Welcome to the free version of our newsletter that analyses themes emerging from our live Market Reports. The client version of this Shop Talk includes:
- Access to the Market Reports.
- Analysis of general spending trends across the major retail categories during June 2024.
- Real-time spending data for Clicks’ and Dis-Chem’s online channels, showing potential for growth.
As a taste of what to expect, here’s a look at how spending trends at South Africa’s two biggest pharmacy chains.
The retail pharmacy market is more concentrated than any other category we track. Just two companies – Clicks and Dis-Chem – account for the majority of 22seven user spending in this category. It’s also worth remembering that Pharmacy is different to other spending categories because the customer is not always the one paying. Medical aids and insurers often fund a customer’s medicine purchases from a pharmacy. The retailer reports this transaction as a sale but the transaction doesn’t appear on a user’s bank statement.
Disclaimer done, it’s still interesting to segment the category into Clicks, Dis-Chem and ‘Independent Pharmacies’. The ‘Independent’ grouping includes chains like Pharmacy @ Spar, Shoprite’s Medirite, Dis-Chem-tied The Local Choice, Alphapharm and a sizable number of smaller pharmacies.
Interestingly, growth in the Independent sub-category didn’t follow the same upward trend as the rest of the category in June. This could be due to the widening gap in the sector between the two dominant chains and the rest. Dis-Chem and Clicks generally stock a wider range of non-dispensary products, and that selection is growing. Note, too, that Dis-Chem and Independent Pharmacies experienced more pronounced fluctuations in spending growth, with significant spikes and declines. In contrast, Clicks has shown a more stable trend with less variation.
SPENDING GROWTH: RETAIL PHARMACY
Battle of the giants
Cash-flush Clicks, which has earmarked nearly R1bn in capital investment for the 2024 financial year, plans to open as many as 55 new outlets, increasing its store base to more than 1,200 in the long term. The group has also invested in a dedicated e-commerce warehouse that can deliver more than 1m parcels per annum to consumers.
This dovetails with the new Clicks app: shoppers can access most products they would find in-store, track their orders and check their ClubCard points. Other features include the ability to submit scripts, make clinic bookings or chat to a pharmacist. With a 4.6 star rating on the Apple App Store, it seems that consumers are enjoying the user experience.
Dis-Chem has also been busy. With a new CEO and an equally ambitious expansion plan, the group aims to open about 140 stores in the next three years. (Clicks currently still has a significantly larger footprint with ~900 stores nationally, compared to Dis-Chem’s ~270.)
Against that backdrop, let’s look at user spending across the two chains. Our 22seven data favours Dis-Chem, whose market share is 56% compared to 44% for Clicks across the demographic spectrum. Probably due to its bigger store footprint, Clicks has a higher number of customers transacting monthly, but these customers transact less frequently than Dis-Chem customers, and they spend less each time. Dis-chem’s smaller overall number of users spend significantly more per transaction, which accounts for the group’s greater market share.
Note that the 22seven user base is skewed towards middle- and higher-income earners, and Dis-Chem’s market share increases as income increases. (For users earning R60k+ pm, Dis-Chem’s market is ~60%; in the R15–25k pm demographic, market share is closer to 50%.) The same pattern is observed when we segment for age: older users tend to prefer Dis-Chem, whereas Clicks appeals to a younger user base.
The chart below takes an average across the demographic spectrum and compares the two retailers on user base size, total monthly spend, market share and average transaction value. Importantly, even though the average transaction value at both retailers increases slightly every month, there’s no evidence yet to prove the success of either retailer’s expansion strategy.
Online is where it’s at
Over the last few months, we’ve done extensive reporting on how online-only retailers like Shein and Temu have disrupted the local market, and how local businesses like Checkers Sixty60 have attempted to level the playing fields. The Covid-19 pandemic fast-tracked online growth. While most local retailers have some sort of online strategy, some have been far more successful than others.
In the pharmacy space, Clicks seems to be taking the lead in this regard. Although online shopping at both Clicks and Dis-Chem is still a very small component of total spend among our users, the trend is almost the opposite of what we see in-store: Clicks is ahead of Dis-Chem on almost every metric, by a long way…
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