Competition in the retail market focused on baby products continues to intensify, with Checkers the latest big operator to make an aggressive move into the space. The supermarket retailer is taking the fight to Clicks and Dis-Chem, who together control 35% of the market according to AC Nielsen.
By Wednesday (today), it will have opened 11 Little Me stores, with all but one located inside existing Checkers Hypers. It has 38 of these Hyper stores across the country, and while the group hasn’t shared future plans, it’s hard to imagine a scenario where these stores aren’t in every Hyper by the end of 2022.
Interestingly, it has also launched a standalone Little Me store (in Drakenstein Sentrum, Paarl) – presumably as a pilot. Drakenstein was an obvious choice for this standalone store, as Shoprite owns the centre and the only competition that exists is from a Clicks. It has not shied away from opening standalone stores for many of its new initiatives, such as k’nect (Shoprite) and its new Petshop Science push.
It is therefore also not a stretch to see a scenario where the group opens more of these standalone stores, where the store economics make sense (malls are under pressure to find tenants), where it believes there is a gap in the market, and where it believes it can achieve adequate trading densities.
In October, Clicks opened its first standalone baby-focused store, Clicks Baby. The retailer sees this as “more of a showroom for larger accessories for babies” and believes the sale of these items would shift online. The group plans to have around 11 of these stores over the longer term, mostly in large urban malls.
Clicks is currently one of the market leaders, with almost 20% of the ‘baby health’ category as measured by AC Nielsen.
One might argue that Dis-Chem was almost forced into buying Baby City. Its market share of the segment has been languishing at around 10%. The R430 million deal to buy the 33 stores sees that share grow to 15.4% as at August 2021.
The category remains small in Dis-Chem’s life, with a revenue contribution of only 8% (including Baby City). Pep, by comparison, has in excess of 30% of market share for ‘babies’, but this includes clothing which Dis-Chem, Clicks and Checkers aren’t quite centering their offerings around.
Even Mr Price has quietly entered the baby accessories category. Earlier this year, it said that it had gained 1.9% of the baby market since launching in November 2020. This is relatively tiny, but its rollout of the category into its store real estate has been fairly targeted and not consistent.
There are a number of reasons why these retailers – and others – are pursuing the category this aggressively.
Dis-Chem CFO – and CEO designate – Rui Morais told Moneyweb in May 2020 that the industry is worth an estimated R24 billion annually. He said there are over 900 000 births a year, “with the new mothers wanting to purchase baby clothes and equipment.” The group previously highlighted the characteristics of the baby product industry, which are “aligned with the pharmacy industry, which is defensive and highly resilient”.
The defensive nature of the industry is clearly not lost on all these competitors.
(Dis-Chem’s specific reasons for the acquisition included the rollout of mom and baby clinics across the store footprint. It’s also busy extracting synergistic benefits as it moves over the stores onto its technology platform and extends its loyalty offering to these outlets. These have obvious benefits aside from the structural attraction of the category.)
But, beyond its defensive nature, baby merchandise is growing significantly faster than the overall retail or even healthcare category. In 2016, it was already Clicks’s fastest-growing category. At that stage, the retailer said it had around 12% market share. Fast forward to 2021, and this has jumped to 19.6%.
This is certainly a key driver in helping the retailer maintain healthy top-line – and bottom-line – growth over the last five years. In fact, without this segment, growth would’ve been more pedestrian.
The broader pharmacy/healthcare/beauty market, while growing, is not exactly booming. Clicks is running out of locations to open new stores as it attempts to reach its medium-term target of 900 (from around 800 currently). Dis-Chem, too, is struggling to maintain the pace of its store rollout programme. In FY2021 it opened 25 stores (22 net new stores), while in the current financial year it plans to open 17.
Checkers meanwhile is not content selling only groceries, as its recent efforts to expand horizontally have indicated. (Don’t forget that years ago the Shoprite Group very quickly put paid to Dis-Chem’s attempts at selling fresh bread – Whitey Basson even joked about the effort at a results briefing.)
Two weeks ago, the Shoprite group also launched a standalone pharmacy (MediRite Plus), which one can assume is also a pilot. Does it see an opportunity to take this to a 50- or even a 100-store (standalone) network? Time will tell, but you can be sure that neither Clicks nor Dis-Chem are going to cede market share very easily.