via Liquidity crunch bites supermarkets – DailyNews Live 25 November 2014 by Roadwin Chirara
HARARE – The resurgence of a re-vitalised informal sector operating under the guise of darkness in downtown Harare is eating into the smooth operations of supermarkets in the country.
Recently released financial results from listed companies show retail outlets are feeling the pinch of the current liquidity crunch and the increasingly informalised economy as sales continue to decline due to low disposable incomes.
Listed retail giant OK Zimbabwe in its latest results for the half-year ended September 30, 2014, painted a gloomy picture of the country’s retail sector.
In its latest financials, OK Zimbabwe’s revenues declined by 4,8 percent to $232,1 million from $243,6 million, while after tax profit took a 10,9 percent knock to $4,3 million, which it attributed to declining revenues and an increase in overhead costs by 4,5 percent from $34,7 million to $36,3 million during the period under review.
OK Zimbabwe said it remained optimistic about the outlook of the sector despite the current challenges and plans to open up additional stores.
“The group will continue to take measures necessary to ensure the efficiency and profitability of its operations and to strengthen its position as market leader,” the OK financials say.
Research group MMC Capital notes increased competition from small retailers will continue to provide challenges for major retailers.
“The sprouting of the ‘tuck-shops’ especially in the populated and busy areas in Zimbabwe poses a threat to the major retail chains in Zimbabwe. The ‘tuck shops’ normally break bulk and are thus more appealing to the ordinary consumer as they allow the consumer to get a product for amounts which would otherwise not purchase bulk — this way they tend to push much larger volumes.”
Growth prospects in the sector according to the research firm remain limited.
“Our view is that there is now limited scope for growth in the sector, albeit massive investment by the top retail chains to expand and improve on in-store ambience, what is critical is to efficiently manage the value chain. TM Supermarkets, for example, recently secured four new sites in prominent areas and this is expected to increase the trading area by 10 percent to 55 000 square meters. OK Zimbabwe is also focusing on refurbishments and expanding its footprint in Zimbabwe,” the company said.
MMC say retailers have turned to promotions as means of boosting sales, in light of tight consumer spending.
“Retail is small margin business and is a volumes game. The surge in promotions by local retailers is actually meant to enhance customer loyalty in order to spur trading volumes. Cutthroat competition has become a defining characteristic in the retail sector,” says MMC.
MMC highlights that retailers are being negatively affected by problems faced in the local economy characterised by various impediments, which include persistent liquidity constraints, very low FDI inflows and waning aggregate demand.
“The negative effects continue to be felt across the majority of sectors in Zimbabwe including the retail sector. The financial performance of some of the biggest retail chains in Zimbabwe (TM Supermarkets, Spar and OK) bear testimony to the obtaining poor operating environment. The retail chains are witnessing a slowdown in revenue growth and mounting pressure on margins.
“For the year ended March 31, 2014, TM supermarkets recorded a decline of 0,60 percent in the top line to $334 million relative to the prior period. Spar continues to post disappointing trading results with Innscor recently having made a decision to exit the Borrowdale Brooke Spar as the store was unable to reach consistent levels of customer counts.”
Despite the projected down turn in the sector, Botswana listed retailer Choppies says the country still offers a good investment opportunity for its retail business and is targeting 40 stores in the medium term.
“Zimbabwe is our neighbouring country; it is close enough to manage from Gaborone but more so, it has a sizable market and thus this was a natural progression from Botswana,”chief executive, Ramachandran Ottappathu said.
The listed retailer with a capitalisation of P4.9 billion on the Botswana Stock Exchange says to date it has invested over $20 million into its Zimbabwe venture and is bullish about its venture.
“So far the company has done reasonably well. We still need to invest another $15 million. Choppies has also created over 1 000 employment opportunities for Zimbabwean citizens in Bulawayo alone,” he said.
The Botswana executive, however, notes the group is aware of increased competition and challenges in the sector.
Choppies ventured into the Zimbabwean retail sector last year after partnering with Bulawayo businessman Raji Modi’s Sai Enterprises (Pvt) Ltd in a deal that resulted in it holding a 49 percent stake in Nanavac (new investment vehicle) while Siqokoqela Mphoko holds 51 percent equity.
Choppies chaired by former Botswana president Festus Mogae, has 63 stores in Botswana, 13 outlets in South Africa and is reportedly plans to expand into Zambia and Mozambique.
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