Dis-Chem just a few Clicks away
‘We always take the fight to them,’ retailer says of its rival
Dis-Chem’s potential acquisition of a chain of 50 community pharmacies could help it take on larger rival Clicks in the competitive pharmacy retail space.
Dis-Chem financial director Rui Morais said this week: “I would like to think that we always take the fight to them [Clicks] in the most respectful way, but we would definitely now be playing in their territory.
“They [Clicks] always talk about how strong they are in community-based pharmacy and our store base has been indexed to bigger malls. It would give us a nice presence in the convenience centres that they [Clicks] are strong in and some of the markets they are in.”
Morais, speaking after the release of halfyear results for the six months ended August, declined to disclose the name of the chain because the group was still completing a due diligence exercise. But he said the 50 stores could also give Dis-Chem an edge over Clicks in the dispensary market.
Clicks is 1%-1.5% bigger than Dis-Chem in the dispensary market, he said.
If the deal went ahead, “we would definitely have the largest dispensary market share” in SA, which would tie in to the group’s ambition to be “the biggest corporate pharmacy retail player”, said Morais.
The most competitive retail category was pharmaceutical because it was “resilient and
drives volumes”, he said.
“When we look at pockets of opportunity, and I imagine Clicks does the same, it needs to be centred around decent dispensing or scripting volumes, so it’s a market-share race around pharmacy. Once you have people in your store you can sell them other health and beauty items.”
By the end of the financial year, Dis-Chem would have 192 outlets in the country from its current 186, Morais said.
Clicks, which has 704 stores in SA, said recently its longer-term target was 900 stores in the country. It will continue its pharmacy expansion with the goal to have one in each store. It has 585 pharmacies.
“We have a much smaller store network than Clicks, but we can do what Clicks does in the same space and we believe we can offer a differentiated pharmacy experience relative to them,” Morais said.
“It’s testament to our market share in the pharmacy space being similar to theirs in a much smaller network.
“We are best in class in respect of pharmacy and dispensary, and it’s just about taking the opportunity to go into those markets that they [Clicks] are currently in.
“You measure size as a function of different things. For us it’s market share. We are comfortable to have less stores and a bigger market share because that is really how you return capital to shareholders in the longer term.”
Casparus Treurnicht, a portfolio manager for the Gryphon All Share Tracker Fund, said it made sense for Dis-Chem to buy out a network such as the community pharmacy chain and “just add the brand to it, because
they’ve got the distribution”.
He said “if Dis-Chem is starting to take out groups like this to add to its store network, it’s telling you the space out there that is available to set up brand-new stores is running out”.
Questions have been raised about DisChem’s small-store format rollout and whether it is succeeding, because of the wide range of products the group usually sells in its larger outlets. However, Morais said the group wouldn’t be the first retailer to “rationalise to fit into a smaller space”.
“Our smaller spaces from a return perspective trade better, and that’s really a func
tion of us not including in that smaller space the slower-moving type of stock.”
Dis-Chem, which reported revenue growth of 8.1% and a 16.1% increase in headline earnings per share to 36c, also announced on Thursday that it had made a non-binding bid for a business offering health insurance. It is also waiting for competition approval for its purchase of Baby City, announced in May.
Gryphon’s Treurnicht sounded a note of caution about Dis-Chem’s potential transactions, saying it was “doing quite a lot at the same time” having just bought Baby City. “That is a lot on your plate,” he said.