OK Zimbabwe Limited, a leading supermarket retailer listed on the Zimbabwe Stock Exchange, has reported a decrease in sales volumes, which have now fallen below the point at which they cover costs. This is due to increased expenses and an exchange rate system that has discouraged shoppers from visiting their stores, newZWire reported.
Sales volumes dropped by 21.6% in the first quarter and 23.9% in the second quarter. Overall, sales volumes are down by 22.6% for the year up to September, according to the company’s latest update to shareholders. Said the supermarket retailer:
The formal retail channel experienced very weak consumer demand during the first half. The group operated at volumes that were severely below the business’ break-even point. Rapid informalisation ensued as consumers sought to stretch their limited USD$ incomes in channels that offer parallel market exchange rates.
Shoppers are choosing to buy from informal traders called “tuckshops” because their goods are cheaper compared to supermarkets. This is because tuckshops use a different exchange rate to price their goods, known as the parallel market exchange rate. Supermarkets like OK, on the other hand, must use the formal exchange rate, making their goods more expensive.
Meanwhile, OK is facing increased costs, including stock shortages and higher expenses for property rentals, electricity, labour, security, and cleaning services. The company hopes for relief if the government removes the 10% exchange rate limit for formal retailers and drops a tax on bank card transactions, as suggested by the Reserve Bank of Zimbabwe (RBZ). Added OK Zimbabwe:
Macroeconomic stability will be critical in helping the group recover lost volume base.
Distributed Group Africa, which is a big supplier of consumer goods in Zimbabwe, recently stopped supplying formal retailers, according to newZWire. This is because informal traders offer better payment conditions. As a result, Pick n Pay SA, a South African supermarket chain, has also seen a significant decrease of 55.8% in its earnings from Zimbabwe in the past six months. This is due to losses from the exchange rate.
Street vendors and tuckshop traders are thriving, posing a threat to traditional supermarkets. The retail space is now dominated by foreigners, including Indians, Chinese, Pakistanis, Nigerians, Malawians, and Tanzanians. The influx of tuckshops has led to lower prices and increased competition, benefiting consumers. Tuckshops can offer lower prices due to lower overhead costs, sourcing products directly from wholesalers, and flexible pricing. However, big supermarket operators complain of unfair competition, citing tax evasion and informal trading practices.
About three weeks ago, Finance Secretary George Guvamatanga, however, questioned the complaints of big retailers who claim they cannot compete with tuckshops. He stated that tuckshops actually face higher rental costs, operate on cash purchases, and lack access to cheaper foreign currency on the RBZ forex auction. He suggested that other factors may be affecting formal retailers. Economist Gift Mugano responded to Guvamatanga’s remarks, acknowledging the valid concerns of supermarkets. He highlighted the price disparities caused by different exchange rates between formal and informal markets. Mugano also emphasized the compliance burdens and financial challenges faced by formal businesses due to exchange rate fluctuations and inflation.