South African Drug Retail: Insights into the price war: Clicks continues to lose the battle to Dis-Chem on pricing

Research evidence excerpt

South African Drug Retail: Insights into the price war: Clicks continues to lose the battle to Dis-Chem on pricing

system, which already leads online food delivery at roughly

80% share. That combination has the potential to reset convenience and value

perception in front shop and, over time, pharmacy. Against this backdrop, we think

the market is still underpricing duration risk to margins at Dis-Chem (UW) and

Clicks (N), and we remain 7-10% below Bloomberg consensus on DHEPS. While

the longer-term structural thesis remains intact – independent pharmacy

consolidation and continued store rollout – the near-term earnings algorithm and

the strategic opportunity are diverging. We therefore prefer to stay cautious on the

sector until there is clearer evidence that price investment is translating into

sustainably higher volumes without a disproportionate margin trade-off.

Price wars typically destroy value, and the emerging Clicks vs Dis-Chem

dynamic is, in our view, the key near-term watchpoint for the sector. The risk is that,

once elevated promotional intensity persists for six months or more, it becomes

behavioural; consumers anchor purchasing decisions to deals, category price

thresholds reset, and it becomes materially harder for the industry to re-establish

price discipline. The end result is usually weaker unit economics and sustained

pressure on profitability. Against this backdrop, Dis-Chem’s posture appears

consistent with a deliberate attempt to compress industry economics in the near

term – potentially to deter marginal entrants and support scale-led share gains over

time. However, this is inherently a higher-risk strategy, given Clicks’ ability to

respond with comparable scale and strong execution. If both players continue to