Is there trouble in paradise? A case of OK Zimbabwe

17 Jan, 2025 - 00:01 0 Views
Is there trouble in paradise? A case of OK Zimbabwe According to the company’s 2024 annual reports, erratic supply of their essential products has been their major challenge

Blessing Nyatanga

It has been evidently clear that one of the largest retailers in the land has had to endure a litmus test in the precincts and confines of survival.

In 2023 OK Zimbabwe did highlight that the financial environment had an impact on their operations while having a corrosive effect on their revenue base. In September 2023, the giant retailer indicated that it was in a financial quagmire and the financial stress was attributed to an unstable economic environment, exchange rate fluctuations, electricity challenges among others.

However, in the recent weeks, social media has been awash with pictures of empty shelves in some of the OK branches countrywide. This has raised major concerns among stakeholders as to whether OK is treading on thin ice as far as their going concern status is concerned. This article will attempt to pre-empt those findings.

Their Plight

It is imperative at this juncture to note that the economic and financial environment in Zimbabwe has been strenuous which has affected most business operations with some companies facing closure while others have had to make stern adjustments to stay afloat. One of the major challenges has been exchange rate fluctuations.

Before the ZiG was introduced in April 2024, the ZWL had spiralled out of control while exerting pricing pressures on retailers who had to make adjustments on a regular basis. The major challenge with exchange rate fluctuations was that, retailers had to sell in the local currency while restocking with the green back – the United States dollar. In most cases when businesses sought to restock, their revenue would have been eroded and it made some businesses incur losses. Some businesses ended up resorting to hedging by increasing prices in the local currency to ensure that when the exchange fluctuated, they would stay afloat and achieve break even. OK Zimbabwe was among those affected by these exchange rate fluctuations which was evident in their financials. In a nutshell, their revenue was affected and profits were eroded by the adverse financial conditions.

To aggravate and exacerbate on the OK Zimbabwe situation, there have been grave electricity shortages across the country which ultimately increased the cost of doing business for the retailer.

Electricity shortages have compelled and obligated most business to use generators and incur fuel charges on top of the electricity costs they have to grapple with to keep businesses running. The issue of electricity was highlighted in a press statement in September 2023.The statement highlighted how incessant power cuts were affecting their financial status because they had to rely on generators to ensure that operations were undisrupted.

What is really going on?

It is integral to highlight that we cannot overlook and side step the speculation that OK Zimbabwe could be in a precarious financial position. The social media pictures that have been circulating showing empty shelves and the shortages at OK Zimbabwe may be an indication that, they may require some financial re-structuring and re-strategising. It will be important to dissect the possible causes to OK Zimbabwe’s plight.

Supply Bottlenecks 

According to the company’s 2024 annual reports, erratic supply of their essential products has been their major challenge. It has been immensely difficult for the giant retailer to acquire products at competitive prices suitable for profit making. The major hurdle has been the emergence of stiff competition locally which in essence suggests that OK Zimbabwe has to extend its sources of supply and ensure that essential products are acquired at cheaper and competitive prices. However, the financial year 2024 saw an increase of direct imports mainly from South Africa with additional sources of supply coming on board such as Shoprite, Food Lovers Market and TRADEPORT GROUP. The large retailer has also assured stakeholders that they will extend sources of supply to countries like Turkey and China for attentive and cheaper products.

Volatile Operating Environment

From the various press statements that OK Zimbabwe has released since 2023, the underlying and apparent term has been linked with the volatility of the operating environments in Zimbabwe. They have aired their plight several times hence it maybe be prudent for the Government to address these issues to ensure that the business climate is conducive for continued operations.

Emergence of tuckshops

There has been a substantial growth and emergence of tuck-shops in Zimbabwe, with some operating in the CBD of major towns while most tuck-shops are situated in the residential areas.

These tuck-shops have been selling groceries at relatively cheaper prices as they do not incur the same costs as the large retailers. This has made competition stiff for the large retailer which has to factor in all its costs before pricing their goods.

To the contrary tuck-shops have relatively lower costs on restocking which translates to lower prices compared to the large retailer and this had a massive effect on their sales which have been swindling as many consumers are resorting to the tuck-shops.

Secondly, authorities have highlighted the increase in illegal smuggling of groceries which also creates unfair competition for retailers who are incurring exorbitant production and restocking costs. This is a major factor in the grand scheme of thing and could also be attributed to sales dwindling for OK Zimbabwe.

Can OK Zimbabwe weather the storm

The empty shelves, the reduction in sales over the couple of years speaks volumes of the status quo regarding the giant retailer in Zimbabwe. What remains to be seen is how OK Zimbabwe will emerge from this financial quagmire and ensure that there are no supply bottlenecks as well as competing in the market.

The recent press statement released on 10 November 2024 has assured all relevant stakeholders that their stores are open for trading and that they will continue to serve their customers and ensure continued growth.

The large retailer has been increasing their distribution centers, they have also extended their sources of supply a move in the right direction in their attempt to stay afloat. OK Zimbabwe has also acquired new delivery trucks which will reduce their distribution costs by an average $40 000 per month.

All these are positive elements to recovery. They have also modernised their hardware including operational computers to run advanced security utilities and guard against cyber threats.

What will be fundamental is pragmatism of all the strategies in place to ensure that there is a major bounce back.

Currency stability is fundamental in determining how OK Zimbabwe will perform in the future and as such should not be ignored by the Government. While OK Zimbabwe is not in a great shape, the numbers suggest that there are no going concern issues. Assets are still greater than liabilities which translates to a current ratio of 1:1 an indication that the business can continue to function.

Blessing Nyatanga is a banker and economic analyst. He holds a Bachelors in Banking and Investment analysis. You can contact him on 0784909184/[email protected]

 

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