eBusiness Weekly
Nelson Gahadza
OK Zimbabwe says the in-store rate has seen increased competition from a growing informal sector, threatening margins, as customers may divert from OK stores to informal corner shops selling products at discounted USD prices.
This also comes as the government allowed businesses and individuals to import select basic goods duty free, a development threatening formal shops whose USD trading is subject to various regulations.
Maxen Karombo, the group’s chief executive, during a virtual analyst briefing for the full year to March 2022, said the in store exchange rate that the retail giant uses is a product of engagements and negotiations with government and the Reserve Bank of Zimbabwe (RBZ).
“So the in-store rate that we use is not the most optimal compared to the alternative market rate, so obviously that puts pressure on our customers, as they would rather prefer to change their money before they come to us,” he said.
Karombo said the group being alive to a hyperinflationary environment; cost containment becomes a key priority to preserve value and customers buying power.
Karombo said OK Zimbabwe’s internal inflation – an average of the goods that it sells – was just below 200 percent at the end of March 2022.
This is higher than the 131,7 percent official inflation for May 2022h, which Zimstat measures using a select basket of goods and services.
Karombo also indicated that the Group continued to endure excessive intermediated money transfer tax (IMTT) during the year which continues to erode the competitiveness of the formal retail sector, drives inflation and undermines profitability.
“We continue to implore our authorities, especially on the adverse effects of the IMTT. We continue raising this because we can see its impact on profitability because it is out of profit that we reinvest in business, so it is taking our capacity to reinvest,” he said.
According to Karombo, the retail sector engaged the RBZ sometime in August last year and by the beginning of December 2021, they were allowed to discount the in-store rate in order to attract USD payments.
“Once we did that, our USD revenue collection jumped by five times, so currently we collect about 10 percent of our revenue in forex,” he said.
Karombo said while the government allowed for importation of basic commodities, the group will not rush to import products, but will do so strategically.
“We will be coming to the market to announce various initiatives that we are embarking on. But margins depend on categories and the cost of money that we access as foreign currency which we say is about 10 percent of our revenue.
“So we will use that to import any gaps that we find with local suppliers. And in instances where our local suppliers are forex short, we also participate in mixed models with our local suppliers in terms of foreign currency payments,” he said.
During the year under review, Karombo noted that there have been changing customer patterns mainly due to the impact of Covid 19.
He said during lockdowns, few people would come to the shops but buy bigger baskets, but with the relaxation, customer count has increased but the basket size has come down,” he said.
Phillimon Mushosho, the group’s chief finance officer, said volumes in the full year to March 2022 grew by 23 percent, up from 21 in the prior comparative period.
He said the growth was driven largely by four factors that include One is the eased Covid 19 restrictions during the year which resulted in increased trading hours.
“Secondly, volume growth was also driven by the group’s ability to run integrated value promotions that are brand specific, but midway the year we had a promotion where all our brands were participating which drove our volumes,” he said.
Mushosho added that additional volumes came from two stores that were opened and the number of stores that were upgraded.
He said the volume driver was the group’s focus on customers and improving the number of items in a customer basket.
According to the group’s financials, in inflation adjusted terms, revenue for the year grew by 34.7 percent to $79.9 billion from $59.3 billion in the prior year.
Profit before tax of $4.8 billion was 38.5 percent above prior year’s $3.5 billion while profit t after tax grew by 48.9 percent to $2.8 billion from $1.9 billion in prior year.
Mushosho indicated that the issue of the IMTT is a major concern not only for it, but for business in general.
Meanwhile, Karombo said that the group will continue with expansion plans during the current financial year, with a number of refurbishments and new stores scheduled despite challenges presented by high inflation levels and exchange rate volatility.
He said the group will move to upgrade its ICT platforms to improve operational efficiencies and support its innovation thrust. “We want to deliver sustainable growth, so we are going to extend our reach through continuous store refurbishment and ensure that our partnership with suppliers, customer groups and various stakeholders are very aligned to our growth opportunities,” he said.
He added that the group also aims to drive technology in order to be a business that is integrated both in store and digital store performance.
Karombo said during the year under review, the group invested in a new store in Banket, along the Harare-Chirundu Highway and in partnership with Chivhu council, acquired a stand and built a brand new OK Mart store.
He said at the close of the year, the group had 68 stores in total, translating to over 100 000 square meters of trading space.
