OK Zimbabwe must buy 85% of its produce from local farmers under conditions set by the competition regulator for its takeover of three franchises of fruit and vegetable retailer Food Lovers Market.
The company, one of the country’s big two retailers, announced a deal in December to run three Food Lovers outlets; Bulawayo, Avondale and Borrowdale. The deal does not include the Food Lovers outlet at Honeydew in Greendale, which remains independent.
The Competition and tariff Commission (CTC) approved the transaction, but said the supermarket chain must keep current agreements with suppliers in place and make sure that most of the produce on the shelves of Food Lovers is locally sourced.
According to CTC, OK must “maintain or improve the existing trading agreement conditions with wholesalers and farmers that include inter-alia delivery and payment terms; procure at least 85% of its fruits & vegetable requirements from local farmers.”
The company must also “maintain or improve the existing employment contracts of (Food Lovers Market) employees at least for two years”.
OK is buying the fresh produce retailer as part of an attempt to step up its presence in what it called the “premium” retail market.
Its CEO Max Karombo said: “The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of the OK Zimbabwe Limited Group. Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores.”
According to the CTC, the transaction does not bring a significant shift in market share between the merged entity and OK’s biggest rival, Pick n Pay.
However, CTC says it is important to avoid “monopsony”, where a market is dominated by one buyer.
Says CTC: “Monopsony power exists when a single buyer, OKZL in this instance, can dictate prices paid to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers. It is therefore important to consider the possibilities of the merged entity engaging in such practices.”