Managing material issues

Trading environment

Competition

Low economic growth, deteriorating economic conditions and the resultant poor consumer sentiment are impacting South Africa’s already constrained retail trading environment. Consumer disposable income has been further eroded by the increase in VAT, rising fuel and utility prices, higher health insurance costs and increasing general living costs.

Clicks faces competition on several fronts, including national food retailers and general merchandise chains, and other pharmacy businesses.

Risks

• Further deterioration in the economic environment will depress consumer spending which is already under severe pressure.
• Criminal activity, including syndicated crime, escalates during times of economic hardship.

Risks

• Expansion by corporate pharmacy and retail chains impacting on market share growth in Clicks.
• Increasing price competitiveness of retailers could negatively affect sales and profitability in Clicks.

Opportunities

• Clicks will continue to pursue a strategy to improve price competitiveness, grow sales volumes and entrench the perception of Clicks as a value retailer.
• Focus on differentiators, including extensive and convenient store and pharmacy network; private label and exclusive ranges; Clicks ClubCard loyalty and consistently high levels of customer care.

Opportunities

• Clicks has an extensive store network and plans to open 25 to 30 new stores each year, expanding to 900 stores in the long term.
• Continued expansion of the pharmacy network with the long-term plan to open pharmacies in all Clicks stores in South Africa.
• Continued recruitment of new members to the Clicks ClubCard.
• Ongoing improvements in pricing, product offer and customer service.

Regulation

People

Healthcare markets are highly regulated across the world and approximately 50% of the group’s turnover is in regulated pharmaceutical products. The group supports regulation that advances the government’s healthcare agenda of making medicines more affordable and more accessible but opposes regulation which inhibits access to affordable healthcare and limits customer choice.

Retail and healthcare skills are scarce and in high demand locally and internationally. Attracting and retaining talent is therefore critical to the group’s continued success. As the largest employer of pharmacy staff in the private sector in South Africa the group is actively building capacity to address the critical shortage of pharmacists.

Risks

• Legislative and regulatory changes introduced by the Department of Health (DoH), SA Pharmacy Council (SAPC) and SA Health Products Regulatory Authority (SAHPRA) could impact on Clicks’ and UPD’s turnover and margins.
• Impacts include the ability to obtain pharmacy licences and to launch private label and exclusive scheduled and complementary medicines.
• Introduction of National Health Insurance (NHI) could impact on the private and public healthcare markets.

Risk

• Inability to recruit, attract and retain talent for core business needs, including merchandise and planning, store management and pharmacy.

Opportunities

• Ensure Clicks and UPD are operating efficiently to maintain margins and profitability.
• Continue management engagement with the DoH, SAPC and SAHPRA on legislation and regulation.
• As the market leaders in retail pharmacy and pharmaceutical wholesaling, position Clicks and UPD to benefit from market consolidation arising from changes in legislation and regulation.
• Partner with government to be a preferred service provider to the NHI scheme.

Opportunities

• Salaries and incentives are externally benchmarked to ensure the group remains competitive.
• Group resourcing function established, including specialist pharmacy team.
• Bursary and internship programmes to attract pharmacy graduates.
• Retail graduate programme offered.
• Accredited training programmes for store management, key store roles and merchandise and planning rolled out.
• Senior leadership development programme strengthens pool of management talent and provides succession plan.

Information technology

Real-time, uninterrupted IT systems are essential in today’s technology-driven business environment while robust IT security and governance processes are required to limit breaches of customer privacy and loss of data to avoid legal liability and reputational damage.

Risks

• Confidential customer or sensitive internal data compromised as a result of undetected data security breach or cyberattack.
• IT systems and architecture no longer appropriate in an environment of ever-increasing scale and requirement for real-time IT systems.
• Inability to restore business operations and IT systems in the event of a disaster.

Opportunities

• Improved information security practices and compliance as a result of increased online presence.
• Planned implementation roadmap for new IT systems with improved system efficiencies and cost savings that support the organic growth strategy.