Dis-Chem has been hard at work integrating Baby City into its business, since its acquisition in January last year. The new branding was unveiled at the recent MamaMagic Baby Expo, the mere existence of which hints at the growing value of the category in this growing country of ours. New stores and store revamps are being rolled out across the Baby City network under the updated identity, which incorporates the Dis-Chem logo with a squishy lowercase typeface in the traditional blue and pink colourway. In addition to the value range of baby essentials punters have come to expect from Dis-Chem, Mom and Baby clinics have opened in many of the stores, offering preventative health care for all babies and toddlers with professional nurses on hand to offer a wide range of services and provide expert advice. The Dis-Chem Baby City footprint now extends across 36 stores nationally, with more to follow.

Comment: This is an area in which Dis-Chem might feasibly take on Clicks, which is also a relatively new entrant to the category with two existing Clicks Baby stores and plans to expand the footprint with another 9 stores during 2022.

Hot on the heels of the Clicks results come a tidy set from Dis-Chem (please drop the hyphen, the upper-case C, or both, they’re exhausting our typesetters), who reported revenue growth of +16.6% to R14.9bn for the six months through August, and operating profit up +24.8% to R758m. Breaking those numbers down a little, dispensary turnover increased +18.2% to R4.6bn, with the second and third waves of COVID, healthcare and nutrition was up +7.9% to R3.2bn, and personal care and beauty grew +8.9% to R3.4bn. And its wholesale operation grew turnover +17.3% to R10.9bn with a focus on efficiency gains though systems and data analytics. The business plans to add another seven stores in the second half of a year which also sees it integrating the 35 Baby City stores and 50 Medicare stores into the business, with another 20 or 25 Dis-Chems next year. It has plans for further growth through private label and a roll-out of automated forecasting and replenishment will drive efficiencies.

Comment: It turns out that the number two slot is not necessarily an unenviable position, particularly when it’s filled by so energetic and innovative a business. For more on these results, have a look at our excellent summary <a href="https://www.tradeintelligence.co.za/App/Uploads/File/0/0/167834/211103_Dis-Chem%20HY2022%20Results%20Summary_final.pdf" target="_blank">here</a>.

Last week we reported on the progress Dis-Chem was making with the (relatively) newly acquired Baby City. This week, the news arrives that the business has received the approval of the Competition Tribunal for the purchase of Medicare Healthcare from Pure Pharmacy Holdings – a significant deal which, falling as it did over the Christmas break last year, did not receive the attention it deserved. Medicare, you see, owns 50 pharmacies and 43 in-store clinics, significantly expanding Dis-Chem’s pharmacy clinic network coverage. The acquisition will also extend Dis-Chem’s reach into geographies where it was previously thin on the ground. As is always the case with such purchases, supply chain and other operational synergies will doubtless result, and Dis-Chem also intends to extend its loyalty offering to Medicare shoppers.

Comment: Some years ago, when Dis-Chem first listed, it seemed doubtful that it would ever achieve the footprint of Clicks. Now it appears that it might not need to, yet still compete.

The country’s second-largest chain of drugstores continues to carve out a canny niche for itself without going head-to-head directly with rival Clicks. Witness last week the announcement that it would be trialling a same-day on-demand delivery service, with delivery in 60 minutes on an initially limited range of 7,000 items across health, nutrition, beauty, cosmetic, baby, and electrical products. The business has seen brisk growth in online demand over the last 12 months. “Dis-Chem DeliverD complements our existing online offering, and taps directly into understanding what our customers want, central to which is convenience,” says executive director Saul Saltzman. The service will initially be offered to punters within a 10km radius of an impressive clutch of stores around the major centres.

Comment: Excellent work, Dis-Chem. But do we say it “Deliver-D”, like a nineties rapper? Or just “delivered”? We are merely asking.

The race is on between Clicks and Dis-Chem for market share in the baby category. Currently Clicks claims ownership of 19.6% share of this erm, growing market, and Dis-Chem, at 9.5%, is playing catch-up, with the acquisition of Baby City in January, and the addition of 33 baby specialist stores to the Dis-Chem Group’s store network. Undeterred, Clicks has fired back with the launch of its first Clicks Baby store in KZN’s Gateway mall in May. The concept store features breastfeeding and nappy changing spaces, click and collect online purchases, changing rooms for maternity wear, gift wrapping services, and on-floor advisors trained by brand experts – a great opportunity for brands to compete with the growing share of private label, that has cracked the milestone of 30% participation in Clicks front shop health and beauty by their most recent half year. Game had earlier stated their intention to claim back baby as an ownership category, but their latest strategy does not mention this, leaving Dis-Chem and Clicks to duke it out in the sandpit, building out their respective offerings to young families.

Comment: Truly contested space is hard to come by in South Africa’s consolidated retail environment. And here’s one where newcomer Dis-Chem appears to enjoy a structural advantage.

Those Dis-Chem results, then, for the year through February 2021: retail revenue up +7.6% to R23.4bn, with retail operating profit down -8.9% to R1.2bn, although headline earnings, a generally dependable measure of the old bottom line, were up +11.8% as wholesale turned a profit. Like store sales were up +2.7% on the back of 22 store openings, including three Mediclinics and the acquisition of two pharmacies, for a total of 194. And brand-new acquisition Baby City, which came onstream in January this year, contributed a bouncing R128m to revenue. Of particular interest is the Group’s tidy increase in revenue of +12.6% for the 10 weeks to 10 May, even before Dis-Chem had commenced its COVID vaccination rollout. It has secured 32 dedicated sites for this and at full capacity will be delivering 800,000 shots a month.

Comment: A tidy set of results in a very challenging year (on which you can read more <a href="https://www.tradeintelligence.co.za/App/Uploads/File/0/0/156514/210521_Dis-Chem%20FY2021%20Results%20Summary_Final.pdf" target="_blank">here</a>), even for the pharmacy sector. Dis-Chem is often compared with Clicks; perhaps rather than competing directly with that larger business it is charting its own course.

And the trading updates rage on untrammelled. Next up Dis-Chem, which increased its Group revenue +12.1% to R11.6bn for the 22 weeks to 2 February 2021, on the back of growing consumer demand for preventative medicine. Retail revenue was up +10.3%, with like-store sales growing +5.1%. New arrival Baby City contributed R73.4m to the total from the beginning of the year, and online sales positively soared, with an increase of +218.7% YoY. Like rival Clicks, wholesale was also a crowd pleaser, up +20% to its customers like private hospitals and independent pharmacies. New stores, of which ten were added, contributed R123m to revenue for the period. “The change in consumer shopping behaviour due to COVID-19 continued to impact our sales mix and in turn, our margins,” says CEO Ivan Saltzman. “Despite the strong top-line growth, margins are still lagging pre-COVID-19 levels.”

Comment: Even businesses like Dis-chem, with a compelling product offering and innovative delivery systems in place, are not immune to the impacts of the current pandemic.

Interims this week from Dis-Chem, with revenue up +8.1% to R12.8bn for the six months through August, and HEPS – generally considered a reliable measure of profitability – up +16%. Retail revenue grew +6% to R11.4bn, with strong performances in personal care, FMCG, and healthcare and nutrition. Online sales grew a whacking +353%. “This,” says CEO Ivan Saltzman, “is the result of significant investment in the online store’s processes and systems over the past five years, with the application of much behind-the-scenes work to boost operational efficiencies.” During the period, the business opened 23 stores, for a total of 182, and still intends to acquire Baby City – although that transaction is pending approval from the Comp Commish. Dis-Chem has signalled that it is on the acquisition trail, with an offer already in to a “primary healthcare asset” that specialises in insurance.

Comment: Vertical integration eh. Smart move.

Crowdsourced logistics are officially a thing now, as Dis-Chem partners with Uber-for-Supply-Chain outfit Picup to boost its last-mile delivery across the increasing number of channels in the business. Picup is able to integrate with the Dis-Chem delivery system to provide real time feeds and order placements into the Picup app; these orders are then filled from the nearest Dis-Chem DC or presumably supplier. Picup are now working closely with Dis-Chem to establish how their technology can improve last mile delivery across more channels within the Group and using data to optimise and deliver more efficiently. And in these contagious times, deliveries are contactless, and staff are equipped with masks, sanitiser and guidelines for best behavioural practices.

Comment: Just-in-time order fulfilment was once just an excited sparkle in your business lecturer’s eye. Crowdsourcing has transformed it into a game-changing new reality.

Those Dis-Chem results then, where for the 12 months through 29 February revenue grew +12% to R24bn, be it mainly from new stores and acquisitions. Group earnings took somewhat of a knock mainly due to the stock rationalisation process, which saw a drop in purchases from suppliers and hence the retailer’s corresponding rebates, and after adding the effect of once-off costs to it all, margin for the year was in the red, which, of course, is not all that. The Group has its sights firmly on FY2021, however, when it hopes to continue growing ahead of the market, and then there’s this (subject to approval from the relevant authorities): the Group has agreed to purchase 100% of the issued share capital of Baby City for a princely – indeed, a princessly – R430m, in the midst of an outbreak nogal, indicating a heartening belief in the future, of their business and otherwise. The move makes sense: culturally and operationally the businesses are aligned, and South Africans insist on adding around 900,000 babies to the population every year, so a shortage of punters is not going to be the issue. For our usual snappy synopsis of the results, click here .

Comment: Nice one Dis-Chem, giving them a bit of competitive space in which to roam outside of the increasingly crowded pharmacy sector in which they currently operate.

A trading update from Dis-Chem, for the (almost entirely random) 22-week period through to 2 February. Tidy numbers though: revenue up +10% to R10.3bn, and +9.2% for the retail business to R9.4bn, and they report that they’re growing market share in “core categories” but do not specify what these are. They are happy with the recently gazetted +4.53% increase in the single exit price for pharmaceuticals, which allows businesses like theirs to increase the width of the honest rind they earn by their daily toil. A busy period, footprint-wise, with 12 new stores up and running, adding R145m to revenue. Wholesale also saw good growth, with revenue up +18.3% to R7.1bn. Success they attribute to their “pharmacy focus, everyday low price strategy coupled with focused promotional campaigns and availability of choice”.

Comment: Couldn’t of put it better ourselves.

An interesting if arcane dust up in the pharmacy sector, where – follow closely now – Dis-Chem-backed tech outfit, Vexall, has asked the competition authorities to prevent Telkom-backed Business Connexion (BCX) from abusing its position in the pharmacy software industry. BCX owns Unisolv, a software tool, which processes 70% of all scripts dispensed in the Beloved Country right now, a service it bundles with a whole bunch of other value-added services, like hardware and software installation, central patient profile hosting and inventory management – services which Vexall wants to sell. BCX insist that punters won’t get full software support if they buy these services elsewhere, although – this a little disingenuously – they don’t mind Vexall selling other, non-integral services. Last year, BCX accused Vexall of poaching its staff and customers and appropriating its intellectual property.

Comment: Legacy state monopolies from the bad old days eh? Can’t live without them, can’t rely on them to keep the lights on, either.

Teething problems for Dis-Chem which released a disappointing trading update last week, and, being a listed company, promptly took a hit to the old share price. Having let it be known last Friday that headline earnings per share (HEPS) for the six months to August could tank by 35% on the release of the interim results, punters fled the stock to the tune of 9.5% over the weekend. What’s amiss? According to Dis-Chem, no one thing, just a few once-off costs including a R81m unearned rebate release, a change in the bonus policy, and strike-related costs. The bonus, which is guaranteed, now gets accrued across the full year, whereas previously it was accounted for only in December. And the strike cost R19m in security and additional staffing alone.

Comment: Still. In a week when rival Clicks reported HEPS northward of +16%, this was not the news Dis-Chem aficionados were wanting to hear.

For those bricks and mortar retailers worried about the virulent spread of online, here’s something else to wake yourself up at 3am for: Dis-Chem have partnered with FNB to offer a click and collect service for prescription medication. Interestingly, though, the partnership came about because FNB needed tech support, not the other way round. At the end of May, you see, Dis-Chem bought a 50% share in Health Windows, a tech business which, inter alia, tracks patient data and reminds them to renew their scripts. They also offer monthly phone calls to have their medication prepared for collection at pharmacies – a service FNB was unable to offer on its NAV mobile app. For Dis-Chem, the partnership will drive new customers to their dispensaries, which have historically trailed the growth of other departments, and reduce the queues once they get there.

Comment: A shrewd move by Dis-Chem, which is unlikely at this point to beat rival Clicks on store numbers alone.

Dis-Chem didn’t meet its profit targets for the 2019 financial year; accordingly (though looking at other businesses by no means inevitably) the pharmacy retailer’s top managers took a drop in take-home pay. Take Mr. Saltzman himself, for example: while his salary was up marginally to R12.48m, he received no bonus, for a total drop in the old package of around 21.87% compared to last year. Total remuneration paid to all executive directors was down by 19.7% to R34m. What’s the thinking? “The remuneration committee also considers the bonuses, which are discretionary and based upon general economic variables, the performance of the company and the individual’s performance and certain other employee benefits and schemes,” according to a statement for the group, whose earnings were hit by strike last year which cost the business R50 odd million.

Comment: Tying executive remuneration to actual performance is a custom observed more often in the breach. A welcome move.

Why on earth would Dis-Chem open new stores in nodes in which it already has footprint, if you’ll pardon the jargon? Well for starters, they don’t have much choice: as they grow, they’ll inevitably start to overlap their own properties. In the year to Feb ’19, they opened 20 new stores, for a total of 149, of which 123 are the large format stores for which they’ve become famous, 21 are the new small format numbers, which as rival Clicks could tell you end up complementing the larger emporia rather than competing with them. All of this is so much on Dis-Chem’s mind that it shared three case studies at the analysts’ presentation showing how it made the respective calls. In Sandton, for example, it opened one store in Sandton City in addition to the existing one at Benmore Gardens, then a third at a new medical centre in Morningside, because duh. It lost R40m in revenue from the Benmore store, but picked up an additional R200m in sales, while making things tricky for competitors. No brainer.

Comment: A formidable business, with lots of gas in the tank.

Ongoing industrial action cost Dis-Chem a packet in December sales and will cost yet more before the strike is done, says the newishly-listed retailer, with comparable revenue down -2.5% despite the success of their MicroPopz! promotion. The National Union of Public Service and Allied Workers (Nupsaw) you may recall, is demanding a minimum wage of R12,500 across the board, and an annual increase of 12.5% guaranteed for the next three years for those already making over minimum. Tough times for a business which might be forgiven for wondering if listing is worth the additional scrutiny that comes with it.

Comment:

#Januworry is apparently now a thing, thank you twitternet. But not, apparently for Dis-Chem, which has turned forty, and instead of buying a Ferrari or having an affair, they’re sensibly running forty-themed deals: 40% off, forty ronds off, two-for R40, that sort of thing. Us, we threw a party at Bean Bag Bohemia for forty of our closest muckers, but it takes all sorts they say.

Comment:

Since its arrival post-listing in the big league, Dis-Chem has discovered that it’s not all beer, skittles and kudos from the punters. It’s currently in the midst of an ugly little skirmish with the National Union of Public Service & Allied Workers (Nupsaw), whose members have – unusually – been banned by the Labour Court from picketing outside Dis-Chem stores until the 27 February, after a legal strike turned sour and was marred by incidents of violence and retaliation. At issue is Nupsaw’s demand for a minimum wage of R12,500 per month, an across-the-board 12.5% increase for those earning above the minimum, a guaranteed annual bonus and recognition for the union.

Comment: Since the fragmentation of the unions and the vast numbers of unemployed South Africans have weakened the bargaining positions of workers, goodwill rather than violence and intimidation might be better chips to bring to the table.

One of Dis-Chem’s perhaps under-appreciated assets, like that of Clicks before it, is its loyal customer base. Now we’re not just talking dear old mum and dad who love it for its wide and well-lit aisles and excellent everyday pricing on life’s little necessities. No: Dis-Chem has a solid (if stolidly-titled) Loyalty Benefits Programme, with 4.3million active members. And not only that, it has deals with (more racily-named) partner loyalty programmes like Vitality and Legacy Lifestyle, who generally spend more in stores, with an average basket of R405. It has just garnered another 22,500 happy customers through its fuel reward programme with Total, and now it’s going after the 8.2million punters on whom it has the goods in its database, gathered through everyday interactions. Its first diabolical scheme is to target these shoppers – or rather their pint-sized heartstring-tuggers – with the Micro Popz campaign. The campaign rewards punters with a surge of dopamine when they see the joy on their little ones faces on receiving figurines from a range of Disney characters.

Comment: Just no. We love the loyalty, but the great Indian Ocean garbage patch does not need more plastic.

Dis-Chem began the FY we are pleased to call ’19 with 129 stores; it has since added another seven, and with them another 9.4% in revenue, for a total of R10.5bn. Time to rest on the old laurels? Heck no. They’re planning on adding another 13 through Feb, sticking to their promise of 151 by the end of FY2019. Pre-tax profit grew 10% to R635m for the six months through August. Much of this came from the robust retail arm of the business, up 13% to R711m; the wholesale division, which contributes just 8% of turnover, saw a loss of R76m, from R53m six months previous. Within retail, the dispensary brought in 37% of turnover, health and beauty 27%, and healthcare and nutrition 20%, positioning Dis-Chem firmly in its lane as a drugstore.

Comment: An impressive business with their eye firmly on the benefits that investment in supply chain and distribution infrastructure can bring.

We didn’t know that a third of a year was a thing, but Dis-Chem seem to have made it one, reporting that sales for the first four months of the financial year increased +11.1% to R6.4bn from R5.7bn in the prior period, also of four months. “The continuing increase in the fuel price along with the 1% increase in the VAT rate continues to put pressure on consumers which was evident in our April and May retail sales,” reports CEO Ivan Salzman, singing from the same hymn sheet as everyone else in retail. They’ve opened six new stores so far this year, adding R79m to the coffers, and are apparently pleased with their EDLP strategy, which, they say, has enabled them to win market share in all key categories.  Although, like all pharmacists, they can’t stop bellyaching about the single exit price for drugs.

Comment: Nice work, this plucky recent addition to the JSE retail index, which we are quite sure will continue their growth trajectory – an innovative operation, clear on what makes them a go-to health and wellness shopping destination, supported by significant investment in distribution infrastructure to ensure its future growth.

Causing something of a stir among the investment mavens of Twitter last week was Dis-Chem CFO Rui Morais, who flogged 4.1million of his shares to enter something called an “off-market hedge”, which according to some commentators is tantamount to betting against the business and its other shareholders. Basically, if the stock goes below a certain point: you’re protected against the loss, but if it goes above a certain maximum: nix on the upside. It’s still Dis-Chem stock, says Morais, who points out that since he started working there 9 years ago, his entire wealth has been tied up in the business. Kinder analysts argue that through this transaction he’s bought further into the business, but is simply protecting his investment rather than betting against its fortunes.

Comment: Anyone betting against Dis-Chem in the last nine years or so would be significantly poorer today.

Big up to young Rui Morais, CFO of Dis-Chem, who was just crowned young CFO of the year at the CFO South Africa CFO Awards. (Do they crown CFOs? Pse check – Ed). He was also knighted with the Orders of the Strategy Execution Award and the Finance & Technology Award. (Oh come on – Ed). A feather in the cap of Dis-Chem, to put their numbers in the hands of one so youthful.

Comment:

Those Dis-Chem results then: Turnover up +13.3%, with operating profit well… flat, but more on that later. Headline earnings per share were up +6.6%, a number which caused some punters to ditch the share, which took a 9.95% hit on the result, as well as on rumours of insider trading after surprise sell offs before the results were announced – activities into which the Johannesburg Securities Exchange is now looking. But back to the business itself: the poor showing profit-wise we believe is a punt for the future – the significant investments that Dis-Chem has made to scaling its wholesale operation point to a business investing in the infrastructure needed to respond to the escalating demand for health and wellness products and services. Also on the upside: the ambitious growth plan seems to be on track, with 21 new stores added for the FY for a total of 129.

Comment: The challenge for Dis-Chem was always going to be trading the mindset of a deeply-private family-owned business into that of a publicly traded company. But we don’t believe Ivan Saltzman’s health & wellness retail brilliance should be underestimated. Watch this space.

Welcome to the fray Dis-Chem, which having listed last year is subject to the usual hurly burly of public trading – results presentations (“Has anyone seen slide 12?”), activist shareholders (“Tell him we’re not buying him a pony.”) and shady analysts (“But Grandma, what a big Breitling you have!”). All things considered, though, a pretty tidy little set of interims to take to the market: revenue up +13.1% to R8.5bn for the 22 weeks to end February, with retail turnover up +14.2% to R7.9bn. Like store sales grew +5.5% against internal inflation of 2.5%, with wholesale sales up +19%. All of this, according to Mr Saltzman, because of Dis-Chem’s "unrivalled pharmacy offering, dedicated front shop service and a differentiated stock range". Ahem, says the delightfully-named Casparus Treurnicht of Gryphon asset management. Also because of the rate at which they rolled out new stores over the period, to the tune of more than one a week, in pursuit of their target of 200 by 2023.

Comment: Still, an excellent showing, and one which will please those punters who managed to snaffle up a couple of bob’s worth under Dis-Chem’s restrictive IPO.

Bookbuilding, as any of our analyst friends in their sharkskin suits and razor thin sunglasses will tell you, is the process by which a business offers shares for sale to major investors in order to determine what price they should sell at to the rest of us, while raising capital for the business in question. Dis-Chem’s recent bookbuild – which raised them a cool R1.12bn – saw the value of the share decline by 11%, or a 9.3% discount to the price at which they listed. This notwithstanding, all of the available shares were snapped up within 24 hours of going on offer, leaving Ivan Saltzman holding a controlling 52.7% stake in the business, which is focusing on growing market share, adding stores to its footprint and – one assumes – extending the reach of its wholesale arm CJ Distribution.

Comment: And of course, nipping at the heels of chief corporate rival Clicks.

Dis-Chem’s inaugural interims then; their coming-out ball if you will: interim revenue up +14% to R9.95bn, with after-tax profit jumping a rosy +37.4% to R409m for the six months to end August. Just how do they do it? “The increase is a result of the additional centralisation of vendors and better trade terms with suppliers,” avers Mr Saltzman, “as the group continued to increase market shares across our core categories.” When you get big, you get buying power, in other words, in the event that there are any non-analysts among our readers. Emulating other major players in this space, Dis-Chem is split into a retail and a wholesale division, with the former contributing 91% to total sales of R9.6bn and the latter pumping sales, with growth at +21%, but taking a R53m pre-tax loss in the process. Plans for a turnaround include greater sales into Dis-Chem, its ‘The Local Choice’ (TLC) franchisees, and into the independent pharmacy trade.

Comment: Selling wholesale to your minor competitors is an interesting model… one we are seeing being more deeply explored in a few places. #TiRetailTrends2018

Continuing to take a broad view of its new-found status as a publicly traded company is one Dis-Chem, which has a succession plan in place that involves changing the first names of the people at the top. So as Ivan Saltzman eyes the daunting curves of the number 80, his son (and group executive) Saul Saltzman may be waiting in the wings to take the top job. Although, the business hastens to assure us, there is no shortage of non-family talent around the place. But hey, it might be a little early to be talking succession: Mr Saltzman Snr. has plenty of spring in his step, and on his balance sheet too: revenue for the year was up 15% to R17.3bn, with operating profit growing 24.3% to R1.1bn. Dispensary remained the biggest contributor at 36% of turnover. 

Comment: An exciting business finding its way as it grows beyond the total control of its founding family.

The general retailer’s index on the Johannesburg Securities Exchange (JSE) has sunk 27% from its high in April 2015, with all of our majors recording recent losses on disappointing results or trading statements. All? Not Clicks and Dis-Chem, soaring to close-to-record highs and proving the “Lipstick Theory” that in hard economic times, punters, particularly those who are the natural market for cosmetics, will stock up on the little luxuries when they can’t afford the big-ticket items.

Comment:

So while the listing of Dis-Chem was not unaccompanied by disgruntlement from some punters who wanted in on the action but were hobbled by the partial and conditional nature of the exercise, others have done quite nicely out of the deal: for e.g. long-term investment company RECM and Calibre (RACP), which increased its net asset value a whacking 39% last year due to the sales of its Dis-Chem holdings, the proceeds of which delivered a dividend of R324millions.

Comment:

Those maiden Dis-Chem results, as we hoary old hands of the good ship JSE like to say: turnover up 14.7% to R17.3bn, with like store sales up 9.1%, and operating profit positively vertical at 24.3% to R1.1bn and retail margin increasing 0.4%. That should put the wind up Cap’n Kneale and his crew of stalwarts over at Clicks, eh? Mind, you, Dis-Chem’s got a ways to go before it has the footprint of an outfit like Clicks: just 108 stores and counting, although Mr Salzman has a plan to get that to 200 in the next two years. Being an old privateersman, and cagey about sharing his thoughts with the yellow-teethed denizens of the analysts’ pen, he’s not saying exactly how he plans to get there. Probably not greenfield growth says the analysts, so chances are Dis-Chem and Clicks will be scrapping over existing independent pharmacies for years to come. Of note also are the results of Dis-Chem’s wholesale arm, CJ Distribution, with a 22.2% increase in turnover YOY, new warehouses in Durban and Delmas and a Cape Town one currently in completion.

Comment: And with the share price up 40%, don’t we wish we’d managed to climb aboard when they listed.

So, Dis-Chem’s first trading update since listing (sort of) on the JSE last year: how’d that go? Not too shabby: Turnover was up 13% to R7.3billion in the 22 weeks through January, with store sales up 9.1% against internal inflation of 6.5%. CJ Distribution, the wholesale wing, recorded sales growth of 15.2%. The business plans to add 21 new stores in the 2018FY as it advances towards its five-to-eight-year plan of doubling numbers to 200.

Comment: Nice one.

So how did that Dis-Chem listing go? Pretty well if you’re Ivan or Lynette Salzman or their immediate, share-owning circle, not so much if you liquidated a few of your other retail shares to hop onto the Dis-Chem express when it left the station last week. The decision was taken, you will remember, to exclude small investors from the offering, allocating all 237million shares to large institutional investors. This mean that Dis-Chem customers and staff were unable to enjoy the benefits of the immediate 27% hike in the share price, but more importantly, it failed to garner for Dis-Chem the good will it was hoping would result from the offering. Dis-Chem’s rapid growth trajectory – typical of a business at this stage in its lifecycle – is promising good returns right now.

Comment: Given the time it took for Dis-Chem to list, it seems there was always a certain reluctance on the part of the owners to give up control – and this seems borne out by the nature of the eventual offering.

And finally – much more on this next week – no less a personage than Dis-Chem’s Mr. Ivan Saltzman has announced that the pharmacy will indeed be listing on the JSE. The business will in all likelihood be listed in the six-member food and drug retailers sector, which includes Clicks.

Comment:

Here’s the one we’ve all been waiting for: Dis-Chem, are reportedly been prepped for a listing on the JSE, which has encouraged major investor RECM and Calibre (RAC), to disclose the value of its holding in Dis-Chem at the AGM. R127million, apparently, for a 2.5% stake, which, RAC avers, is about half the value of similar businesses listed on the JSE. Not a bad little earner for RAC, which bought its share of Dis-Chem in 2013 for a paltry R30.5million through its arms-length investment vehicle Fledge. Perhaps they thought they were buying some other kinds of drugs, who knows. Among its other investments are mining, diamonds and poultry, in which embattled sector it owns a chunk of Country Bird acquisition target Sovereign.

Comment: Still, a listing eh? Stay tuned.

Plucky Clicks challengers Dis-Chem are always on the lookout for things to differentiate themselves from both the bigger and smaller players, and here is one, by golly! Every year, you intend to get your flu shot, and are reminded of this only as you are in the very throes of a 39.5% fever with a headful of cement and a desk full of deadlines. This year it’s different: simply click open your Uber app, as you would at the tail end of a large night out, but navigate to UberHEALTH instead. A couple more moves, and a capable nurse will be en route, jova in hand, to sort you out for the season. All thanks to Dis-Chem, and yours for only R100.

Comment:

Plucky although massive independent pharmacy chain Dis-Chem are about to go where people have been begging them to venture for years – cap in hand to the Johannesburg Securities Commission (JSE) there to flog their shares on the open market, in order, one assumes, to fund some capital for expansion perhaps (and we speculate here) to look into new store formats and go more directly head-to-head with rival Clicks. We’ll keep you posted.

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He may keep it on the down low when it comes to media profile, and so far you won’t find him or his shares anywhere near a Securities Exchange, but touch him on his Israel and Dis-Chem’s Ivan Saltzman will come up swinging. “This has been a ‘buycott’ for us instead of being a boycott,” says he of the recent Boycott, Divestment and Sanctions (BDS) campaign against businesses which, like his, stock Israeli product. He believes that BDS is needlessly dividing South Africa on something in which we have little international swing. Saltzman last hit the press on a similar issue three years ago after a much publicised war of words with a woman who was demanding that Dis-Chem remove Dead Sea cosmetics from their shelves.

Comment: And quite frankly they’re better on the shelves than being hawked in the corridors by pushy, though attractive, reps.

Rad? Is that what the young people are saying these days? Wicked? Fresh? Sick? Probably not. But whatever it is that they do say, they’ve said it loud and clear for Clicks who for the fifth year in a row, have scooped, or indeed scored the Coolest Specialist Health and Beauty Store in the annual Sunday Times Generation Next Awards. And subsidiary Musica, purveyor of not quite as many CDs as they would like, were voted Coolest Music Retailer. Mr Kneale, for his part, believes that Clicks’ brand promise of “feel good, pay less” is a positioning that appeals to the youth market. “This market wants value but also innovation and newness,” he says – qualities on which he believes his brand delivers in spades. On other Clicks news, rival Dis-Chem has been granted permission by the Advertising Standards Authority to continue calling itself "SA’s favourite pharmacy". It provided proof that the research on which the claim was based was “sound and balanced”.

Comment: And in yet other news, Clicks has mentioned that Musica’s top selling item over Christmas was a phonograph, or record player.

Still going great guns this week would be Dis-Chem, opening their first store in Namibia and targeting another ten here at home by the end of the year, for a not-unimpressive and presumably Clicks-rattling total of 84. The chain was started in 1978 by Lynette and Ivan Salzman, trading in just 11 stores in 2009 before the fireworks began.

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If you happen to be a member of the Legacy Lifestyle rewards dingis, you will be gratified to know that you are now able to earn legacy rands at all Dis-Chem stores by linking your Lifestyle Membership with your Dis-Chem benefits account. This means, according to the bumpf, that the points you earn at Legacy’s other partners (for example hotels and restaurants) can be redeemed for a roll of dental floss and some bubble bath for the missus at Di-Chem. Or indeed that the proceeds from a purchase at Dis-Chem could go towards that Pringle shirt you’ve had your eye on for a while. One of the big benefits for Legacy in all of this, is Dis-Chem’s imminent launch in Namibia and thence, they hope, elsewhere on the continent.

Comment: Here’s a bit of fine print for you to read. Loyalty programmes always come with fine print. And yes, it’s a slow news week.

“Who?” you might ask, and you’d be wrong: Cape-based Natural Herbs and Spices is expanding its customer base in local retailers like Pick n Pay, Spar and Dis-Chem, but cranks out over 70% of itself revenue through sales of both private-label and branded goodies to Coles and Woolworths in Australia, Aldi in Europe and elsewhere. How’d they do that? They had the vision to import and operate a steam sterilisation plant, which enables them to prepare herbs and spices for the export market. Steam, you see, is preferable to radiation and the use of ethylene oxide as a means of pasteurizing and preserving such products for the discerning first-world punter. The company sources its herbs and spices all over the show, but is now experimenting with growing some back home as well.

Comment: Nice work, Natural. “Packed with irradiated, ethylene oxide goodness”? We don’t thinks so.

Your grannies favourite shop DisChem has been given the go ahead by the Competition Tribunal to enter into a joint venture with Minlou Holdings, a wholesaler which supplies pharmaceuticals to around 400 outlets, including DisChem. The issue was that some rival pharmacies feared that DisChem would with this deal be in a position to assume control over the Leading Pharmacy franchise – over which the JV does indeed give it some control – and thus smoke the competition. The Comish has established that enough independent pharmacies are holding on by their fingernails for this not to be the case.

Comment: A big move for DisChem, giving it more vertical integration in the old supply chain, no doubt, and allowing it to bring those under and over the counter goodies to your gran at a price she’s happy to pay.

Dis-Chem are the sort of retailer who prefer to busy themselves by keeping their heads down and selling stuff to shoppers rather than by scripting press releases, so it’s always good to get the skinny on what they’re up to. Which right now, is this: joining the digital stampede™, offering special-needs products, which are not available in-store, online rather than the full basket of goods available in store. A feature of the Dis-Chem model is that the company retains a minimum 51% ownership of each franchise store, controlling surety, operating standards, and service out of the DC inter alia, and ensuring leverage with suppliers. Of particular interest to Dis-Chem are potential franchisees in places like Namibia and Botswana.

Comment: But sadly no word yet on when and indeed whether you and I will be able to trade their securities on the Johannesburg Stock Exchange (JSE).

DisChem is on the way to an unwelcome record when it comes to industrial action, with their SACCAWU imbroglio heading into week ten and no silver cloud at the end of the soaps aisle. 17% of DisChem’s 5,700 workers are still on strike, demanding a minimum wage of R3,500 and a 15% salary hike across the board, while DisChem contends that the strikers have broken the picketing laws and damaged company assets. Pick n Pay, in the meantime, is facing its own dust up with SACCAWU, also over an increase, this time 12% as well as staff discounts and the duration of the agreement – PnP wants three years, SACCAWU one year. Finally, Shoprite is educating its Nigerian workforce about how we do labour relations back home over a disputed incentive bonus.

Comment: Workers eh. Can’t live with them, can’t fire them. Most of the time.

Burgeoning pharmacy business Dis-Chem has got a court order preventing striking SACCAWU members from harassing other staff. The union is calling for a R3,500 minimum wage, a 15% annual increase and union recognition. Part of the problem, if you’re SACCAWU, is that they’re a minority union in the business, which is not compelled by law to negotiate with them.

Comment: But nice try.

Dis-Chem is learning the joys of being a big player at the hands of SACCAWU, who are planning a strike over recognition and wages. The union is demanding a minimum wage of R3500 and a 15% increase across the board as well as various other rights, and cites the 7% increase of sales across the pharmacy retail sector in FY2010 as justification for the increase.

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Shoprite has announced the acquisition of one of SA’s largest pharmaceutical wholesalers, Transfarm, in a move which will help it grow the already burgeoning MEDI-Rite arm of the business. MEDI-Rite currently has over 100 stores, and the plan is to open another 80 – 100 more in the next twelve months. The purchase of Transfarm, which turns over up to R200 million per month, will bring the benefits of centralised purchasing – like better availability and lower prices – to the Big Red One, according to Mr James W. Basson, CEO. It will also, no doubt, put the wind up competitors like Dis-Chem and Clicks, who purchased their own wholesaler, UPD, back in ’03. MEDI-Rite is now the second biggest pharmacy group in SA.

Comment: Aggressive stuff in a sector which is rapidly becoming as consolidated as the grocery sector, to the undoubted detriment of the little guy.

The superfluously-hyphenated Dis-Chem is thinking of taking its case to the Competition Commission after a refusal by the Department of Health to grant them a dispensing license in PE on the grounds that there are “sufficient” pharmaceutical services in the friendly city already. This is the first time in Dis-Chem’s 31 year history that it has encountered such a block, the work, it believes, of a group of pharmacists in the hood. It has gone ahead and opened shop in Cape Road, but offering only personal care items and unregulated medicines to an increasingly frustrated clientele. Dis-Chem, you may recall, is thinking about offering shares in its business for sale to the general public on the Johannesburg Securities Exchange (JSE).

Comment: While on the one hand, one likes the little guy to survive, it hardly seems fair that Dis-Chem is being punished for hard work and ingenuity in a tough retailing first and legislative environment.

There’s a subtle war of words in the media between Clicks and the independent pharmacies with which it competes. Recently, we reported that USAP, a grouping of independent pharmacies, had released results of a survey which suggested that the punters are more interested in convenience and tender words when it came to their pharmaceutical requirements than they were in price. Now Clicks skipper David Kneale has come back with a raking broadside, suggesting that customers may be paying more on their dispensing fees and admin costs than they will at in-store pharmacies and by inference, Clicks itself. Clicks currently owns around 15% share of the prescription market and is facing stiff competition from all sorts – Shoprite, Pick n Pay, Dis-Chem, and the plucky independents themselves.

Comment: Don’t know about you, but we find there’s something unsavoury about the big boys circling the independent sector and licking their chops. Small businesses, even in retail, are the safety net of any economy.

Clicks-baiting mega-chemist Dis-Chem, having gone all Pty last year, and expanded all over the place has pulled another one out of the proverbial hat: franchise! Three franchise stores – in Nelspruit, PE and East London – have been added to the 37 company-owned stores. According to the Saltzmanns, who founded Dis-Chem in 1978, the only limit to Dis-Chem’s growth has been the shortage of skilled and committed managers – hence the move to franchise, where entrepreneurs grow on trees. Touchingly, the first of Dis-Chem’s eleven approved franchisees are a couple who met while working the graveyard shift in the aisles at Dis-Chem. Dis-Chem’s recent move into centralised distribution now makes that much more sense.

Comment: Although the new Consumer Protection Act is going to make life tricky for franchisors, defining franchisees as customers, which gives them the freedom to shop wherever they want.