By Nontando Zunga
TO many in the country and those new to the market, post-dollarisation recovery and subsequent growth of OK Zimbabwe could be surprising. However, the old hands would not be astounded at all, as they know that OK Zimbabwe and in particular its management team honed their skills at the best business school in the country — Delta Corporation.
The fact that both OK Zimbabwe and Delta have done exceptionally well in this survey bears testimony to the Ivy League status of the grounding the respective teams got at Delta, early in the 1990s.
OK Zimbabwe was established in Zimbabwe (then Rhodesia) in 1940, with the first street branch as its flagship. The second was to be established in Bulawayo in the same year, before Gweru, Mutare and Masvingo were opened.
In 1978, OK Bazaars was bought by Delta Corporation; the name was changed to OK Zimbabwe in 1994. Willard Zireva was appointed CEO in 1990. The current chief operating officer Albert Katsande started his association with OK at around the same time.
That OK Zimbabwe has prospered is testimony to capable leadership. And another feather to the management’s cap is the vote of confidence from Investec Asset Management which underwrote the rights issue and invested in a convertible loan note they received.
Consequently, OK Zimbabwe has not only upped its game in terms of in-store ambience, but also in terms of product offering and this was achieved through building good relations with both local and foreign suppliers.
Commenting on the group’s H1 2012 results, the group chief operating officer, Albert Katsande, said that 60-65% of grocery items were being imported from South Africa whilst on the other merchandise category the percentage was even higher.
“Our foreign supply base mix is mainly between direct sourcing and agencies with +/-60% coming from direct sourcing, and this has seen our overall costs coming down relative to using agencies,” said Katsande.
The group has also been committed to driving sales through effective sales and marketing programmes. The environment remains competitive and as such the group has resorted to back-to-back promotions throughout the year so as to boost and smoothe revenues during the course of the year. The OK Grand challenge is running for the 24th year and continues to grow, with a total of 125 brands supporting the promotion from last year’s 1995.
Unemployment remains high
The local economy is, however, still hamstrung by limited capital, adversely affecting the resuscitation of the critical manufacturing sector. Unemployment levels remain high, estimated at northwards of 80% which has resulted in a high dependency ratio and consequently low disposable incomes.
Whilst this has also culminated in an increase in reported fraud cases in the retail sector, OK has managed to contain its shrinkage level below the international benchmark levels of 1%-2%, through increased security measures such as the use of CCTV. For H1 2012, the ratio declined from 1,48% in the prior period to 0,7%.
An interesting trend that we have noted due to the issue of “too many goods chasing too little money” has been the increase in credit offerings and also micro-lending business.
Whilst OK is generally a cash-based business, it does also have some white case goods, which are offered on credit terms. The worrying fact though is in the wider economy, where individuals are being overstretched through excessive borrowing and thus lowering the actual cash holdings. Zireva said he expects consumer spending to remain depressed due to low disposable incomes, but he believes the new generation stores and product offering will draw more customers into their stores.
Management confident about outlook
Turning to outlook, management expects product supply will most likely remain stable as the group is well stocked at the moment whilst strategic purchasing is expected to result in maintenance of healthy margins.
The group is also exempt from exchange rate risk as all the price quotes from suppliers are in US dollars. Prices are also expected to remain stable due to the depreciation of the rand.
Management has given an update on the recent fire incident which occurred at the company’s warehouse extension in Graniteside on May 1, 2012. The building, assets and stocks were adequately insured and store operations were not affected; the company has adequate stocks in the stores and the other two warehouses.
Management plans to leverage on high mark-up product categories across the three stores whilst a competitive pricing strategy will be maintained, coupled by realignment of the business model. The company paid a dividend at twice dividend cover for FY 2011; however management said “the dividend is not going to be fixed but will solely depend on the needs of the company and expected future cash flows”.