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Clicks acquires Pick n Pay’s pharmacy business

Independent analyst Chris Gilmour posits that we may find the rather strange situation of ‘having a Pick n Pay store with a Clicks pharmacy inside it’.

NOMPU SIZIBA: Health and beauty retailer Clicks announced today that it is to acquire Pick n Pay’s retail pharmacy business. Pick n Pay has confirmed the same, saying that it has recently set out its key strategic objectives in terms of future growth, and that its pharmacy business was not included in its future growth plans and therefore the deal makes sense. The transaction is subject to approval by the competition and regulatory authorities.

Well, to get his sense on Clicks’ latest acquisition I’m joined on the line by Chris Gilmour. He’s an independent analyst. Thanks very much, Chris, for joining us. On the face of it, this looks like quite a sensible, even inevitable, strategic move for both Clicks and Pick n Pay.

CHRIS GILMOUR: Yes, indeed. Exact figures I don’t have, but I suspect we’re looking at roundabout a 20% share of the pharmaceutical retail market for Clicks. I put a story out last week in Business Day on Clicks on the recent update, and that seemed to be the figure that everyone’s [thinking about] – about 20%. So they are by far the biggest, the largest pharmaceutical retailer in the country followed by I think Dis-Chem and quite a few others. If you look at Pick n Pay, I think that it did a good job with its outlets, with its pharmacy retailers, but just never achieved critical mass. So it’s a good deal for both. It’s 32 extra, and Pick n Pay gets rid of something that’s no longer a core competency.

NOMPU SIZIBA: The good news of course with the acquisition is that Clicks is going to be keeping the existing Pick n Pay pharmacy staff on. So no job losses in the process.

CHRIS GILMOUR: Absolutely. Clicks has well over 600 stores, pharmacies, around the country and, as the CEO of Clicks says, you’re never more than about five kilometres away from a Clicks store. So in terms of the convenience side of things, I think those people who have moved with the Pick n Pay people are going to be well looked after, and it’s a good move. As you say, there’s no job destruction at all. It’s a good move,

NOMPU SIZIBA: Yes. But from a Clicks presence point of view, is there not a concern around over-saturating parts of the market, as no doubt some of the Pick n Pay pharmacies may be in close proximity to Clicks pharmacies in some shopping centres, for example?

CHRIS GILMOUR: That’s a very good point. There’s a possibility of cannibalisation here. Look, I don’t know if the plan for Clicks is to have a pharmacy in every single Clicks around the country – maybe not. So there will be some discretion to have a Clicks outlet without necessarily having a pharmacy, although that will certainly be in the minority. But look, they’ll have done their homework and it’s unlikely, I think, that we are going to find too many instances where cannibalisation occurs.

What you are going to find is the rather strange situation, in my opinion, of having a Pick n Pay store with a Clicks pharmacy inside it. So that’s going to be interesting, isn’t it?

NOMPU SIZIBA: Yes. That is going to be very interesting indeed. How was this announcement received by the market in terms of both shares?

CHRIS GILMOUR: Look, as the announcement said, it’s going to have very little, if any, impact on either company’s share price because it really doesn’t make a huge amount of difference. It only makes a difference in Clicks’ life, for example, if we were talking about 150, maybe 200 pharmacies. That I think would be material. At 30, nah, it doesn’t make a huge difference. And with Pick n Pay all it’s doing is getting rid of what’s amounting to a bit of a distraction these days. It doesn’t really, I think, make any material difference to either company. It’s just interesting. It’s Clicks consolidating its position, cementing its position in the market. But probably no more than that.

NOMPU SIZIBA: What does that do to a Dis-Chem? Dis-Chem is going to have to play a lot of catch-up. We know that it made announcements some months ago in December that it had made some acquisitions, but it’s going to be way behind.

CHRIS GILMOUR: Certainly in the number of outlets way behind. Look, Dis-Chem is a very different proposition. Its results are out next week, by the way, and I’m expecting good things from Dis-Chem. Look, you go Dis-Chem for different reasons from going to Clicks. You go to Dis-Chem as very much a destination shop. You’re finding things at Dis-Chem that you just wouldn’t find at a Clicks. And frankly, I think it’s the most wonderful shopping experience. The actual results haven’t been anywhere near as good or as stable as Clicks’ results have been in the past few years. And ……[4:41] ability into the earnings and dividend. But from a consumer perspective, to me there’s no contest. I just love going into a Dis-Chem. It’s great. But Dis-Chem has maybe about 200, 250 stores. That gives you an indication as to how far behind Clicks Dis-Chem is. But it’s a great operation, make no mistake, and we’ll be looking at this very keenly.

NOMPU SIZIBA: We are hoping that the worst is over in terms of the Covid impact. There are rumours and talks about a possible third wave. Assuming that doesn’t happen and that we’re slowly recovering, what’s your view on how the retail sector is going to do – maybe looking specifically at a Clicks and a Pick n Pay, which are obviously serving different markets.

CHRIS GILMOUR: Okay. A number of things. First of all, I think we’ve got to bear in mind that the vaccination rollout is going excruciatingly slowly, and Clicks actually has a part to play here. If the health minister would grudgingly accept that he has to incorporate the private sector into the whole process and use companies like Clicks, Clicks has said quite categorically it could handle 600 000 to 700 000 vaccinations a day. No problem. And it could handle the Pfizer-BioNTech vaccine, the ultra-cold storage thing. So that would help.

The reason I mentioned that is if you get the vaccination underway at much higher rates, then your third wave becomes less and less of a reality. But, as things currently stand, it’s a very real possibility that, because it’s so excruciating, going into winter, I think it’s very likely it’s going to happen. You are going to get a third wave.

With that as the background, it’s not good for retail. But thankfully for both Pick n Pay and Clicks, they are in exactly the right sectors of the market that will do reasonably well. Or should I say less badly in a situation if you have a severe lockdown. I doubt very much where you’d go back to the situation you had just over a year ago in the initial lockdowns. That wouldn’t be helping anybody. But, as long as they don’t go back to that, the other thing we’ve got to bear in mind is a lot of people have been put out of jobs; the whole tourist thing has pretty much come to an end. Consumer spending is definitely going to be under the cosh.

So it’s going to be tough out there. I can’t get overly excited about the outlook for consumer spending generally. I think that there’s more room for consolidation among some of the players and I think we’ll see more deals like this. I think the likes of Pick n Pay will concentrate on what they see as their core market these days and the likes of Boxer, for example, at the lower end of the market, I think will do very, very well.

So maybe look out for more acquisitions, more consolidation, more companies streamlining where they possibly can.

NOMPU SIZIBA: That was Chris Gilmour. He’s an independent retail analyst.


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