FoodWorld, one of Zimbabwe’s popular retail chains, has announced the closure of its Eastgate branch, marking another significant retreat from Harare’s formal retail landscape. This closure follows a string of recent shutdowns, including their Jason Moyo Avenue and Mbuya Nehanda branches, leaving the retailer with only one remaining outlet in the capital city.

The company issued the following notice to its customers:

NOTICE OF BRANCH CLOSURE

Dear Valued Customers,

We regret to inform you that our Food World Eastgate branch will be closing permanently on 30 September 2024.

We deeply appreciate your loyalty and support over the years and apologize for any inconvenience this may cause. Rest assured, our other branches will remain open and ready to serve you with the same dedication.

We encourage you to visit our CamSpeke branch for continued shopping.

Thank you for your understanding and continued patronage.

Sincerely,
Management
Food World Retail

This closure is not an isolated incident but part of a broader trend that reflects the challenges faced by formal retailers in Zimbabwe’s complex economic environment.

The Root of the Problem: Currency Conundrum

While FoodWorld has not officially provided a reason for the closure, our market intelligence suggests that the core issue lies in Zimbabwe’s ongoing currency crisis. As we’ve previously reported, formal businesses are grappling with a significant disparity between official and unofficial exchange rates.

Key factors contributing to this crisis include:

1. USD Dominance: Despite the introduction of the Zimbabwe Gold (ZiG) currency, an estimated 60% of transactions are still conducted in USD as of September 2024. This is down from 90% in April, indicating some uptake of the ZiG, but USD remains the preferred currency for most transactions.
2. Official Rate Dilemma: Formal retailers are legally required to use the official exchange rate when converting between ZiG and USD prices. However, this rate is often significantly lower than the parallel market rate, putting these businesses at a disadvantage.
3. Pricing Strategies and Losses: To protect against potential losses from ZiG transactions at the official rate, many formal retailers set high USD prices. This strategy, while protective, often results in uncompetitive pricing compared to informal traders.

The Informal Sector Advantage

Informal grocery stores, often referred to as “tuck-shops,” have been steadily encroaching on the market share of formal retailers. These businesses enjoy several advantages:

1. Flexible Currency Policies: Tuck-shops often deal exclusively in USD or use more favorable unofficial exchange rates for ZiG transactions.
2. Tax Avoidance: Many informal traders operate outside the tax system, reducing their operational costs.
3. Direct Supplier Relationships: Manufacturers often prefer supplying tuck-shops due to immediate payment in foreign currency.

FoodWorld’s Pricing Paradox

Interestingly, our recent price survey reveals that FoodWorld has been implementing a dual pricing strategy, potentially in an attempt to navigate these challenges. They display separate prices for USD cash payments and electronic transactions (both USD and ZiG). However, even their USD cash prices remain relatively high compared to informal sector competitors.

For instance, our October 1st, 2024 survey shows:

This pricing strategy, while an attempt to mitigate currency risks, may be contributing to FoodWorld’s declining competitiveness.

Broader Implications for Zimbabwe’s Retail Sector

The closure of FoodWorld’s Eastgate branch is symptomatic of deeper issues affecting Zimbabwe’s formal retail sector:

1. Supply Chain Disruptions: Manufacturers and farmers are increasingly reluctant to supply formal retailers due to delayed payments and currency issues.
2. Declining Product Range: Formal supermarkets are struggling to maintain a diverse product range, further driving customers to informal traders.
3. Job Losses: Each supermarket closure results in job losses, contributing to Zimbabwe’s unemployment challenges.

Looking Ahead

The challenges facing FoodWorld and other formal retailers in Zimbabwe are complex and deeply rooted in the country’s economic policies. As we analysed earlier this year, the success of the ZiG currency and the stability of the retail sector are intertwined.

For the formal retail sector to recover, several key issues need to be addressed:

1. Currency Stability: The government needs to work towards narrowing the gap between official and unofficial exchange rates.
2. Flexible Pricing Policies: Allowing formal retailers more flexibility in currency transactions could level the playing field with informal traders.
3. Supply Chain Support: Measures to ensure timely payments to suppliers in their preferred currency could help reestablish trust in formal retail supply chains.

At Zimpricecheck, we will continue to monitor these developments closely, providing up-to-date pricing information and analysis to help Zimbabweans navigate this challenging economic landscape. For the latest grocery prices and economic insights, keep checking our website and subscribe to our WhatsApp channel for real-time updates.

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