And now for the space wars
Can Clicks and Dis-Chem pull off huge expansion plans without cannibalising each other — and themselves?
● South Africa’s biggest pharmacy chains have embarked on a new “space war”, with Dis-Chem announcing a near-50% increase to its store base and Clicks gunning for a 30% expansion over the next few years.
Dis-Chem aims to open about 140 stores in the next three years by adding 137,000m² to its retail footprint. At the end of the half-year to August, it had 268 retail pharmacy stores and 54 Baby City stores. Clicks, with 885 stores now, has a longerterm target of 1,200 on the cards.
These aggressive growth plans appear to have ignited a rally in both companies’ shares: Clicks gained over 10% after it released numbers; Dis-Chem is up 13% over the past week.
Dis-Chem is particularly strong in Gauteng, where it was founded, while Clicks is stronger in its original base of the Western Cape. Space is equal between DisChem
and Clicks in Gauteng; Dis-Chem has fewer, but bigger, stores. Crucially, both are growing ahead of the market most likely as small independents fold.
“The property expansion strategy is fundamentally important to the delivery of future earnings growth,” Dis-Chem CEO Rui Morais said in the investor presentation last week. “Obviously we are underrepresented outside Gauteng in pharmacy and the front shop.”
Nationally, he says, there are 300 malls in which Clicks features where it’s keen to take space as well.
“We drive higher foot traffic and our trading densities are the highest in the country,” he says.
Yet the group posted a slump in interim earnings for the six months to end-August, despite a 9.4% rise in revenue to R17.9bn, as expenses (a rise in the number of employees, diesel and IT costs) outpaced the growth in like-for-like revenue. Group headline earnings per share fell 17.2% to 58.2c. Its dividend was similarly lower, at 23.24c a share.
According to Gryphon Asset Management portfolio manager and research analyst Casparus Treurnicht, “there are signs that the worst is over store sales on a real like-for-like basis are still negative, but less negative”.
He says: “The pharma space is getting more competitive by the day, and getting saturated. Every pharma chain is stepping up store rollouts and Shoprite is also going to try to get this space running hard. I think the good old days of retail are over compared with 10 years ago [but] pharma is the last area where they can still grow.”
Consider that Dis-Chem’s pharmacy market share stands at 36% in Gauteng, where Clicks has 21.6%.
Both companies are at the mercy of an uncompromisingly tough economy, however. For example, shoppers bought fewer expensive fragrances in favour of mass-market brands as they traded down, which knocked beauty sales at DisChem.
“We didn’t shift quickly enough to the mass market,” says Morais, referring to
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