Dis-Chem’s growth strategy challenges Clicks’ dominance

Dis-Chem’s plan to increase its store footprint by 45% over the next three years is certainly aggressive. The strategy is premised on it ‘catching up’ to the amount of space its largest competitor, Clicks, has in each region.

In Gauteng, the two are head-to-head … practically equal. In provinces like the Eastern Cape and Western Cape, Clicks has double or triple the amount of space.

Historically, Dis-Chem stores have been far larger than a typical Clicks, but the 39 stores it recently converted to Dis-Chem from Medicare (which it acquired in 2020) are smaller than the big box stores it trades from in large malls.

ALSO READ: ‘No whites’ letter cost Dis-Chem hundreds of millions in profit

This isn’t a brand new strategy – it has traded from both formats for years. However, finding caverns of empty space in regions where it is not represented (or underrepresented) is difficult. Every so often, a very desirable spot becomes available in a top mall (think the vacancy created by Stuttafords at Sandton City), but these are the exceptions.

Its plan to 2026 sees it adding 21 000m² of space in the Western Cape and 15 000m² in KwaZulu-Natal (KZN). That’s more than two dozen new Dis-Chems in the Cape and close to 20 in KZN.

The plan is that by adding space, it will increase its pharmacy market share, which will boost its trade from the higher-margin products in the rest of the store (“front shop”).

In the Western Cape, Clicks has 30.9% pharmacy market share compared to its 20.5%. The gap is even more pronounced in the Eastern Cape, where Clicks has three times (26.9%) the pharmacy share it has (8.5%). In Gauteng, it leads 35.9% to Clicks’s 21.6%.

ALSO READ: Five months later: Dis-chem’s no-whites letter hits retail pharmacy group

At the end of May, it shared an update on how its strategy is playing out in one market: East London. In the past year (between February 2023 and February 2024), it tripled the number of stores in that market from one (at the Hemmingways regional mall) to three. It acquired the independent Berea Pharmacy in the suburbs and opened a Dis-Chem store at Beacon Bay on the northern edge of town.

Contrast this with Clicks, which has 12 stores in the greater East London area (it also trades at Hemmingways and Beacon Bay).

In the past year (to February), Dis-Chem’s revenue is up 74% in the East London area, from a 32% increase in space (the Berea Pharmacy compares well to the Medicare community pharmacies it bought). Much of this boost would’ve come from the established Berea business, as the Beacon Bay store only opened at the end of October.

This revenue boost from the two additional stores translated into a nearly 50% increase in pharmacy market share in the region, albeit off a low base (7.5% to 11%). Its largest competitor (Clicks) saw its market share drop by 2% to 26% in the year.

ALSO READ: Dis-Chem facing R10 million fine after client data breach

Front shop share growth lagged (it is up 6.5%), but this is likely due to the limited contribution from the Beacon Bay store. It won’t have near to its full range in the acquired Berea store. Expect this to change as it expands that site. It will also add one more store in the region in the next 12 months.

Multiply this impact across seven other provinces – especially in the sizeable Western Cape and KZN – and you can understand why the group is betting big on this strategy.

Dis-Chem store openings

Much of its expansion is weighted to the 2025 and 2026 calendar years (it needed to identify and conclude deals for sites first). This year (to February 2025), it will add 22 new Dis-Chem stores (it will also open two new Baby City outlets). Seven of these are already trading. This is an acceleration from the 15 stores it opened last year.

ALSO READ: Ivan Saltzman leaves as Dis-Chem CEO

In the 2024 financial year (to February), new stores opened in the last two years contributed to an additional R1 billion in retail sales (on a total of R31.7 billion). Its existing footprint of 289 added R1.7 billion in additional sales. It saw a bigger boost in the prior financial year of R2 billion from new stores due to the 50 Medicare outlets it acquired that year.

Clicks is not slowing down.

It has 897 stores (excluding its five standalone Clicks Baby outlets). Of these, 221 are what it terms ‘destination’ stores – think the large Clicks stores in major malls. Nearly 700 are convenience or neighbourhood stores. Of the total of nearly 900, a full 80% have pharmacies.

By the end of August, it will open 50 to 55 new stores (of which at least 40 will be pharmacies), slightly more than last year. It remains committed to its longer-term target of 1 200 stores. Part of the plan is to roll out 24-hour stores based on the popular M-Kem Pharmacy in Bellvile, which Clicks purchased in 2023.

This article was republished from Moneyweb. Read the original here