HomeBusiness DigestOK seeks to claw back lost market share

Dependable delta surpasses targets

EARLIER this month, a representative of the Retailers Association of Zimbabwe (RAZ), a group of the largest retail companies in the country, told delegates at an industry breakfast meeting that the sector had suffered from the emergence of new players who do not play by the book.

His beef with the new players was that their prices were too low despite both importing from the same markets. In short, it was a curious case of the bigger player crying foul over dirty tactics at the hands of a smaller and inexperienced player.
The RAZ official did not grasp why “them,” a Goliath in their own right, were losing against some dwarfish enterprises founded on thin capital at a game the big guys knew from the first letter of the alphabet to the last.
He had a theory though –– the smaller players must be avoiding duty and taxes. At the end of his speech, it was clear the official wanted authorities to probe smaller retailers.
The comments showed that the pendulum swung against the bigger players in the sector after President Robert Mugabe launched price controls in 2007 allegedly to stop profiteers bent on sabotaging the economy through price increases.
When the policy was launched, the retail sector was hit hard.
Almost overnight, shops became empty. Two years later, government adopted the use of multiple currencies but the damage had been done.  Almost overnight new retailers emerged. Chinese, Nigerians and other ambitious businesspeople saw opportunities.
The bigger players were still on the corporate drawing board trying to make heads and tails of the new multi currency policy. In late 2008, the central bank had licensed shops to sell goods in foreign currency but many had resorted to importing groceries.
The official dollarisation of the economy saw the new entrants moving swiftly to acquire and rent space in the city. In a short space of time, the new players had set up shop and carved a niche of the retail market for themselves.
This year, OK Zimbabwe, the second largest retailer in the market, has everything figured out and plans to recapitalise the business and claw back market share.
OK plans to spend US$20 million to achieve this.
This will be achieved through a US$15 million rights issue at a price of US$0,6 cents per ordinary share and additional 250 275 133 million ordinary shares will be issued on the basis of 3,42 new ordinary shares and a US$5 million convertible loan.
The proceeds will be directed towards working capital growth and cutting short-term debt and strategic expansion of the retail network
The company hopes to get back lost market share and “compete effectively” in a trading environment where, by their own admission, bigger retailers have carved a sizeable piece of the market. Already players such as Afro Foods have gotten themselves a market share in a short space of time.
OK reckons fresh capital could increase trade capacity. But analysts said the retail sector has gone mostly to the new players –– Chinese, foreign owned outlets and many convenient grocery stores.
OK’s situation is not entirely unique.
Delta also suffered in 2008 after bootleggers emerged on the market with various beer brands imported from the region and beyond. Delta’s market share was gone almost overnight.  But Delta’s relationship with SAB Miller helped the company reclaim its old turf.
However, analysts say for OK Zimbabwe, the situation is a little different although an underwriting deal with Investec might change the fortunes of the company.
In the event that OK fulfills terms of a US$5 million convertible loan notes, the move would result in a dilution of 7% on conversion after the rights issue. This will give Investec 7% stake in OK Zimbabwe, a move that could bolster the company’s financial position. Analysts say OK’s battle to reclaim market share might be an uphill task and depend on a rights issue awaiting rubber stamping from other shareholders.
OK chief executive officer Willard Zireva and chief operating officer and finance director Alex Siyavora, who hold 14% in the group are said to have also thrown their support behind the deal.
Through its investment vehicle –– Investec Frontier Private Equity Fund, a pan African private equity fund managed by Investec Asset Management –– the company might emerge with a larger stake if some of the shareholders do not follow their rights.
Investec Group is an international banking group listed on the Johannesburg Stock Exchange and the London Securities Exchange.

 

Chris Muronzi

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