Last Wednesday, OK Zimbabwe, the country’s biggest retailer by store count, had a briefing on its annual results.
CEO Max Karombo went into some detail on the state of formal retail. Here, we give excerpts of what he said on key issues of the business and the environment.
On the impact of exchange rate on operations
On average, we collect around 20% of our revenue in USD. It just tells you the lagging behind of formal retail in USD collections. That’s because of the disparity in the exchange rate. We’re a compliant business, we get to use the formal exchange rate.
Wherever there’s a huge gap between what’s on the parallel market versus formal, we see our collections change. Where the premium of the parallel market goes as high as 50%, we go down in our collections to something in the single-digit figures. When that gap is narrowed, we start seeing our collections going up.
But, on average, we’re seeing an average of 20% in our collections. It could have been a lot higher, were we allowed to be flexible in our pricing. We are translating off a Zimdollar price into USD, and the result that comes out is a very expensive USD price. For us, it’s the nature of the game given the need to be compliant with the rules on foreign exchange and pricing.
On how the environment challenges the formal retail model
Our operating model is simple; we buy, we sell, and we pay the supplier. But, in this case, in some instances, we’ve had to prepay the supplier. In some cases, we’ve had to pay in seven days. Now, we’ve got 72 stores around the country. A supplier comes and drops a truckload at our distribution centre in Graniteside.
By the time we get that product into Chiredzi or Vic Falls, it is 5-6 days down the line. You’re now having to look at your working capital to pay for something that you haven’t even sold. That is not in line with formal retail business. Formal retail is one that works off assured supplied chains. There’s been a distortion in that. Invariably, you have high instances of stock outs, because you’re now trying to match your working capital to very shortened supply chain cycles. It’s the nature of modern retail. It’s not peculiar to OK Zimbabwe.
What’s the impact on sales?
In the year to March, OK’s sales volumes fell 8%. In the three months to June, sales volumes were down 16% compared to the previous quarter, and 22% lower when compared to the same three months in 2022.
In terms of quantities, (shoppers) generally carry about seven items in a basket. We have seen that come down to about 5.6 units per transaction. That reflects the volume decline.
How OK is responding to the changes
OK is revamping its stores and recently acquired three Food Lovers stores. OK Zimbabwe has been refreshing its brand, and backing it up with investment in making its stores better while managing costs.
Our customers come into our shops to meet good value and service. We’re working with retail experts who are helping us to put this together. You don’t want that new brand, that new look, to be encumbered at all by poor customer service or cost inefficiencies.
On engagement with Government
We’ve been part of an industry lobby to authorities to listen to our position and plight, and to build policy together.
It’s not just one way. We’re not just going there to cry. You’re going there to build policy. And some of the policy interventions that have come in to stabilise the market are a result of that mature engagement. We’re happy that we have been part of that engagement on exchange rates, pricing mechanisms, and the interest rate regime so that you do not punish productive sectors due to speculators.
Going forward, the fortunes of business, and formal retailers in particular, are hinged on a good policy framework that is transparent and clear in terms of the exchange rate. And that is our major issue; it’s really around the currency framework. With the passing of the elections now, and a new Cabinet being set, we look forward to resolving this issue to put us all on a stable footing. The President and the Cabinet have been very clear around the five-year growth plans. We want to be part of that to enhance the stability in the market. We want our customers to access quality and affordable products, and enjoy customer service that they don’t find anywhere else but OK Zimbabwe.
Local products on the shelves
We still see more local products than imported products. Our proportions are anything between 65% to 70% of local products. Our local products have held their own in competitiveness, both in terms of quality and pricing terms.