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The battle between privately owned Dis-Chem and listed New Clicks to dominate the pharmacy market heated up yesterday, after Dis-Chem said it would go the franchise route to accelerate expansion plans.

June 24, 2008

By Tom Robbins

Cape Town – The battle between privately owned Dis-Chem and listed New Clicks to dominate the pharmacy market heated up yesterday, after Dis-Chem said it would go the franchise route to accelerate expansion plans.

As recently as five years ago retail pharmacy was highly fragmented, but Dis-Chem, owned by the Saltzman family and senior management, and the Clicks chain, owned by New Clicks, have used a discount model to undercut mom-and-pop stores. As a result, many high street pharmacies have closed.

This – coupled with government limits on drug prices, and thus profits – has led to pharmacists leaving the profession.

Dis-Chem director Stan Goetsch said franchising aimed to “rekindle” business opportunities for pharmacists.

While it had “no significant long-term debt” and an ability to fund expansion itself, the company said franchising would speed up its plans. It would not stop opening company-owned stores but was “stretched” in rolling them out.

Goetsch said Dis-Chem had 34 branches and was on track to turn over “just over R4 billion” in the year to next February.

Clicks reported revenue of R3.12 billion from 318 stores, of which 132 had dispensaries, in its half-year to February 2008.

Dis-Chem offers a big box format with store sizes of about 1 500m2, while Clicks has introduced dispensaries into its over-the-counter health and beauty product stores.

Nedcor Securities retail analyst Syd Vianello said franchising would allow Dis-Chem to get its profitable private label products into mid-sized towns where it would not want to take all the investment risk itself.

Vianello said there was space for both chains, as they had different product mixes. Dis-Chem’s large stores meant it could offer a greater range of beauty and health supplements. Clicks was seen as a destination for small appliances.

Dis-Chem said its branches cost about R15 million to set up. It would offer franchisees stakes of up to 49 percent, but it would retain control of the stores.

Franchisees would have to invest at least R3 million from their own resources.

The joint venture model was recommended by Eric Parker, a senior partner at Franchising Plus, who was involved in a similar system at Nando’s.

Parker said banks were happier to offer financing with control remaining with Dis-Chem, and suppliers would have more confidence. Only 12 percent of the local retail market was franchised compared with 55 percent in the US.