Crisis worsens for OK: Sales have now fallen ‘severely below break-even point’

OK Zimbabwe says its sales volumes have now fallen below “break-even” point, hit by rising costs and an exchange rate regime that has driven shoppers from its stores.

Sales volumes fell by 21.6% in the first quarter and 23.9% in the second, down 22.6% year-to-date to September, the company said in its latest update to shareholders.  

“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,” OK says.

Shoppers prefer to shop at informal traders, called “tuckshops”, because goods are cheaper there than in supermarkets. This is because those traders use the parallel market exchange rate to price their goods. In contrast, formal retailers such as OK are forced to use the formal exchange rate, and this makes their goods far more expensive.

While shoppers are deserting the supermarkets, costs are rising sharply.

The company says “shortened trading terms from suppliers resulted in high incidences of stock-outs”, while there were also “increased operational costs from property rentals, electricity, labour, security and cleaning services.”

OK is hoping for a respite from recommendations from the RBZ for government to remove the 10% limit on the exchange rate used by formal retailers, and drop a tax on bank card transactions.

“Macroeconomic stability will be critical in helping the group recover lost volume base,” OK says.

Recently, Distributed Group Africa, one of the largest distributors of consumer goods in Zimbabwe, stopped supplying formal retailers because informal traders offer better payment terms. Pick n Pay SA reported recently that its share of earnings from Zimbabwe fell by 55.8% in the past six months, hit by exchange losses.