The battle for your repeat spending isn’t only being fought over grocery deliveries. Dis-Chem’s latest results show what it looks like at the pharmacy. Its loyalty programme, Better Rewards, is doing its job: sales rose 8% to R23 billion in the six months to August, and Dis-Chem credits the programme for most of that growth. Its 8.2 million active members now account for more than 86% of sales, and members who already shopped there before the launch now make two more shopping trips than they used to.
Shareholders had less to celebrate. Headline earnings per share, the official profit measure, fell 12.8% when the results came out last Thursday, and on Friday the shares dropped as much as 12% in early trade.
Where the money went
The pressure came from expenses growing faster than income. Dis-Chem opened 14 pharmacies in the half, taking it to 328. Staff costs, which make up more than half of what its stores spend, rose 12.8%. And X, bigly labs, the in-house digital unit that designed Better Rewards, doubled its spending on a year earlier. Since it started, R240 million has gone into rebuilding Dis-Chem’s online shop and the systems behind it.
Together those costs pushed expenses up 13.1%, faster than the 9.0% rise in income, and operating profit fell by about a tenth despite the higher sales. The interim dividend is 12.9% smaller.
Chief executive Rui Morais says much of that investment is now built into the business, and he expects a stronger second half. That would be a change of rhythm, because Dis-Chem has usually earned most of its profit in the first six months: in the last financial year, the first half produced 64% of earnings.
The rival with a delivery app
Part of the urgency behind all that spending comes from a competitor Morais says worries him more than Clicks. “I see Clicks as a natural competitor. I worry more about Shoprite, quite honestly, because they can use the Sixty60 asset to amplify the ability to scale Medirite,” he told journalists after the results.
His concern is that Sixty60 could extend the reach of Shoprite’s existing Medirite pharmacies without it opening a branch in every neighbourhood. Medirite already runs 115 dispensaries inside Shoprite supermarkets, and each one still needs its own licence. Delivery could carry each of them well beyond its immediate surroundings, turning the limit into what Morais called “a drive-time constraint, as opposed to a physical location constraint”. Sixty60 sold R25.5 billion in Shoprite’s last financial year.
That is the competition Dis-Chem is spending to meet. Its own new app has reached its first 22,000 customers, with a wider release due in the last quarter of its financial year. If you’re going to deliver medication, Morais said, “you need to be at least as good as they are.”
