Clicks vs Dis-Chem – the winner is clear 

Clicks is better positioned to capitalise on the strong growth of South Africa’s retail pharmacy sector than its competitor, Dis-Chem, due to its track record, deeper private-label penetration, and efficient employee mix. 

This is feedback from Kgomotso Mokabane, an equity analyst at Sanlam Private Wealth, who outlined some of Clicks’ structural advantages over its rivals in a recent research note. 

The South African retail pharmacy sector has been steadily growing in the past decade, with Clicks and Dis-Chem snapping up competitors to now command half of all pharmacies in the country. 

Other corporate chains, such as Alpha Pharm and Medirite, have cornered 5% of the market, with the independents owning the rest.

After this strong growth in the past decade, Sanlam Private Wealth began adding Clicks to its client portfolio as it is a quality business with a strong track record of stable and predictable earnings. 

Further growth is set to come, with corporate pharmacy groups in the US and the UK controlling 71% and 61% of the market, respectively. 

This suggests that South African corporates still have room to expand – potentially absorbing another ~12% of the market from independents over time, Mokabane explained. 

Clicks has grown its store base by 33% over the past five years to 936 stores and aims to push this figure to 1,200 stores within the next five. 

Notably, around 20% of its outlets operate without an in-house pharmacy. This presents an opportunity to capture additional pharmacy retail market share – with relatively low capital expenditure and an established customer base to leverage.

Mokabane said that South Africa’s ongoing urbanisation trend further strengthens its advantage.  

Clicks has prioritised convenience centres rather than destination locations such as large shopping malls – this accessibility-driven model provides a clear path for further market share gains. 

Already, 76% of its stores are in high-traffic areas, with over half of South Africans living within 5 km of a Clicks outlet.

Mokabane said that store growth does seem finite for large corporate retail pharmacies, with Clicks set to take the lion’s share of the ~12% market left up for grabs. 

This shifts the focus to increasing the efficiency of existing stores, good capital allocation, and growth in areas beyond pharmaceuticals. 

To this end, Clicks is investing heavily in upgrading its prescription management system, which allows patients to access their medication from any Clicks store nationwide using their loyalty card. 

Mokabane views this as a positive since it strengthens retention – particularly among those reliant on repeat prescriptions for chronic conditions.

According to the World Bank, a country can be defined as ‘ageing’ when the number of people aged 65+ is above 7%, and South Africa is edging towards this threshold. 

Demand for chronic medication is likely to rise, and Clicks is well placed to capitalise on this demographic shift.

Crucially, the company is not heavily reliant on pharmacy sales, which account for only around 30% of total store revenue. The rest comes from front-shop retail. 

However, the pharmacy counter drives footfall, and the store layout is designed with this in mind. 

The dispensary sits at the back, ensuring that customers collecting medication walk past striking live advertising and shelves stocked with front-shop products as they make their way to the checkout counter.

Clicks has also launched a low-cost medical aid alternative to win over the 45% of employed South Africans who do not have medical aid. 

The affordable Flexicare medical insurance offering is in partnership with Discovery as the administrator and Auto & General as the underwriter.

Mokabane said this should introduce a new customer base to Clicks and, with it being a partnership, it is capital-light and ensures management will not get distracted from the company’s core business. 

Clicks also has a dominant position in the beauty and personal care category, which serves as the primary driver of front-shop revenue.  

The chart below highlights the market share in this space of both Clicks and Dis-Chem over the past nine years.

This shows that Clicks is well-positioned to continue growing without the opportunity to expand by buying up independent pharmacies. 

Clicks’ retail segment achieved an average of 3.3% per annum volume growth from comparable stores, a percentage point higher than Dis-Chem over the past decade. 

As Clicks has built strong penetration of private label and exclusive brand offerings, Sanlam Private Wealth expects it to maintain the volume growth differential over the long term.

Beyond sales volumes, Clicks benefits from several structural advantages over rivals. 

These include higher front-shop sales, deeper private-label penetration, and a carefully optimised employee mix. 

An efficient employee mis is crucial as employee costs are the largest operating expense for retailers.

Clicks has consistently delivered an attractive return on equity, averaging above 40% per annum over the past decade. It also has a clean balance sheet free of debt. 

The management team has been consistent and measured in its capital allocation approach, with excess capital returned to shareholders through share buybacks.

Although past performance does not guarantee future success, Clicks has demonstrated a solid record of predictable earnings.

Given the management team’s reputation for fulfilling expectations, he believes this stability will persist in the medium term. 

“Clicks is a well-oiled machine, and we have full confidence in CEO Bertina Engelbrecht’s ability to lead the business in consistently delivering compounding returns.”