Listing trumpets robust Dis-Chem health
Soap-to-snacks pharmacy chain piques interest here and abroad
NO one seems more surprised at the level of interest in the listing of Dis-Chem than Ivan Saltzman, who founded the pharmacy chain — one of the most successful family businesses in South Africa — 38 years ago with his wife, Lynette.
It is the largest food and drug retailer listing in the past decade, as well as one of the largest new listings overall.
This week, Saltzman was feeling “a little emotional” as the family prepared to sell a portion of the group and take some of the proceeds from their years in business. “I’m a little surprised at the interest, I really am.”
The business has grown at a stellar pace, especially over the past few years. At the time the prospectus was released last month there were 101 stores. Since then, that tally has grown to 106. Two stores were opened on Tuesday and six are to open on Thursday.
Everyone wants to open before Christmas, and the last Thursday of November is the best day for this. “If you open later, you’re constrained to some degree,” says Saltzman. “You don’t open stores in December and you don’t open stores in January.”
The biggest store in the group, as well as one of its smallest, opened this week. The new Centurion store in Tshwane spans 3 000m², and the new Green Valley store in Johannesburg is 700m².
Ivan and Lynette Saltzman, who both trained as pharmacists, started a pharmacy in the south of Johannesburg in 1978.
“In the beginning, we expanded the small stores, but soon realised that space is more important than position. The wider the range . . . the happier the customer,” says Saltzman.
So could the group evolve into some kind of supermarket?
“Never say never. Twenty years ago I would have laughed at the fact we have Coca-Cola; and here we are.”
Dis-Chem has had pharmacies since inception, while Clicks introduced pharmacies only after corporate ownership became possible with the removal of restrictions on pharmacy ownership in 2003. Why list now? The official line is that it’s a structured opportunity for Saltzman and his wife and current management and shareholders to pursue the next phase of growth and remain meaningfully invested into the future. Key management remains materially invested, he says, sitting with a wad of printed e-mails and documents he will take home with him to go through that night.
Saltzman is catching up, having been on a road show to Boston, New York, London, Cape Town — he’s been away for two weeks meeting potential investors.
“I’m personally surprised at the amount of interest in South Africa from international investors. I think as emerging markets go, we’re still doing very, very well. As much as we think we’re in trouble I think the whole world’s in some or another form of trouble.
“Most local retailers have majority holdings from international investors. That has to mean something about our country — that we’re still ahead of the curve as an investment destination in spite of the politics.”
The listing was not an offer to the public, but a placement of HORN OF PLENTY: Dis-Chem CEO Ivan Saltzman blows a horn to mark the listing of the pharmacy chain shares with “selected institutional investors” in South Africa, “institutional buyers” in the US and other institutions. Retail investors were only able to buy shares when the company listed on Friday.
The success of the business has caught the eye of other retailers that have in the past come to him to try to do tie-ups. “None of their propositions appealed to me. If I could do it for them I could do it for myself . . . we weren’t particularly interested in private equity or partnerships. We didn’t need to be.”
At 66, Saltzman continues to work seven days a week, visiting stores on the weekend.
The family — which is selling off 20% and keeping 53% — is very involved. Lynette is MD and son Saul is an alternative executive director on the board. One daughter-in-law is a regional cosmetics manager and another edits the in-house Benefits magazine. Another son does the legal work through his own legal practice.
The plan at Dis-Chem is to double the business in the next five years. It has trebled since 2008 and doubled since 2010. Today, there are 12 500 full-time employees in the group.
In the six months to February, Clicks reported retail sales of R12.1-billion (its full-year revenue was R25.2-billion) , while in the 12 months to February DisChem reported revenue of R15.5-billion.
The front end is very profitable, with many of the new categories showing good growth. These include household goods, dry groceries and health food, beauty products, and baby and personal care.
Saltzman doesn’t follow social media; he has a department for that, and it only draws his attention when there is a problem: “I only want to see the bad”, when someone isn’t happy. But he brings out a tweet that says: “Some people make great power couples. Look at the husband and wife team that founded #Dischem. They’re listing their baby on the JSE soon.”
Does he consider himself part of power couple? “I actually don’t think so. “It’s not for every family, I’m sure. I think we have a special family.”
The pharmacy chain has a very high trading density of R114 000 a square metre. “The large stores and the small stores have very similar trading densities.”
Previously, as part of a private company, a small nucleus of shareholders — some of whom have been working together for 20 or 30 years — made decisions that were usually unanimous. “We’ve been together for so long we all think the same.”
Part of the formula for success is that they’ve always “knocked down the inhibiting factors. You can only serve so many clients with one cash register, so you put in more. You can only sell so much stock in an allocated space, so you need more space.
“If there was a limit in the store, we would try and eliminate that limit, whether it was space, whether it was stock, whether it was not enough cashiers or pharmacists. Where there was no parking, we would move the store.
“We are always looking at opportunities to innovate and we are continually identifying new trends, like speciality foods (sugar-free, gluten-free, banting), for example, which are new and showing relatively good growth,” he says.
The dispensary is the biggest component, with 37% of the business. In 2015, Dis-Chem’s market share was 20% of the national prescription market, according to Nielsen, but Saltzman says it has grown since.
The group will have four distribution warehouses fully operational early next year. The existing Midrand centre (at the group’s head office) is the biggest at 44 000m²; the Durban centre is about to open and the Cape Town facility opens in April.
Sean Ashton, chief investment officer at Anchor Capital, said in a research note that despite Dis-Chem’s comparatively small store base (100 versus Clicks’s 500), the group’s retail market share was similar to that of Clicks (which has smaller stores).
He expected further marketshare gains, although “our key gripe with the business is its inferior cash-flow generation compared to Clicks, but further scale could possibly resolve this issue”.
Said Ashton: “Dis-Chem is clearly an exceptional business that has a unique opportunity to grow aggressively through a store roll-out plan that will see it gaining further share from independent pharmacy chains, and from Clicks too.”
Space is more important than position. The wider the range . . . the happier the customer