Welcome to our newsletter that provides commentary on themes emerging from our live Market Reports. This month we're looking at spending in the competitive Pharmacy category. 

Winter has arrived late this year. The weather in June was unseasonably pleasant, and it was also a good month for retailers as spending growth picked up considerably across all major categories. (This is in contrast to June 2023, when retail sales slumped. Keep in mind that this creates a low base for comparison when looking at the year-on-year average.)

Why were sales better in June? School holidays maybe? Q2 (April, May and June) is also historically a more successful trading period than Q1, thanks to the Easter holiday,  financial year end and consumers stocking up on items to get through winter, like warm clothing, heaters etc. 

Winter seems to benefit pharmacy retail too – it’s sniffles season, after all – and spending growth in the category is riding high on the upward curve.

SPENDING GROWTH BY CATEGORY

As we showed in a previous report,  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 

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. 

CLICKS vs DIS-CHEM: USER NUMBERS, TOTAL SPEND, MARKET SHARE & ATV

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. Clicks is ahead of other retailers, too: more users  transact online at Clicks that they do at Pick n Pay asap!, for example.

The infographic below summarises our findings.

It’s clear that there’s a huge opportunity online for Clicks. With an average online transaction value in June three times larger than its in-store average transaction value, and an exponentially larger online user base than its main competitor, this is an area where Clicks can almost certainly reclaim market share from Dis-Chem.

We’ll keep running the numbers and report back in due course, so watch this space… 

Our Market Reports offer investors and retailers a detailed, real-time view of the aggregated spending decisions of actual consumers. Reveal tracks spending across seven major categories such as Grocery, Apparel and Home. Every major category is further segmented into sub-categories, and a specific dashboard is available for each. 

The Market Reports provide an overview that includes changes in market share for each retailer, as well as an estimate of growth in user spending. Users are segmented into six income brackets that allow for detailed tracking. In addition, the Market Reports include five years of historic information and other metrics, such as average transaction value and median monthly spend per user. 

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