China Healthcare Services: Drug Chains: Leaders return to double-digit growth as industry consolidation turns healthier

Industry consolidation for retail pharmacies has become increasingly evident following the over-expansion during Covid. The total number of pharmacies in China declined from c.706k in 3Q24 to c.665k in 2Q26, reversing the expansion seen during the pandemic. Meanwhile, the combined store-count share of the three leading listed chains, LBX, Yifeng and Dashenlin, increased from c.6.0% in 1Q24 to c.7.6% in 3Q26 per our estimates. We view this as encouraging given that the leading chains themselves have generally remained disciplined on organic store openings over the past two years. The market-share gains have therefore been driven not only by expansion among the leaders, but also by continued closures among smaller and less productive independent pharmacies. Store productivity is also starting to improve as industry capacity rationalizes. After an extended period of yoy declines, average sales per store began to return to positive yoy growth from 2H25, suggesting that surviving pharmacies