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SIMON BROWN: I’m chatting with Rui Morais, CFO at Dis-Chem and CEO designate. Results ending February. Revenue up 7.4%, earnings per share up 17.2%. Roy, appreciate the time today. First question – unfortunately how much is load shedding costing the business at the moment?
RUI MORAIS: Morning, Simon. Look, it’s a reality that we, along with the rest of the retail industry and general commerce in South Africa, are dealing with. It was weighted towards the second half of the year from a cost perspective as load shedding became more prominent. It cost us as a group around R19 million for the financial year.
SIMON BROWN: Okay. R19 million; not the end of the world, but still a chunky number, a number that you would rather have in profits.
Your dispensary business – you’ve now got 258 retail pharmacies and you say that you’re still picking up some market share in that space?
RUI MORAIS: We are, Simon. I think it’s a well-known theme and it follows some of the other industries around the world, certainly some of the first-world markets where there’s a consolidation of independent pharmacy, which talks to kind of our ambitions to step-change or increase the rate at which we open stores. So we continue to take market share. We continue to be the largest pharmacy by market share in the country, which is something that we’ve been targeting for a while. So yes, store growth is important for us and certainly [for] ambitions of a greater healthcare ecosystem.
SIMON BROWN: I want to touch more on that ‘healthcare ecosystem’ in a moment. But, staying with pharmacies, they would be, I imagine, fairly resilient to the tough conditions and consumers out there, particularly folks who are [paying for] prescriptions, who’ve got chronic health problems; you need your medication.
RUI MORAIS: Yes. It’s a resilient industry, I guess, quite similar to food in a way. I think what we are seeing – and again, it talks to the ambitions and kind of our entry into lower-cost type medical funding models – is that the medical-scheme market, which really drives private sector consumption of healthcare, is stagnating. So even though it’s resilient, people are still trading down on the medical schemes. People are still almost sacrificing some of the elements of healthcare as a function of how constrained they are.
SIMON BROWN: I take the point. It might not be much of a growing market, simply because our economy is not growing and people can’t afford [healthcare].
It brings me to your health-insurance product range, which is a fairly extensive product range at this point and fits very much into your dispensary market as well. How is that part of the business doing? It’s opening up, I imagine, new avenues – certainly for those under pressure and those who simply couldn’t afford the high-end and expensive traditional medical aid.
RUI MORAIS: We always thought the opportunity existed. I think, having been in the market for around 15 months, our gross written premium is close on R300 million, which really talks to the fact that there is a market and an opportunity, and people do value healthcare. It just needs to be at the appropriate price point. I think [with] South Africa as a function of the healthcare market being fee for service, unfortunately, if you are reliant on the private sector and not covered by medical schemes, which drive down price as a function of their volume, you’re actually paying more expensive rates to consume care – which is counterintuitive. The lower earners are paying more to consume care, regardless of what part of the healthcare ecosystem they touch. That’s really where the medical insurance market or product is aimed. It’s around driving good health outcomes at lower prices.
SIMON BROWN: I take the point on that. Your Baby Stores – you’ve now 54 retail Baby Stores as at the year end, which was of course February. How are they trading?
RUI MORAIS: Baby’s doing nicely. Obviously we’ve had quite a lot of acquisitive growth in the baby market, and we are still enforcing some of the strategic intentions on those assets that we saw at the time of doing the acquisitions. Again, the nice thing to see in the baby environment is that the implementation of clinics, for example into those baby stores, is getting really, really good traction. The baby market is relatively resilient. We almost compare it to the chronic market in that there are new entrants every single year, so it gives you the opportunity to sell every single year. But the association between baby and health is important, so we are seeing good traction in our baby clinics.
SIMON BROWN: And having clinics there [brings people] to your pharmacies. It’s kind of bringing healthcare to where we shop and how we shop in many ways.
RUI MORAIS: Absolutely. If you think about pharmacy – and when I talk about pharmacy, I talk about pharmacy and clinic in totality – it really should be the entry point into the healthcare environment. It’s the lowest-cost entry point into the healthcare environment. Again, South Africa certainly in the private market has almost been spoilt from an access perspective, where sometimes people enter the healthcare market at a very expensive price point – where it’s GP, hospital specialists – and many of those ailments can be solved at a much lower cost. So, to your point, the size and extension of our network is really important because it does bring healthcare to more and more South Africans.
SIMON BROWN: I made the point just recently in an interview. I needed a doctor and instead I went to a pharmacy [where the lady] was perfectly able to help me and, as you point out, at a markedly cheaper price.
A quick last question, non-pharmacy, non-baby. Are you seeing customers shopping down, or just shopping less as they feel the pressure of inflation, interest rates and load shedding hurting their wallets?
RUI MORAIS: Definitely. Consumers and patients in general are constrained. We haven’t seen it in basket size, but what we have seen is spend polarisation across payday cycles, which we haven’t historically and traditionally seen. We’ve been quite agnostic of the day of the month in terms of our revenue, but we are seeing very high concentrations towards payday, which again talks to the fact that the people are living from month to month and, as soon as they get paid, they [spend] their money in retail. So we are seeing some polarisation of spend across those months, which is indicative of a very, very constrained consumer.
SIMON BROWN: Rui Morais is CFO at Dis-Chem. Rui, I appreciate the time today.
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