Wounded Lions….Can they Arise?

A DECADE ago, the retail sector was characterised by cutthroat competition. Retailers had to fight for their chunk of the market share hence innovations were a must. Creative adverts and promotions were a common feature.

Then, consumers prioritised quality and brand type; as a result the market was dominated by few players who had the resources to back their marketing campaigns.

OK Zimbabwe controlled the larger portion of the market. TM Supermarkets and to a lesser extent Lucky 7 were the other forces to reckon with.

 For OK its strength was in holding promotions. Annually it would hold the OK grand challenge for OK stores whilst the French connection competition would be run in Bon Marché stores.

OK Zimbabwe was incorporated in 1953 as Springmaster Corporation. It was acquired by Delta Corporation in 1977 and later on changed its name to Deltrade in 1984.

Through an equity spin-off the group de-merged from Delta and listed on the Zimbabwe Stock Exchange in 2001.

Subsequently it started trading under the name OK. Later on, it disposed its furniture business, Furniture Paradise.

Over the years the company managed to expand its horizons and at the end of the 2006 financial year, the group had 51 outlets under its control.

Thirty-nine were operating under the name OK stores, five used the brand name Bon Marché whilst the other seven were under the name OK Express.

The group also managed to build two household brands, the Pot ‘O’ Gold for OK supermarkets and the Premier choice for Bon Marché supermarkets.

Challenges for the group started two years ago during the June 18 price blitz. Prior to this, appetite for the counter on the Zimbabwe Stock Exchange was evident despite the decay that was taking place in the broader economy.

The belief amongst market players was that demand for consumer goods would always be there so the sector would be the last to crumble.

The hyperinflation which prevailed when the economy was still predominantly transacting in Zimbabwe dollars further accelerated the collapse in retailing.

This had the impact of wiping off individuals’ disposable incomes thereby dragging down demand for goods. Cash shortages that had become a common feature worsened the situation.

The daily cash withdrawal limit was not even enough for commuting to work let alone shopping. Restocking on the part of retailers was again made difficult as replacement prices were continuously escalating.

On the other hand, the June 18 2008 price blitz alongside the strict enforcement of price controls by the National Incomes and Pricing Commission helped the parallel market to blossom whilst shop shelves became empty.

The few locally produced items were finding their way onto the parallel market where realistic prices were being charged.

The decline in production was a result of shortages of critical spare parts and raw materials. Incessant power cuts together with erratic water supplies further compounded the situation.

Industry was again holding back supply of finished goods due to unviable prices pegged by the National Incomes and Pricing Commission.

For some, business suddenly improved in November. This was regardless of developments that were unfolding on the international front.

The ongoing credit squeeze on the global markets has seen a number of retail giants falling by the wayside. Trimming of branch network together with job cuts have become common feature.

In January, Woolworths disclosed plans to close a quarter of its 800 outlets which will result in approximately 27 000 full time and part time employees losing their jobs.

The advent of Foliwars permitted companies to charge realistic market prices for their products. Goods immediately resurfaced on shelves as entrepreneurs were getting value in return for their products.

This brought painful transformation of business practices in the country. Days of “burning” US$10 and then using the Zim dollar proceeds to buy goods worth US$50 were now gone. Volume of sales improved with well-stocked shops making super profits.

When compared to the region, local prices were approximately four times higher an indication of greed engulfing local entrepreneurs.

The few merchants that managed to establish credit lines quickly are operating comfortably. In particular, Spar outlets which are directly managed by Innscor and whose location is in affluent areas are unmistakably recording brisk business.

For Innscor, the success came from its relationship with Spar South Africa. Since it owns the Spar franchise for the Northern part of the country, it obtains products for distribution to other outlets through Spar Distribution Centre.

Synergy with associate company National Foods as well as subsidiary Colcom Foods again ensures that their outlets are adequately stocked with products produced by these companies.

Retail chains like Batanai, Gutsai and the Savemore franchises have also expanded their wings over this period, itself a sign of increased business.

Going forward, competition in the sector is going to be intense as the playing field evens out. Companies now have to revert to basics where business is driven by volume and not margins. 

Already prices are coming down as the number of well-stocked shops is improving. Scrapping of duty on basic commodities is another development that will induce competition as it will avail individuals with an option to go shopping from regional countries.

South African companies with interests in local firms will obviously want to take advantage of their relationships and boost their turnover levels using the local market.

Firms like Metcash and Massmart may opt to extend credit facilities to their counterparts Jaggers and Makro respectively.

Evidently the giants of yesteryear are still nursing wounds sustained in the price tsunami. However, it will be interesting to see how they will try to match the competition from new entrants so as to regain loyalty from customers.

OK and TM have large branch networks that they can capitalise on. Furthermore, TM has synergies with Pick and Pay South Africa that it can bank on in mobilizing stocks, although the current boardroom squabbles at Kingdom Meikles Africa might scupper growth potential.

As it is said a wounded lion advances with strong vengeance. We just wait to see how these two will respond.

BY KUMBIRAI MAKWEMBERE