Zimbabwe’s retail landscape, particularly for formal retailers like Meikles Limited, a key player in the TM Supermarkets chain and partner of Pick n Pay, is facing significant challenges due to the nation’s in-store exchange rate policy. This policy has become a substantial burden, further compounded by heavy taxation.
Operating in a market dominated by the Zimbabwe Stock Exchange-listed OK Zimbabwe, Meikles oversees several Pick n Pay and TM branded stores across Zimbabwe. They find themselves competing not just with these formal entities but also with a burgeoning informal sector that the government is now eyeing for taxation.
The scenario is further complicated by the market’s increasing adoption of the US dollar, while the local currency, the Zimbabwe dollar, preferred in formal retail settings, continues to devalue in both official and parallel markets.
Thabani Mpofu, Meikles’ company secretary, highlights the dilemma: “The in-store exchange rate policy remains a significant hurdle for formal retail in achieving the dollarization level that most businesses in the economy have reached. This discrepancy creates supply chain issues, as suppliers prefer invoicing and settlement in US dollars.”
Retailers are mandated to price goods in local currency, with the option to use US dollars pegged to the official exchange rate. This rate significantly lags behind the street exchange rate, leading to higher consumer costs when using the Zimbabwe dollar.
A manager from a local retail chain explains, “Consumers tend to exchange their dollars on the parallel market for local currency, which is then used for supermarket purchases. Although initially cheaper, the continual devaluation of the local currency negatively impacts retailers.”
Meikles reported that the trading environment in the quarter ending December was marked by the Zimbabwe dollar’s persistent depreciation and a predominant use of US dollars. “Formal retailers receive less than 20% of their revenue in foreign currency due to uncompetitive USD prices, a direct result of adhering to the government’s in-store exchange rate policy,” Mpofu added.
In response, Pick n Pay’s Zimbabwean affiliate is actively engaging monetary and fiscal authorities to reconsider this policy. Despite these challenges, Meikles has seen a slight uptick in sales volume, surpassing the previous year’s figures in December. The company is now focusing on enhancing operational capabilities to adapt to these evolving market conditions.
For the quarter ending December, Meikles reported a 5% increase in units sold and a 2% rise in customer count in their supermarket division compared to the same period last year, reversing the decline seen in previous quarters. However, the range of stock availability remains a challenge, influenced by the revenue split.
Analysts at IH Securities anticipate that consumer demand in Zimbabwe will remain robust, bolstered by a successful agricultural season and strong precious metals prices. Given the dominance of the US dollar in the informal sector, retailers could benefit from a more flexible exchange rate regime.
Despite expectations of strong consumer demand, IH Securities favors stocks that can generate revenue in USD, penetrate the informal sector, adjust prices in line with inflation and exchange rate fluctuations, and demonstrate effective management.
Over the weekend, Zimbabwe announced plans to introduce new measures, possibly including reforms to the foreign currency auction system and enhanced foreign currency supply in the market, to address the volatility of the Zimbabwe dollar. However, these changes might arrive too late for some retailers already severely impacted by the current monetary policy framework.
The clothing and apparel retailer Truworths has closed six shops, citing underperformance and intense competition from imported second-hand clothing. Conversely, grocery retailers like Pick n Pay are holding their ground, expanding their presence across the country.
