gtag('config', 'UA-12595121-1'); OK Stores says retail sector under existential threat of the informal Tuck-Shop economy – The Zimbabwe Mail

OK Stores says retail sector under existential threat of the informal Tuck-Shop economy

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One of the country’s biggest retail chains is calling it the “forced death” of Zimbabwe’s supermarkets.

Supermarkets are full of goods, but low on customers. The shoppers are at the “tuck shops”, informal shops that now dominate the retail space at the expense of formal retailers. The small traders are well stocked and more affordable. This is because they can sell exclusively in US dollars and do not pay taxes.

Larger supermarkets, instead, are forced by the government to price their stock using the official exchange. They also pay taxes, rates, and other regulatory fees. This has made their goods more expensive, leading to an exodus of customers to downtown traders. Manufacturers and suppliers now sell their goods directly to the informal traders, where they are guaranteed of upfront USD payments, bypassing formal retailers, some of whom insist on Zimdollar payment terms.

According to OK Zimbabwe, which has over 60 outlets nationwide, most supermarkets are battling for survival.

“It has been an interesting watch as perhaps; most formal retailers now are battling for survival. The rise of the unregulated informal operators, who are mostly arbitraging, has caused more headaches than good for the formal guys like OK Zimbabwe, TM Pick n Pay, Gain Cash & Carry and so many more. This has created a whole new spate of dangerously unhealthy competition,” OK Zimbabwe says.

The company says this in a press advertorial for its “DollarDeal” promotion, which seeks to drive sales by offering customers bargain deals for US$1.

OK’s latest financial results are highly anticipated, as they will provide a window into the state of Zimbabwe’s formal retailers. The results were due in June but will be published later this week. OK cites challenges relating to its migration to a new Enterprise Resource Planning System which delayed the year-end external audit.

Informal traders don’t have to worry about paying taxes, OK points out.

“In instances where some are paying taxes, some are not. Where some are using the regulated bank exchange rate, some are not, hence causing artificial or distorted price points in the stores,” OK says.  “The informal retailer is infamously using the black-market rate and marks the same products downwards causing ‘forced death’ on the formal retailer.”

At the core of the pricing problem is the government’s distorted exchange rate. Because the official rate lags the more widely used black market rate, converting goods at the formal rate makes supermarket prices more expensive.

Says OK: “Can this be solved though in the short and long-term? Yes, only by government policy intervention which levels the playing field to enable the formal retailer to survive. The dangers are apparent as some have even started closing shop, some are under corporate rescue and many jobs are going to inevitably be lost.”

Metro Peech & Browne, one of Zimbabwe’s largest wholesalers, is now under corporate rescue. In a recent report, the administrator said, apart from poor corporate governance, one of the reasons the company ran into trouble was “competition from the informal sector which is not subject to similar regulatory compliance.”

Across industry, suppliers are going straight to market, leaving out formal wholesalers and retailers. Last year, Dairibord, the country’s biggest dairy and a major beverage manufacturer, said it sells more through informal traders than through formal retailers.

At Pick n Pay, volumes rose only by 2% in the 11 months to February, due to “declining consumer disposable income”. The retailer reported that “supplier payment terms tightened, and the cost of goods escalated in response to high interest rates and inflation”.

Despite the current crisis, both OK Zimbabwe and Pick n Pay are expanding and refurbishing their branch networks. In 2022, OK said it planned to refurbish 12 stores each year. The company has recently bought three branches of the Food Lovers Franchise. It has also opened a new Bon Marche store in Marondera, the first under the top-end brand to open outside Harare. Pick n Pay has opened five new outlets since last year. – NewZwire