The health, beauty and pharmacy retailer will gain lucrative pharmacy licences through the deal, while Pick n Pay will continue to attract the same customers without having to foot the costs of running a dispensary.
In a deal that makes sense for both retailers, Clicks is buying Pick n Pay’s retail pharmacy business as it accelerates the expansion of its network across the country. The transaction includes 25 in-store pharmacies which will be rebranded to Clicks.
The health, beauty and pharmacy chain said it would acquire the pharmacy licences and ethical drug stock from Pick n Pay, while all staff employed in the pharmacies would transfer from the supermarket group to Clicks.
In April, Clicks said it planned to speed up its store expansion with the opening of 40 new stores and 36 pharmacies this year – excluding those acquired from Pick n Pay. At the end of February it had 760 stores in total and 601 pharmacies. The acquisition takes its national presence to 632 pharmacies.
“Currently 50% of the country’s population live within six kilometres of a Clicks pharmacy, and we aim to improve this over time as we get closer to customers,” Clicks CEO Vikesh Ramsunder said.
“We welcome the opportunity to bring our experience in retail pharmacy to customers of Pick n Pay.”
Pharmacies don’t make money in their dispensaries, according to independent retail analyst Syd Vianello. While the back shop brings customers into the stores, the front shop makes the real money. So for Pick n Pay it’s a good deal when looked at this way and Clicks benefits from the additional licences, which are difficult to acquire.
“(This) makes total sense for PnP. They keep the sales of front shop products (toiletries, etc) and theoretically only lose the pharmacy sales, which are price and margin controlled, and when the direct labour cost is brought into the profit equation, I guarantee it runs at a loss,” Vianello said.
“So PnP keeps the customer, because they will continue to come to PnP to buy groceries and toiletries etc, and all they lose is the drug (ethical) business, which needs a pharmacist and runs at a loss.
“Spar faces the same dilemma. I wouldn’t be surprised if they do something similar with the very few pharmacies they own.”
Pick n Pay said its current growth plans didn’t include its pharmacy network, which had remained relatively small. Selling to Clicks met its main objectives of ensuring that its customers had a seamless transition and would still receive the same quality of service they had been used to with Pick n Pay, and that its pharmacy staff were looked after.
Vianello said there was probably a clause which guaranteed Clicks would keep the pharmacies inside the supermarkets for a minimum period before they may be able to transfer them.
“Pick n Pay has only held a relatively small number of pharmacies over the years,” chief operating officer Adrian Naude said.
“We have recently set out our key strategic objectives in terms of future growth, and these do not include the development of a large pharmacy division.”
Clicks said the transaction didn’t make allowances for more Clicks pharmacies in Pick n Pay stores, as its focus would remain on opening dispensaries in its own Clicks outlets.
“For Clicks, the real benefit, in my view, is the ownership of the pharmacy licences which I presume are transferable, and I guarantee will in time be transferred to sites where Clicks can open new full size stores and will make money,” Vianello said.
“As far as running a pure “back shop” pharmacy (ethical only) inside a PnP store, I don’t believe Clicks will make money from these operations for the same reasons as given above, hence my belief that the underlying objective behind the deal is to get control of the licences.”
While Pick n Pay’s in-store pharmacies have failed to gain any significant scale since it opened its first dispensary in 2006, Shoprite, which launched its MediRite pharmacy network in 1999, has grown it to more than 140 in-store dispensaries.
“Shoprite’s pharmacies operate on a different level,” Vianello said.
“Obviously they have the same issues as PnP, but Shoprite owns Transfarm, a large pharmacy wholesaler, which supplies its pharmacies… so it gets volume from the pharmacies to add to the other business of Transfarm.
“Furthermore, Shoprite has built a big pharmacy business whereas PnP, in my view, were just playing around with it for all these years and never really pushed the expansion button that hard, if at all.”
No value was given for the deal, which still needs to be approved by the competition and regulatory authorities. It wasn’t expected to have a material impact on the earnings or financial position of either company. DM/BM