When I think about 7-Eleven (7E), slushies for sure will come to mind. When I was a teeny little boy, I used to just go to a 7-Eleven convenience store to admire the spinning slushy machine.

I will bug my mum (who was just going there to buy bread) to buy me a slushy that constantly had the Sarsi or Coke flavor. The good old days.

In the past week, while I was writing for SmallCapAsia on 7-Eleven, I came across something interesting. 7E also sells pharmaceutical products – a lot of them.

My perception of 7E has always been that they sell products through their convenience stores and nothing else.

Let’s look at 7E’s pharmaceutical segment then and see what it is all about!

#1: 7E Pharmaceutical Segment Consists of Caring, Pill House, and Wellings.

We learn something new everyday, don’t we? Yes, the Caring brand is majority owned and managed by 7E.

Caring Pharmacy was established in 1994 and sells pharmaceutical, healthcare, and personal care products. 7E purchased Caring in 2020 for RM292 million and now owns about 75% of Caring.

Meanwhile, Caring also owns 67% and 60% of Pill House and Wellings pharmacies respectively, after spending a total of RM74.4 million to acquire them.

In 2022, 7E through Caring, has also entered into a joint venture with PT Era Indonesia (EPI) to penetrate the Indonesian pharmaceutical market.

#2: Pharmaceutical Segment’s Revenue has Risen Considerably with the Acquisitions.

The pharmaceutical revenue contribution tripled from RM475 million in 2020 to RM1.3 billion in 2022 as the pandemic era boosted demand for pharmaceutical products.

Consequently, the proportion of pharmaceutical segment revenue to total revenue increased from 18.7% to 34.0% over the same period, signifying the increased focus on 7E’s efforts to diversify.

Overall, the pharmaceutical segment contributed to most of the growth in total revenue. 7E’s revenue grew by 48.2% from RM2.5 billion in 2020 to RM3.8 billion in 2022.

#3: Both the Pharmaceutical and Convenience Store Segments have Similar Profit Margins

The pharmaceutical segment profit margin for 2022 came in at 5.6%, which is similar to 7E’s convenience store profit margin of 5.5%.

The pharmaceutical segment seems to be expanding aggressively, focusing on growing revenue first, as its profit margins declined slightly from 5.8% in 2021.

In terms of efficiency in using its assets, the pharmaceutical segment is more efficient with a return on assets of 11.3% compared to 7.3% for the convenience store segment.

#4: Seems like the Pandemic and the Rise of Pharmaceutical Markets Drove 7E’s Business Strategy

Firstly, it’s undeniable that 7E utilized the pandemic as an opportunity to enter the pharmaceutical market.

Demand for healthcare products skyrocketed during this period, and the timing of 7E’s investments in Caring in 2020 showed this opportunistic move to cash in on a hot market.

However, the pandemic has also fundamentally altered the landscape of the Malaysian pharmaceutical market.

Many countries were caught off-guard by the Covid-19 pandemic with a severe shortage of healthcare and protective products.

Hence, long-term demand for these products is rising in preparation for the next pandemic (if it happens).

According to data from GlobalData, the Malaysian pharmaceutical market is valued at $2.9 billion as of 2020, and has grown at an average annual growth rate of 9.0% since 2013. The market is projected to continue growing at a high rate moving forward.

#5: Indonesia Joint Venture is a Strategy to Increase its Penetration into the Vast Untapped Indonesia Market

Currently, Caring does have a presence in Indonesia, with about 14 stores under the brand of Apotek Wellings through the joint venture.

This move makes sense if you consider that Indonesia’s population is the highest in Southeast Asia at 276 million as of 2022. This is nearly 10 times the size of Malaysia’s population at 34 million.

Indonesia’s pharmaceutical and medical devices market is estimated to be worth $12.2 billion in 2021 and is projected to grow at a strong rate moving forward considering that

• Healthcare services remain inaccessible to Indonesians, especially in rural areas.
  Indonesia is ranked 92^nd by the World Health Organisation, with only 1 doctor for every 5000 Indonesians. Pharmacies can help address that gap by offering over-the-counter healthcare products to people who have limited access to healthcare services.

• Population to continue growing
  Indonesia’s population is expected to increase to 317 million by 2050, which increases the demand for pharmaceutical products.

• Experience in Caring in offering Halal products in Malaysia
  The experience of Caring operating in Malaysia will provide it with the expertise to offer halal and Muslim-friendly products in Indonesia.

Conclusion

7E’s foray into the pharmaceutical segment represents an interesting diversification strategy. It was predicated on the pandemic demand for healthcare products, and 7E seems to be running with this strategy for the long-term also by expanding into Indonesia.