Dis-Chem aims to add Baby City to its offering
Pharmacy group Dis-Chem is set to acquire baby-care group Baby City for R430m, as the group pursues a standalone baby-store network that can fit in with its existing offering.
Dis-Chem plans to add clinic services to boost Baby City, and will also extend its loyalty programme to the group.
Dis-Chem also intends to include its private-label brands on Baby City’s shelves.
“The acquisition is a great cultural fit and has been a target of ours for many years,” said DisChem CEO Ivan Saltzman. “The brands and businesses were built with similar philosophies, ensuring management team alignment as we take steps to unlock the value we see in the Baby City brand.”
For the year to end-February 2020, Baby City, which has a network of 33 SA stores, generated revenue of R855m. “It has continued to trade well, relative to the Covid-19 lockdown environment, demonstrating both the resilient nature of the industry and the inherent brand equity of the retailer,” Dis-Chem said.
“If there is one thing that is more defensive than food it’s baby goods,” said Gyrphon Asset Management portfolio manager Casparus Treurnicht, adding that though Covid-19 is battering the retail sector, it has proven that baby goods are a necessity, having been on the list of essential goods since day one.
THEY ARE BUYING A STORE FOOTPRINT THAT THEY CAN SIMPLY SLOT INTO THEIR DISTRIBUTION MODEL
“It’s a very good fit for DisChem since this area is underrepresented,” said Treurnicht. “They are buying a store footprint that they can simply slot into their distribution model.”
Dis-Chem said the characteristics of the baby product sector align with the those of the pharmacy sector, in that both are extremely resilient, with perpetual new entrants.
“The sector sees approximately 900,000 new babies annually,” the group said.
The R430m price tag does not look like a bargain, said Sanlam Private Wealth investment analyst Renier de Bruyn, though Baby City’s profit margins should see improvement as Dis-Chem brings the business into its supply chain.
“The challenging retail environment should also allow DisChem to easily obtain shopping centre space to grow Baby City’s footprint,” De Bruyn said.
Dis-Chem founder shareholders are the Aronoff family, and the group’s MD, Michel Aronoff, is set to retain his position. Baby City’s staff will also be retained, and the agreement is still subject to conditions, including approval from competition authorities.
In afternoon trade on Friday, Dis-Chem’s share price had risen 5.06% to R20.35, putting it on track for its best one-day performance in more than two weeks. Dis-Chem’s share price has fallen 23.21% so far in 2020, compared to a 13.63% decrease for rival Clicks over the same period.