eBusiness Weekly
There is a lot of talk about what can be considered a public disagreement between the head of a major retailer and Permanent Secretary of Finance, Economic Development and Investment Promotion George Guvamatanga.
Valid points were made by both, and there were some dubious assumptions by both, but the spat has brought into focus a number of serious issues that those in business need to take heed of, and to address.
Last week OK Zimbabwe brought up the problem of competition from tuckshops, specifically the lower prices they offer although payment needs to be made in US dollars, with that particular qualification being seen as the main reason they are able to offer lower prices.
Part of that, of course, is the number of manufacturers who are prepared to negotiate a lower factory-gate price for their goods if these are bought for US dollars.
Not all in industry do this, but there are several who are desperate to store their profits in US dollars, and convert any local currency they have not in use to US dollars. So they in effect offer something closer to a black market rate when pricing.
This particular problem, of wanting almost instant conversion of local currency into US dollars, or payment in US dollars, has been blamed for some of the pressure on the local currency.
It was certainly behind the pricing formulas using what was guessed, often wrongly, to be the likely black market exchange rate in a month or two, that forward pricing people were complaining about.
The tuckshops are breaking the law by their insistence on US dollars by customers, and there does not appear to be any major attack on this by the authorities.
So there was some justification by OK.
However, the retail sector is allowed a 10 percent premium on the official exchange rate, which should cover the general downwards drift of the local currency between order and reorder, and is allowed to accept payment in US dollars, and does have customers who pay in that currency. So the playing field is more level than at first sight.
Mr Guvamatanga was correct in pointing out that the Government is not in the business of repressing competition.
In fact this is now being encouraged at ever greater levels, and one reason is to get businesses to examine their costs and see how they can stabilise or reduce prices.
We have already seen how new entrants into some business sectors has brought about price reductions and even price wars, with these benefiting the consumer.
The need for innovation is important, as the rise of the large modern supermarket chains has shown. If you go back say 60 years, there were a few quite small supermarkets and a lot of grocery stores.
At this time OK itself was largely one of the four First Street department stores, with another two round the corner, and the food section was a modest add on, not a major part of its business.
Fairly small family grocery stores had much of the grocery business, and were supplied via wholesalers rather than directly by manufacturers or self-imports.
Admittedly the range of goods was far lower, even when they could be imported easily from South Africa or the rest of the sterling area. That range became more restricted again after UDI.
Supermarkets, and especially supermarket chains, did make inroads into the smaller businesses, by offering a better deal especially when they won their long battle to have liquor sections.
But many of the outlets in these chains were quite small shops and did not change much until well into the later 1980s and the 1990s when the far bigger stores became the norm and the small supermarkets, whether individually owned or in a chain, were basically all gone by the 2010s.
As part of this process OK itself expanded the floor area of many of the supermarket premises it was keeping, or moved a branch to larger premises where this was impossible.
Its main competitors were doing the same. The image of the word “supermarket” now has quite different connotations from what it had even 20 years ago, and with most people vast differences with what it had say 50 years ago.
So the supermarket retail business has been innovative and competitive, and has used its efficiency and its greater marketing to take over the bulk of the grocery supply business.
There is competition in the sector, but largely over market share among the major chains. Between them the chains controlled the grocery sector.
Until now, and the rise of the tuckshops, from a few stores nibbling at the edges of the supermarket dominance to what is now seen as serious competition, and sometimes as unfair competition.
However, Mr Guvamatanga has a strong point that just because a business, or group of businesses, has achieved market dominance that dominance is not God-given and the businesses need to stay on their toes and figure out how to compete more effectively.
The small tuckshops, and here we are not talking about people selling a few items from a car boot but those with a proper shop, although a small shop, have a number of advantages.
They might well be paying more rent per square metre than a large store, although this is difficult to compare since the major supermarkets either own their premises or pay rents based on a percentage of turnover.
Even by operating in a US dollar cash economy, the turnover is so low in tuckshops that there will be zero bulk discounts and often the need for a middleman, a wholesaler or direct importer. The huge scale of a supermarket chain makes other arrangements the norm.
But where the tuckshops probably really win is that they are small family businesses. Often the owner is one of the two people in the store, the other being a spouse, sibling, cousin or adult child.
In some cases the two in the shop are the close family members with the actual owner having another job or business. But regardless of the details it is a family business, and a small one, so a lot of labour law falls by the wayside.
There are also tax advantages. There would probably be advantages to listing the tiny staff, but making sure that salaries were all in the zero tax bracket and then using creative accounting and the like to make sure that the quarterly tax returns on business profits were very low.
This is one area where small family businesses always have the advantage. Often the staff will belong to the same household, so the income goes further.
The disadvantage is that the range of goods is limited.
However, the near monopoly some suppliers have, or the near cartels that other groups have established, means that this is less of a problem that it would be if there was cut-throat competition in the manufacturing sector, where the tuckshop owner would have to guess which supplier would be offering the best deal.
Despite the growing tendency for consumers to be wallet-loyal rather than brand-loyal has not gone to the level where people ignore brands.
In fact a lot of consumers will stick to a brand regardless of other factors, hence the value the market places on ownership of a brand, long after the founders of the brand have sold out. So a tuckshop can just stock the popular brands, or the most popular brand, of each item.
Supermarkets need to react to this. Covid-19 did stop that tendency to ever extend opening hours. These days, even with the lockdowns lifted, opening hours rarely extend beyond 8pm so for a start there is no difference between the opening hours for the liquor and grocery sections.
This has helped to contain staff costs for the major retailers, although they do need two shifts, or 14 shifts a week.
The biggest lesson, and this is what Mr Guvamatanga was quite forcibly stressing, is that there is never a time when a business can sit back and say it has found the formula for success and everyone can sit back and relax while the dividends roll in.
In anything remotely resembling a competitive environment there will always be new competitors, or old competitors learning new tricks. Business is a struggle.
Zimbabwe, with a closed economy for so long under UDI or the first couple of post-independence decades, did create mental attitudes that life could continue in the same groove for a long time.
Fortunately for consumers and unfortunately for the older businesses this is not the case anymore and businesses need to be continually adjusting, but so long as they start with the consumer and then move out from that person to what they need to get their custom, they will probably be able to adjust.
