Dis-Chem says its R300m investment in its innovation hub – X, bigly labs – among other projects last year, was intended to force an “internal disruption”, to “stay relevant and ultimately to benefit from that” in the long term, reports Moneyweb.
The outlay was expected to generate returns greater than this number in the coming financial year, said CEO Rui Morais.
“You either stay safe but become irrelevant over time, and there’re lots of examples in South African retail where that’s happened, or you go through a process of internal disruption to stay relevant and to ultimately benefit.”
Had the company “stayed safe” and not made this investment over the past 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.
Morais said most of the expenditure in its innovation unit is in people.
“This means probably 70% of the total investment will be through the income statement, which is indicative of what happened this year.
“It’s forced us … to change the ways of working and effectively led to internal disruption, which is tough, but important for the sustainability and relevance of the business in the way that retail stacks up over the next three to five years.”
Digital growth ambitions
The ambitions Dis-Chem has around e-commerce over the next five years need to be significant, says Morais.
“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.”
Morais told Moneyweb that one of the most interesting things the group has seen by allowing X, bigly labs to control certain elements across the business “is the pace at which an innovation unit like that moves and how it forces the rest of the business to adapt”.
Restructuring under Section 189A
Because of the scale of the reorganisation, it’s classified legally as a ‘large-scale restructuring’, necessitating a Section 189A process, which Morais describes as “quite a blunt instrument to facilitate what is very much a growth story”.
The group expects the process to be concluded within six months, and 545 employees are affected.
Effectively, what it wants to do is to relocate those 545 staff into verticals that make sense, which “allow those people to be the best versions of themselves, of the skill set they have, and ultimately deliver the best value for the company”.
It also plans to create an additional 203 jobs in areas of under-investment, specifically in marketing and IT.
Key innovations
The two major products to have emerged from X, bigly labs to date are the design and rollout of its reimagined Better Rewards loyalty programme, and the Store of the Future concept.
The latter is described by Morais as “the mechanism that we see as a group to reduce the cost of care and open up value in the South African consumer wallet”.
This new design – it is testing the format at Melrose Arch in Johannesburg – “not only delivers a reimagined space but changes the ways of working to disrupt how we think about clinic and pharmacy”.
Both of these are on track to deliver the returns the group expects. The unit is also building a new mobile app that mirrors physical in-store presence. The consumer app will launch later this year.
Moneyweb article – Why Dis-Chem is spending hundreds of millions to disrupt itself (Open access)
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