Clicks Outperforms Dis-Chem Despite Aggressive Competition in South African Retail Pharmacy Sector

The South African retail pharmacy landscape presents a dynamic battleground, predominantly dominated by two giants: Clicks and Dis-Chem. While both entities have demonstrated resilience and growth, Clicks has notably maintained lead over its counterpart in recent financial standings.

Established in 1968, Clicks reigns as the premier health, beauty, and wellness retailer, boasting the largest pharmaceutical network in the country with more than 930 stores and 715 pharmacies. Clicks' digital strategy complements its physical network, propelling its market reach. The brand's significant milestone was its listing on the Johannesburg Stock Exchange in 1996, which subsequently secured it a spot on the FTSE/JSE Top 40 Index.

Dis-Chem, on the other hand, conceived by Ivan and Lynette Saltzman in 1978, stands as the second largest pharmacy chain in South Africa. Historically favored for larger stores, Dis-Chem today has a robust market capitalization of R31 billion with a total of 327 stores nationwide. A notable step in Dis-Chem's growth saga was its pivot to private-label products in 1997 and the inauguration of its Namibia franchise in 2014.

Post its JSE listing in November 2016, Dis-Chem embarked on an assertive expansion scheme, gunning for market share dominance. Between 2016 and 2021, Dis-Chem chiseled down the market share disparity from a 40.3% slice to a compelling 46.6%, predominantly through acquisitions such as TLC Pharmacy, CJ Distribution, and Baby City among others. More recently, Dis-Chem ventured into broader territory, snagging 25% of Kaelo and integrating Healthforce, Medicare, and acquiring a stake in OneSpark, an AI life insurance firm.

The recent fiscal reports underscore Clicks' sturdy position, with an impressive turnover surge to R45.4 billion and a retail turnover leap of 11.7%. The company's profit margins and headline earnings soared respectively. In contrast, although recording solid figures, Dis-Chem's growth strategy, underpinned by acquisitions, has swelled its interest-bearing debt significantly beyond R2 billion, excluding lease liabilities. Despite these efforts, Clicks narrates a more profitable tale, devoid of interest-bearing debt, apart from manageable lease liabilities.

Clicks' sustainable growth is attributed to its organic expansion and operational efficiency, which has yielded a more favorable net profit margin and a price-to-sales ratio double that of Dis-Chem. Clicks' earnings are notably valued higher, with a P/E ratio of 34 against Dis-Chem's 32, reflecting a more robust investor confidence attributed to its strategic financial management.

In the face of fierce competition, Clicks' commitment to a debt-free trajectory and organic growth underpin its success in the retail pharmacy space, validating its dominance as the more lucrative and stable investment for shareholders.