Tuesday, January 18

Checkers Joins the Battle for Baby Market Share Against Dis-Chem and Clicks


Competition in the baby-focused retail market continues to intensify, with Checkers being the last major operator to make an aggressive move in space. The supermarket retailer faces Clicks and Dis-Chem, which together control 35% of the market according to AC Nielsen. For today [subs: Wednesday]will have opened 11 Little Me stores, with all but one located within existing Checkers Hypers. It has 38 of these Hyper stores nationwide, and while the group hasn’t shared future plans, it’s hard to imagine a scenario where these stores won’t be in all Hyper stores by the end of 2022.

Interestingly, he has also launched a standalone Little Me store (in Drakenstein Sentrum, Paarl), presumably as a pilot. Drakenstein was an obvious choice for this independent store, as Shoprite owns the center and the only competition out there is from Clicks. It hasn’t shied away from opening independent stores for many of its new initiatives (like k’nect (Shoprite) and its new Petshop Science push). So it’s also not a stretch to see a scenario where the group opens more of these independent stores, where the store economy makes sense (shopping malls are under pressure to find tenants), where you think there’s a gap in the market, and where you think you can achieve adequate trading densities.

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In October, Clicks opened its first independent baby-focused store, Clicks Baby. The retailer sees this as “more of a larger baby accessories showroom” and believes that the sale of these items would change online. The group plans to have around 11 of these long-term stores, mainly in large urban shopping centers.

Read more: https://www.moneyweb.co.za/news/companies-and-deals/clicks-continues-expansion-plans-to-open-11-baby-showroom-stores/

Clicks is currently one of the market leaders, with nearly 20% in the “baby health” category as measured by AC Nielsen. It could be argued that Dis-Chem was almost forced to buy Baby City. Its market share of the segment has been languishing at around 10%. The R430 million deal to buy the 33 stores sees the share grow to 15.4% in August 2021. The category remains small in the life of Dis-Chem, with a revenue contribution of only 8% (including Baby City). Pep, by comparison, has more than a 30% share of the “baby” market, but this includes clothing that Dis-Chem, Clicks and Checkers are not targeting. Even Mr. Price has quietly entered the category of baby accessories. Earlier this year, it said it had gained 1.9% of the baby market since its launch in November 2020. This is relatively small, but the rollout of the category in its store space has been quite specific and not consistent.

There are a number of reasons these retailers, and others, are so aggressively pursuing this category.

Size

Dis-Chem CFO and CEO-designate Rui Morais told Moneyweb in May 2020 that the industry is worth an estimated R24 billion a year. He says there are more than 900,000 births a year, “and new mothers want to buy baby clothes and equipment.” The group previously highlighted the characteristics of the baby products industry, which are “aligned with the pharmaceutical industry, which is defensive and highly resistant.” The defensive nature of the industry clearly does not go unnoticed by all of these competitors.

https://www.moneyweb.co.za/news/companies-and-deals/dis-chem-defers-dividend-to-buy-baby-city/

(Dis-Chem’s specific reasons for the acquisition included rolling out mom and baby clinics across the store floor. It is also busy extracting synergistic benefits as it moves from stores to its technology platform and extends its offering of loyalty to these outlets (obvious benefits in addition to the structural appeal of the category).

Increase

But beyond its defensive nature, baby merchandise is growing significantly faster than the general retail or even healthcare category. In 2016, it was already Clicks’ fastest growing category. At that stage, the retailer said it had about 12% market share. Fast forward to 2021, and this has increased to 19.6%. This is undoubtedly a key factor in helping the retailer maintain healthy revenue and bottom line growth over the past five years. In fact, without this segment, growth would have more pedestrians.

The broader pharmacy / health / beauty market, while growing, is not exactly booming. Clicks is running out of locations to open new stores as it tries to reach its mid-term goal of 900 (from around 800 currently). Dis-Chem is also struggling to keep up with its store launch program. In fiscal 2021 it opened 25 stores (22 new stores net), while in the current fiscal year it plans to open 17.

Checkers isn’t content to just sell groceries, as its recent efforts to expand horizontally have indicated. (Don’t forget that years ago the Shoprite Group quickly put a stop to Dis-Chem’s attempts to sell fresh bread; Whitey Basson even joked about the effort at a results briefing.) Two weeks ago, the Shoprite group also launched an independent pharmacy (MediRite Plus), which can be assumed to be a pilot as well. Do you see an opportunity to bring this to a network of 50 or even 100 stores (standalone)? Time will tell, but you can be sure that neither Clicks nor Dis-Chem will give up market share very easily.


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