Spar deciphers the dispensary prescription

THE pharmacy sector is becoming increasingly competitive with a growing number of entrants, despite it not having been very lucrative for some of the big retailers.

Corporate pharmacies had not been hugely profitable because the retail margin was capped through single exit pricing, said Jean Pierre Verster, a portfolio manager at Fairtree Capital. “So just being a retailer doesn’t help them — you need to own the wholesaler as well.”

However, big pharmacy chains such as Clicks and DisChem, have leveraged off dispensaries. Placed at the back of stores, customers have to wend their way through the shop to buy medicine, a strategy to get them to fill their baskets along the way.

“What the retailers do is look at Clicks and Dis-Chem and see the great results,” said Verster. “[But] it’s not about the pharmacy — it’s about the front shop. Whereas the pharmacy fee is capped in the dispensary, it’s drawing feet through the front shop and they can make unregulated margins.”

Nevertheless, one grocery retailer making inroads fast is the Spar Group, which over the past four years has quietly grown its healthcare offering to 82 pharmacies, with 36 more in the pipeline, which it hopes to have completed by the end of the year.

Some of the pharmacies are stand-alone; others are in Spar stores. Spar is also setting up its first healthcare clinics and plans to buy its own pharmaceutical wholesaler when it has about 140 pharmacies.

Meanwhile, Pharmacy at Spar’s first healthcare clinic is to open in two months in Stanger, KwaZulu-Natal, and the plan is to expand this model.

Greg Grant, group pharmacy manager, said that with its large footprint Spar was perfectly positioned to assist in creating a professional, affordable healthcare option.

“I would love, say, 300 to 400 stores in five years, but realistically we would rather have 250 really good, independent community pharmacies,” said Grant.

Pharmacy at Spar has a diftaining ferent business model in that it is a voluntary trading organisation. It is not a franchise, and stores are independently owned but supported by the Spar Group. Owners can buy from the Spar distribution centre and be helped with store design, conversions and ob- licences.

Other players in the sector are hospital pharmacies and clinic pharmacies such as Medicross, as well as courier pharmacies such as Medipost, but the biggest threats to grocery retailers are Dis-Chem and Clicks.

For the big retailers, having a dispensary could mean shoppers will not go to the big pharmacy chains to buy not only medicines but snacks, detergents and small electronic goods. “They [the pharmacy chains] are slowly and surely encroaching [on grocery retailers],” said Verster.

The trend of pharmacy chains offering an ever-wider array of products is likely to continue. In the US, pharmacy chains such as CVS Health and Walgreens also sell food. DisChem already sells a range of dry food goods.

“Internationally, these pharmacies grow the front shop because the dispensary at the back is attracting feet,” Verster said.

Other grocery retailers that have set up pharmacies are Pick n Pay, with 26 pharmacies in corporate stores and three franchise-owned, and Shoprite, with 146 MediRite pharmacies inside Shoprite and Checkers supermarkets.

Sasfin senior equity analyst Alec Abraham said Pick n Pay’s entry to the pharmacy business had not been too successful and he didn’t believe Shoprite’s attempt had been a “rip-roaring success”.

He did not think the roll-out of further corporate stores would place much extra pressure on Dis-Chem or Clicks.

Clicks has more than 600 stores and more than 459 instore pharmacies, while DisChem has more than 100 stores in South Africa.

“They are top of mind for shoppers when it comes to medication and healthcare needs,” Abraham said.

Being a retailer doesn’t help — you need to own the wholesaler