Dis-Chem benefits from baby boom

Pharmacy retailer Dis-Chem on Wednesday reported a 44.3% jump in headline earnings to 70.3 cents per share for the six months ended August 2022, fueled by its recent acquisition of new baby stores.

The group has been upping its ante in the highly lucrative baby retail market, adding three new baby stores to end the period with 53 in that segment.

Dis-Chem, traditionally a retailer of pharmaceutical and beauty products, branched out into baby goods retailing in 2020 when it purchased one of South Africa’s leading baby goods retailers, Baby City, in a R430 million transaction.

It bolstered its baby offering with the addition of 15 Baby Boom stores in March, resulting in its market share growing to 16.3% when considering both baby retail brands.

The group, the second largest pharmacy retailer in the country, managed to grow overall group revenue by 9.3% to R16.3 billion, with retail revenue also increasing by 9.3% to R14.4 billion. Wholesale revenue was up 10.6% to R12.1 billion.

For its closest rival, Clicks, the baby category has been a strategic growth area for several years, even pushing it to launch standalone stores that would serve as one-stop destinations for baby essentials.

Sasfin senior equity analyst Alec Abraham says Dis-Chem’s moves in the baby market are steps in the right direction, but it will face fierce competition from Africa’s largest grocery retailer, Shoprite, a newer entrant in baby retailing.

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Shoprite last year introduced its Little Me standalone stores, which offer baby essentials at supermarket prices. It was joined by no-frills apparel retailer Mr Price, which opened a dedicated store in August in a bid to gain market share in the category.

“It’s going to be quite a step up in competition for both Dis-Chem and Clicks, by someone with the kind of retail prowess that Shoprite has, entering that market,” says Abraham.

“Shoprite will be very competitive. In the healthcare space, Clicks and Dis-Chem have really carved out the market – they pretty much control the pharmacy retail market in South Africa – but you’ve never had a large player that’s capable of providing cost-effective products to the market with the kind of firepower that Shoprite has,” he said.

By the end of its 2023 financial year, Dis-Chem plans to have rebranded the 15 Baby Boom stores and an additional 15 Baby City outlets.

This article originally appeared on Moneyweb and was republished with permission.
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