, stopped online trading of medicines on Aug 1st, 2016, which had forced some impacts on the sales of both platform and merchants.
 
AliHealth started to look for solutions. Released in a statement by AliHealth on Aug 17th,2016, that On Aug 16,2016, AliHealth announced its completion of buying a full stake of Guangzhou Wuqiannian Pharmaceutical Co., Ltd, making the latter its wholly-owned subsidiary. But this move had also raised questions. AliHealth spent huge sums to acquire a paper-loss company, with the intention of the latter’s Grade-C internet drug trading service qualification certificate, issued by Guangzhou Food and Drug Administration, which is a qualification for online pharmacy business. i.e. the pharmaceutical e-commerce business aimed at individual consumers. And this move was likely to pose a competition with the merchants on the platform in future.
 
In fact, Alibaba group had been working for merging Tmall pharmaceutical platform into AliHealth before the suspension of drug electronic supervision code, although no positive result was gained after a long time due to regulatory policy restrictions,etc.
 
On Sep 12th, 2016, AliHealth held an special shareholder meeting, passing an outsourcing value-added service agreements signed by AliHealth and Tmall, which means AliHealth provides a complete chargeable range of outsourcing and value-added services to Tmall pharmaceutical platform, assisting its development of pharmaceutical e-commerce business. AliHealth, in return, had gained access to the high quality resources of Tmall pharmaceutical platform.
 
The asset injection of “blue cap” of Tmall platform has allowed AliHealth to move one step closer to the construction of industry-wide ecosystem. AliHealth will build an industry-wide ecosystem comprised of medical service, pharmaceutical e-commerce, personal health management and health insurance supported by the internet and big data technology, according to a future layout shown on AliHealth’s official website.
 
An e-commerce veteran told the reporter of 21st Century Business Herald, that with backing of Alibaba group, AliHealth enjoys resource superiority, and health food market foresees stable growth these years. Meanwhile, health food industry will benefit from the transformation from filing system to registering system, which will contribute to AliHealth’s business growth in future as well.
The veteran also said that as a listed company, AliHealth still needs an approval of relevant supervision on its move. What's going to happen in the merging process still remains unknown. Previously, the merger was influenced by various factors. The scheme was finally revised as AliHealth being an exclusive operational agency of Tmall pharmaceutical platform.
 
A clearer orientation for New Retail
 
Although AliHealth’s asset injection has just begun without seeing a confirmed outlook, one thing is clear, that Alibaba’s “New Retail” has become a trend of business development, and medicine and health food are no exception.
 
AliHealth announced its 2017 fiscal year performance on the morning of May 17, that its revenue hit a 475 million yuan, with a massive year-on-year growth of 739.4%. A more than 7-fold growth has proved a increasingly clear new retail mode implemented with omni-channel strategy.
 
AliHealth expressed its hope in the financial report of building a drug distribution and sales system of full industry chain through the internet, making efforts to improve the efficiency of supply chain of medicines and health care products, in favor of all the participants in the marketplace and the consumers.
 
Not long ago, AliHealth signed a memorandum of strategic cooperation with Nestle Health Science, a unit of Nestle China, to launch a trial of “New Retail” in omni-channel of health food and nourishment market.
 
Kang Kai said that the attempt of “New Retail” launched by both parties will open up a channel between e-commerce platform and offline purchase, and will reduce the distance between products and consumers.