OK Zimbabwe Limited says its 2023 first-half volumes were significantly below the business’s breakeven point after the country’s formal retail sector experienced weak consumer demand due to currency volatility and the impact of inflation on disposable incomes.
In the first quarter of 2023, the retail group’s volume performance was minus 21,6 percent, worsening to 23,9 percent in the second quarter, while the year-to-date volume performance witnessed a 22,6 percent decline from last year.
The retail group said it was confronted by a myriad of headwinds that included high-interest rates and limited access to funding, which in turn affected capital expenditure and some of its investment plans.
According to OK, this was coupled with increased operational costs from property rentals, electricity, labour, security, and cleaning services.
Just like many other formal retail outlets, OK writhed amid growing competition from small players and informal traders while suppliers shortened trading terms resulting in high incidences of stockouts.
However, the retail group’s year saw strong investment into operations, as it launched pharmacies, bought Food Lovers, and engaged in a significant store refurbishment programme.
According to analysts, even the new pharmacy business remains exposed to fierce competition as the number of pharmacies continues to increase.
Statistics show that the number of pharmacies increased to 933 in 2020 from 287 in 2011.
Others believe that OK Zimbabwe’s balance sheet was shaken by its decision to pay an interim dividend of US$ 0,13 per share, which was 6, 5 times more than US$0, 02 per share paid at the end of the year.
They feel the retail group would have been exempted from paying the dividends to ensure a stable balance sheet after a year of heavy investment.
“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 US dollar incomes in channels that offer parallel market exchange rates,” said Maxen Karombo, OK Zimbabwe’s chief executive during the retailer’s 22nd Annual General Meeting.
OK blames the environment and competition from informal traders, compounded by increased operational costs from property rentals, electricity, labour, security, and cleaning services for the poor performance.
However, the retail giant is optimistic of better times ahead and has hailed President Mnangagwa’s move to extend the multicurrency regime to 2030, saying that the certainty of the currency system will aid in renewing market confidence and assist in business planning processes.
On the other hand, the retail giant commended the Reserve Bank Zimbabwe (RBZ) for recommending the removal of the 10 percent limit over the exchange rate for pricing of goods by formal retailers and the removal of the transaction tax on bank card transactions saying the developments were likely to bring positive changes to sector operations.
“The Group welcomes the RBZ Monetary Policy Committee’s recommendations on removing the 10 percent limit on the exchange rate used by formal retailers and the removal of IMTT on bank card transactions. We await the promulgation of the necessary legal instruments to effect these positive changes. Macroeconomic stability will be critical in helping the Group recover lost volume base.”
The group hinted at exploring more avenues to build a firm supply chain through diversified sourcing strategies and relationships with key suppliers.
“Strategic partnerships with the Shoprite Group of South Africa, Money Transfer Agencies, and Insurance Companies will be key focus areas for the second half of our financial year,” said Mr Karombo.
Economist Josephine Zikomo implored the retail group to be inventive and agile in face of the unrelenting competition from the small retail players. “OK Zimbabwe needs to be innovative in terms of business approach, especially in the face of the prowling small retail players. The group has to strengthen its supply chains making sure they do not experience stockouts like in the lapsed financial year,” said Zikomo. – Herald
