Dis-Chem (DCP) – Big on Baby

With DCP’s announced acquisition of Baby City, we conduct a detailed review of the baby sector in South Africa. We find that LSM 5 – 7 make up more than half of the baby population, while LSMs 6, 9 and 10 could make up 56% of the total baby product market. Dis-Chem and Baby City have a similar customer profile and we estimate that the deal could increase DCP’s share of the baby goods market. There is significant brand overlap between DCP and Baby City and combining the supply chains could provide some efficiencies and improved bargaining power with suppliers. However, we do not believe the introduction of DCP-branded clinics into Baby City stores will reduce the clinic volumes at existing DCP stores.