Dis-Chem medical aid win

Dis-Chem recorded a strong performance in the past five months, with the retailer benefitting from the availability of medical aid benefits in January.

Dis-Chem released a trading update for the period from 1 September 2024 to 31 January 2025 on Friday, 21 February.

This update revealed that Dis-Chem achieved group revenue growth of 7.2% compared to the same period in the previous year.

Retail revenue grew by 5.6%, while like-for-like retail revenue increased by 2.9%.

“The retail revenue recovery seen in January, largely driven by the availability of medical aid benefits, continues into February, countering weaker November trade,” CEO Rui Morais said.

“The pleasing work done in managing retail employment cost, the group’s largest expense, continued.” 

“These incremental improvements continue to contribute to positive operating leverage and the delivery of earnings growth seen in the first half of the year”.

Dis-Chem grew its dispensary market share and retained its position as South Africa’s largest retail pharmacy group by dispensary market share.

The retailer now operates 333 retail stores, including 286 Dis-Chem Pharmacy stores and 47 Dis-Chem Baby City stores.

Morais said the acceleration of new store openings going into festive trade is evidence of Dis-Chem’s commitment and focus on expanding its retail footprint. 

This acceleration will continue into the retailer’s 2026 financial year, with a growing number of secured sites being added to the pipeline.

Dis-Chem’s wholesale revenue also saw strong growth of 11.1%, with the retailer’s sales to its own stores increasing by 9.6%.

Revenue from external customers rose by 18.8%, with external wholesale revenue from independent pharmacies increasing by 18.2%.

Dis-Chem’s The Local Choice (TLC) franchise continued to perform well, achieving revenue growth of 19.5%. 

The company now has 230 TLC franchise stores, up from 200 at the end of the corresponding period.

Dis-Chem’s results for the year ended 28 February 2025 will be released on Friday, 30 May 2025.

Dis-Chem’s costly expansion

Dis-Chem has grown rapidly in recent years, driven by acquisitions that led to a significant rise in debt for the retailer.

Since listing in 2016, Dis-Chem has pursued aggressive expansion, targeting Clicks’ market share. It grew from 40.3% of the combined Clicks-Dis-Chem market in 2016 to 46.6% in 2024.

Growth was fueled by acquisitions, including TLC Pharmacy, CJ Distribution, Quenets, Baby City, Kaelo, Healthforce, Medicare, and Columbia Falls Properties.

Dis-Chem also invested heavily in distribution centers, financing many acquisitions through debt. Consequently, its debt rose from R1 billion in 2017 to R2.6 billion in 2024.

However, the expansion hasn’t delivered major cost efficiencies. Operating profit margins declined from over 6% in 2016 to 4.9% in 2024, indicating rising expenses relative to revenue.

While finance costs remained stable at 1% to 1.6% of revenue, Clicks, with little to no debt, enjoys a 100 to 160 basis point edge in net profitability.

Clicks CEO Bertina Engelbrecht has previously emphasised disciplined acquisitions, ensuring synergies and operational efficiency before purchasing businesses.

This strategy has helped Clicks grow its operating profit margin from 7.5% in 2017 to 8.7%.

While Dis-Chem’s expansion has boosted market share, it has yet to deliver significant profitability improvements compared to its rival.