SA’s second-largest retail pharmacy group, Dis-Chem, lost some of its regular dispensary customers who withdrew their scripts in October, after a memo banning the hiring of white employees was leaked. However, it gained black chronic medication customers, an analysis of customer data has shown.
The number of customers that left, however, exceeded those it gained.
Dis-Chem held a pre-close investor call last week in which CEO Ivan Saltzman told investors it had analysed the effect of the memo on sales and the result was both “positive” and “negative”.
Dis-Chem said it was public knowledge the memo affected its trade, with Saltzman saying there was a “positive feeling as well”, which “obviously wasn’t so vocal”.
The memo placed a moratorium on hiring white people as the chain didn’t meet internal BBBEE ratios.
In it, Saltzman warned that the company faced sanction because in terms of existing employment equity laws, a firm can be fined up to 10% of turnover for failing to meet its own BEE targets.
The saga highlighted some of the difficulties in following SA’s stringent employment equity laws while managing customer expectations.
Dis-Chem did an analysis using 1,000 of SA’s most common surnames and splitting them into two pools, one for white, coloured and Asian people and one representing more common black surnames.
It also split people into different groups: those who shopped using loyalty cards and did not buy medication; retail shoppers who occasionally used the dispensary; and finally chronic medicine monthly customers.
It did not ask customers why they had left or joined, relying solely on the study to gauge the effect of the memo.
It admits that some surnames such as Williams are held by South Africans of various demographic groups but said the sample was just to get a sense of what happened following the leak of the memo.
“Our chronic scripts were definitely affected, but in certain areas of the country,” Saltzman said.
The group didn’t see any meaningful change in the numbers of loyalty customers, who generally just use the front of shop and reward cards, with initial boycotts fading after a week or two.
While the memo did not affect numbers of customers who occasionally used the pharmacy, an analysis of the dataset showed a 5%-8% increase in black customers bringing in new scripts for chronic medicines in October and early November, while it saw a similar drop in regular white dispensary customers.
A chronic prescription is generally for regular monthly medications, usually valid for six months, meaning once a customer had taken theirs elsewhere, they usually did not return during that period.
Dis-Chem CFO Rui Morais told investors that chronic script customers spent up to four times more annually, and that in global markets, very adherent patients could spend up to 20 times more than an ordinary shopper.
The group said it was hard to quantify the effect of the memo on revenue.
Morais told the call it was somewhat difficult to analyse chronic scripts “because the chronic market is like a leaking bucket”. While some people do not stick with their medicines, there are new ones arriving all the time. Dis-Chem said it would track a data set to see if chronic customers that took away their scripts returned.
He did warn, however, that “its very difficult to establish what the impact is going to be post that chronic script”.
The Employment Equity Amendment Act tabled by employment and labour minister Thulas Nxesi, which is due to be signed into law by President Cyril Ramaphosa, allows the minister to set targets for different industries and sectors and then enact a 10% turnover fine if they are not met.
This has placed greater pressure on companies to pursue diversity.
The investor call also covered some of Dis-Chem’s other operations. It said its health insurance products were doing well with it reinvesting money from that sector of the business into finding new customers. It bought a 25% stake in health insurance firm Kaelo in 2021 and rebranded the products to include the Dis-Chem brand.
“This is a big market as we’ve described and it would be short-sighted for us to bank the [profit] that we are generating there instead of reinvesting to take more and more market share,” Morais said.
It also reported a revenue drop as people bought fewer nutritional products, vitamins and supplements, a big sector of the business.
In a recent 22-week trading update to mid-January, Dis-Chem suggested it was selling lower volumes than before on a same-store basis, with growth only explained by rising prices.
Mr Price, Ackermans and Pick n Pay grocery sales dropped over the festive season as SA consumers were hit by high inflation.
Correction: March 1 2023
This article previously referred to Rui Morais as COO, but he is the CFO. We regret the error.
