Zimbabwe’s in-store exchange rate was “an albatross” for formal retailers that are also tightly squeezed for taxation, Meikles Limited, the Pick n Pay Zimbabwean-listed partner in the TM Supermarkets chain, said yesterday.
Meikles operates Pick n Pay and TM branded stores across Zimbabwe and competes against Zimbabwe Stock Exchange – listed OK Zimbabwe. The big Zimbabwean retailers are struggling against a thriving informal sector that the government has now targeted for taxation.
But for the Pick n Pay and TM stores, there has been little respite from growing adoption of the US dollar by the Zimbabwean market. Worse still, the local unit of exchange the Zimbabwe dollar, which is the preferred currency by consumers in formal supermarkets, has continued to lose value on both the official and parallel markets.
Thabani Mpofu, the company secretary for Meikles, said, “The in-store exchange rate policy remains an albatross on formal retail in attaining the dollarisation level reached by most businesses in the economy. This creates ongoing supply chain challenges as suppliers are invoicing in USD and prefer settlement in US dollar.”
Retailers are required to price products in the local currency, with the option of pricing in US dollars using the official exchange rate. However, the official exchange rate in Zimbabwe trails the street exchange rate by multiples, making it expensive for consumers to settle payments using the Zimbabwe dollar.
“It simply means that consumers will go on the parallel market and exchange their dollars for local currency which they then use to purchase goods from the supermarkets. It becomes cheaper to use local currency but then with sustained loss of value this is disadvantageous for the retailers,” said a manager with a Zimbabwean retailer.
Meikles has flagged the trading environment for the three months period to end December as having been “characterised by persistent depreciation of the Zimbabwe dollar and a high use of US dollars” in the economy.
“In contrast, the percentage of revenue received in foreign currency by formal retailers is below 20% due to uncompetitive USD prices arising from compliance with the government’s in-store exchange rate policy,” said Mpofu.
Pick n Pay’s Zimbabwean partner was now involved in “ongoing engagements with monetary and fiscal authorities on changing the in-store exchange rate”policy.
However, there was some respite for the company with sales volumes in December surpassing previous year thresholds. The focus of the company was now on strengthening operations’ capabilities as a means of adapting to the evolving trading conditions.
In the quarter to the end of December, said Meikles, units sold and customer count for the supermarkets division increased by 5% and 2% respectively compared to the same period a year earlier. This helped to “reverse the decline trend” experienced in the preceding two quarters.
Moreover, the decline in units sold for the nine months eased to 6% from the 10% reported for the six months to August 31, 2023, with the chain’s stores relatively well stocked as reflected by the the growth in units sold and customer count.
However, “challenges were encountered in the range of stocks” given the revenue split.
Analysts at IH Securities, however, expect consumer demand in Zimbabwe to remain firm supported by a good agriculture season and above average precious metals prices. And with Zimbabwe largely an informal sector where the US dollar is dominant as a medium of exchange, retailers could benefit from a flexible exchange rate regime.
“Despite an anticipated firm consumer demand, we are skewed towards consumer facing stocks that with an ability to generate revenue in USD, capacity to penetrate the informal sector, ability to adjust prices in line with inflation and exchange rate movements and good management.”
Over the weekend, Zimbabwe said it was set to unveil new interventions, which may include reforming the foreign currency auction system and boosting foreign currency supply in the market, to deal with the recent volatility affecting the Zimbabwe dollar. This may however come a little too late for some retailers that have already been worse affected by the obtaining monetary policy framework.
Clothing and apparel retailer, Truworths has already closed six shops, citing under-performance and stronger competition from cheaply imported second hand clothing. The grocery retailers however appear to be holding fort, with Pick n Pay opening new outlets across the country.