Why Dis-Chem is spending hundreds of millions to disrupt itself

The innovation programme X, bigly labs has forced a shift in organisational behaviour, pushing the group to rethink how it operates and introducing new ways of working. Picture: Gallo Images/Misha Jordaan Pharmacy retailer Dis-Chem invested over R300 million last year in its innovation hub, X, bigly labs, with it expecting to generate returns greater than this number in the coming financial year. CEO Rui Morais describes this investment – and the entire point of X, bigly labs – as forcing an “internal disruption”.

Morais adds that if Dis-Chem had stayed safe and not made this investment over the last year, it would’ve delivered “excellent earnings growth” with its core retail business growing “north of 20%”. However, because of its investment in the ecosystem (X, bigly labs and Dis-Chem Life, as well as the costs incurred in retiring its previous benefit points programme), it reported an 11.5% decline in retail profit. He explains that the majority of the expenditure in its innovation unit is in people.

This means that “probably 70% of the total investment will be through the income statement, which is indicative of what happened this year”. X, bigly labs is the retailer’s way to catch up in areas that have been underinvested in over time. “It’s forced us as an organisation to change the ways of working and it’s effectively led to internal disruption, which is tough, but is important for the sustainability of the business and the relevance of the business in the way that retail stacks up over the next three to five years.” The ambitions Dis-Chem has around e-commerce over the next five years need to be significant, says Morais.

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“I think in South African retail today, if you don’t believe that the penetration of digital into your total sales number is not anything north of 30% over a five-year period, you would be wrong. “The investment that needs to be made to establish yourself as someone who can cater to that level of penetration in a way that doesn’t compromise the economics that you see from your physical space, is essentially what we’re going through at the moment.”

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