The squeeze is on for “mom-and-pop” pharmacies as the big guns gear up for an all-out assault on the lucrative sector.
The Clicks and Dis-Chem chains are entrenching themselves as the foremost pharmacy brands, and giant retailers Shoprite and Pick n Pay are slowly muscling in.
Syd Vianello, retail analyst at BoE Securities, said many independent pharmacies were closing “because they can't compete with Clicks and Dis-Chem”.
Until now, consumers have been prepared to pay extra at independent pharmacies but Vianello said ultimately the market would be controlled by a few.
Clicks is the largest pharmacy group by far. With 132 pharmacies in its stable of 318 stores, the plan is to roll out pharmacies in every store countrywide.
Mike Harvey, managing director of Clicks, said “resilient” trading continues to come through on the pharmaceutical side despite the tough economic environment.
On average, about 15% to 25% of sales per outlet stem from the dispensary.
The dispensary is not meant as a significant profit generator but to draw in people who buy other goods, he said.
Legislation has imposed single exit pricing by capping the mark-up on drug sales. It is one of the biggest challenges from a profit point of view for the group.
However, at the same time, it provides a barrier to entry for competitors that would need to rely on the sale of drugs to make a profit. Uncertainty about other impending regulation also keeps out competitors.
“It's a double-edged sword,” said Harvey. “We'd like to know the regulations for certainty but lack of regulations means the free market is taking its course. Big corporates are opening more stores and consolidating the industry.”
New Clicks' interim results will be released on April 24. The group said in a trading update that headline earnings a share for the six months to February are expected to be between 20% and 30% higher than the corresponding period last year.
The turnaround at Clicks is attributable to focusing on its original strategy, said Harvey. “We want to dominate mass-market pharmacy, health and beauty and be good storekeepers and retailers. We're not dwelling on the strategy. We're getting it done.”
Dis-Chem has fewer outlets than New Clicks but its stores are two to three times the size of its competitor's.
Ivan Saltzman, chief executive of Dis-Chem, said growth over the past few months had been flat - echoing general retail trends - but the group continued to grow.
It is the largest privately owned pharmacy group in SA. It will have 40 outlets by the end of the year, and has been in existence since 1979.
The group does not work with targets and forecasts, enjoying the luxury of having no shareholders other than the family owners. “It's as we feel. We take what we can handle,” said Saltzman.
Other retailers such as Pick n Pay have courted Dis-Chem at various stages and Clicks, as these companies tried to gain market share, but the executive has preferred to retain control and independence.
Saltzman does not feel threatened by retailers moving into the pharmacy sector.
“They are convenient, but we think the consumer wants more than just convenience. We are opening in the major shopping malls but we offer a bigger package in-pharmacy. We don't sell furniture, groceries and electrical appliances - 99% of our space is health and beauty.”
Shoprite is the grocery retailer that has put the most resources behind its pharmacies, which now number 49, including one outside South African borders.
Though dispensing is not profitable, the group has experienced growth in customer count on account of these openings - of 33% more foot traffic.
Whitey Basson, chief executive of Shoprite Holdings, has said repeatedly that the shortage of pharmacists is a major obstacle to rolling out more pharmacies.
Pick n Pay has 14 pharmacies in its stable and has been operating in the arena for three years.
Hippo Zourides, Pick n Pay's pharmacy division general manager, said the group would roll out new stores “at a measured pace”.
Source: Sunday Times
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