2019 economic outlook unpredictable: Siyavora

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Local retail giant OK Zimbabwe recently reported a 196 % profit in its audited financial for the year ending March 31, 2019. Zimbabwe Independent business reporter Kudzai Kuwaza (KK) interviewed OK Zimbabwe chief executive Alex Siyavora (AS,) on a number of issues among them their expansion programme, the operating environment and challenges of the current power outages. Below are excerpts of the interview:

KK: Last year you added two retail outlets, OK in Glenview in Harare and Ok Mart in Masvingo. What has been the benefit of this expansion?

AS: The benefit is to service markets which were not playing in. The one in Glenview, it was on land which we owned and the place we put it up at did not have enough retail activity so our customers would have to travel from Glen view to Glen Norah or Machipisa(in Highfield) whereas with this facility we are now serving that community well.

It is a good performance store. The sales results are pleasing, apart from that it was also our land it made sense to also put an asset on our balance sheet in this inflationary environment. The OK Mart in Masvingo wasn’t there before and OK Mart is a brand which started out as two stores when Makro moved out of this market and we moved into their sites. We realised that the brand has pulled a good sized following. Now we are in Kwekwe, Bulawayo, Gweru, Victoria falls and now in Masvingo. Since we opened the one in Masvingo, we are happy with the performance.

KK: Government scrapped the multi-currency regime through Statutory Instrument 142 of 2019. What your view of this move and how will it impact your performance as a company?

AS: It is difficult to say at this stage all these things tend to workout with the test of time. But what I understand the authorities are doing is to slow down the runaway prices and the runaway prices were coming because of the premium on the foreign currency because the official interbank exchange rate and the unofficial rate were so divergent and the pricing was following the unofficial rate. So I saw their action as trying to bring these two exchange rates towards convergence and bring about stability because the movement of that rate is inflationary. As to what it will do for us we hope there will be some improvement in the formal foreign currency market so that imports can come in for the manufacturers and some directly onto our shelves.

KK: What has been the impact of power outages on your operations especially in terms of cost?

AS: The cost will be two fold. When there is power outages it means in a supermarket your core chain is affected by long periods of absence of power so it will be a loss because you will be marking down and throwing away stuff. But for us we managed to invest in generators earlier on as we were refurbishing our store so we can preserve the other products in the core chain. The difficulty however is the cost because diesel is needed to power the generators and if you are going to operate for 12 hours without power, it becomes a significant cost and then sometimes you have shortage of the diesel . So the outages have come with a cost to the business and as a difficulty in doing business.

KK: How much diesel do you use when there are prolonged power outages?

AS: It varies because generators vary in size. But you could be using in some cases 200 litres of diesel. So at around ZW$5 a litre it means in that case it will cost ZW$1000 each time which is a significant cost

KK: How did your OK Grand Challenge promotion fare this year?

AS: The Grand Challenge is a promotion but itself has become a brand. Our suppliers like it and our suppliers are already indicating interest for the next one. This year there were product and price challenges but we still managed to get the product from suppliers extending at a discount to the consumers so we still had a significant number of suppliers achieving their volume targets. But for others the volumes were difficult to achieve because of product supply issues but it was successful as far as our targets were concerned.
Without pricing or supply challenges we would have sold more because it is a time when the suppliers would be buying what they would be normally buy at a lower price so we normally experience a big rush towards the end of the challenge because our as customers stocking up at a at a lower price therefore it encourages consumption.
KK: How has low consumer spending affected you?

AS: We didn’t see that much in April and May and into early June because we were promoting even post that we didn’t see ourselves come down significantly, people continued to buy. Of course there will be inflation creeping in to those numbers but we continued performing reasonably well even in June.
The first quarter of our financial period was not bad but now the inflation has since gone higher and salaries are not going up at the same rate and we expect there might be a slowdown in volume we might see values at the same levels but volumes might come down.

KK: What are the major drivers of the pricing of your goods?

AS: The pricing of our goods depends on foreign currency premium because your suppliers couldn’t get forex from the interbank market, they would source it elsewhere to use in buying goods. So that was really the driver because it affects both the guy who imports and the guy who manufactures, so either way, you will see that your pricing is being driven by the exchange rate premium.

KK: Do you see prices continue to rise seeing that most prices are indexed against the greenback?

AS: In our shops we do not index, the prices we get from our suppliers we just put a mark- up on and serve it at that level. With regards to indexing it had become a practice in which suppliers were using because the US dollar was the currency preferred because of its stability so that might be with us for a while. But if we achieve the convergence as intended by the measures recently introduced then it won’t make a difference if you index because if it is stable your prices will also remain stable.

KK: How has the reduction of vendors improve your bottom-line?

AS: The reduction of vendors did not improve our bottom line but it improved the performance of our stores in the CBD for instance. People were avoiding the CBD because it had become congested. If you went to a shop in town the vendors would be virtually blocking the entrance and they would be selling what you are selling instore outside your door and obviously for a lower price. And then with that there were also hygiene issues which came with it because if they are sitting outside your door where do they go for ablutions and things like that? It had become a major challenge.

KK: What other challenges do you face as a player in the retail sector?

AS: The biggest challenge for all retailers is supply because supply is short at the moment. A poor agricultural season affects the supply side. You need grain, you need chicken feed, you need cattle feed etc and on the consumption side people who normally do some farming and sell off some of their crops to supplement their spending income do not have that anymore or it is there but limited. That way, you will find that the poor season will affect every retailer. If the foreign currency remains a constraint, it means the supply side will even be tighter

KK: What are your expectations in terms of operations in 2019?

AS: There is a lot of uncertainty with price levels shifting like what they were doing you do not know how far they will get. So there will be anxiety and agitation amongst people so there will be some uncertainty on how stable things will be for business.

So far, it has been unpredictable in as far as prices are concerned because you could not say what the price of a product would be next week. I think in any economy, stability is tied around prices. So it is hard to tell our outlook because we now have new measures which are yet to take root and influence how things go. It would be different if these measures were made let us say in January because by now the market would have settled down.

KK: What have you done to cushion your workers in this turbulent period?

AS: There are negotiations in place and they are soon after the CBA(collective bargaining agreement) came into effect in May but we are already discussing again because whatever we implemented has been eroded by inflation so they have already approached the unions thus the discussions going on with the workers.

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