This morning, as part of our regular “Insightful Mondays” survey, where we visit various retail outlets to keep a finger on the pulse of the retail sector, we made our rounds to several OK Supermarket branches. We were rather taken aback upon entering the first store, to be met with prices displayed in ZiG (ZWG). A tube of Colgate toothpaste was priced at $35.06 ZWG, while a two-litre bottle of Probrand’s Bally House cooking oil was going for $125 ZWG, 10kg of roller meal cost $315.57 ZWG, and refined maize meal was set at $330.81 ZWG. It appears OK has opted to revert to the ZiG as its primary currency, having experimented with US Dollar (USD) pricing since 2023.

Not only were most items displaying prices primarily in ZiG, but there was also palpable evidence of a transition in progress. We observed several members of staff busily removing price tags denominated in USD and replacing them with ZWG equivalents on the shelves. This process was ongoing, and many items toward the back of the shop, such as in the OK First Street branch, were still displaying USD prices. However, there were visible pen markings used by floor supervisors to indicate to shop floor workers which tags were outdated and needed removal.

OK is not ok

It has not been a secret that OK has been struggling. The supermarket chain has been grappling with some stocking challenges. We first noticed some worrying trends a few weeks ago, when we could not find a single loaf of bread in multiple OK supermarkets. This occurred over several days, leading us to make enquiries with our contacts at various bakeries, as well as with several members of OK’s staff. Both of these sources confirmed that bakeries had suspended deliveries to OK due to delayed payments and a failure to honour commitments in a timely fashion.

We do not routinely shop at supermarkets, so we were rather slow in noticing the problems that OK was facing. However, once we realised what was happening, we decided to investigate further. It was not just bread. Vegetable suppliers also appeared to be giving the shop a wide berth. Most outlets did not have their usual array of vegetables, sometimes running out of popular items like onions, green leaves such as covo, and even tomatoes. These are staples with consistent demand, and most supermarkets always make sure to stock them. There were other missing basic grocery items as well, like cooking oil and flour, among others. A casual observer might not even notice, as OK has been rather clever in concealing these gaps to the average shopper, filling any empty space with drinks and other items that they had in plentiful supply. Only when one attempted to buy specific items did these shortages become apparent. Many shoppers took to social media to voice concerns, and speculation was rife that OK was on the verge of closing its operations in Zimbabwe.

Fortunately, OK has allayed these fears, although they rather vaguely blamed the situation on the volatile economic environment. According to OK, they simply experienced intermittent shortages during the festive period and are currently working with suppliers to rectify the problem. The company also promised to develop solutions to stabilise the situation. It seems OK has opted to return to its default position, using the ZiG as its primary currency, a solution we will explain in due course. TM Pick N Pay has been using the ZiG as its primary pricing currency for a number of years now, and it seems to have weathered most economic storms and is doing relatively well.

Why OK Made the Switch

Zimbabwe operates a multi-currency system, and businesses are able to choose either the ZiG or the USD as their primary currency. Most formal businesses tend to favour the ZiG. This is because the government obliges businesses to use the official rate when making conversions between ZiG and USD. The official rate is often lower than the rate used in the informal sector. Currently, the official rate is around $26 ZWG per 1 USD. However, suppliers, and even the supermarkets themselves, generally do not obtain their foreign currency from the official interbank rate, meaning that rate is not relevant for most businesses. Currently, the unofficial rate is as high as $40 ZWG per US$1. This is the rate that many businesses in the formal supply chain of supermarkets use when obtaining their foreign currency. In theory, the Ministry of Finance and the Reserve Bank of Zimbabwe (RBZ) have given businesses the option to use the rate they paid when obtaining the foreign currency required for their operations. However, in practice, the government would frown and possibly retaliate if a business were to attempt to use a rate of $40 ZWG per 1 USD.

Many businesses, including OK and Pick N Pay, have therefore chosen a middle-of-the-road solution. They use rates that are higher than the interbank rate but are not as high as the black market rate. For example, OK is using a rate of approximately $30.40 ZWG per 1 USD. This is higher than the official rate of $26 but lower than the black market rate of $40 ZWG per 1 USD. It must be remembered that formal businesses are compelled to use this rate when converting between USD and ZWG prices. Businesses must strike a balance, where they charge USD prices that are low enough to compete with informal tuckshops, which charge very low USD prices (but usually refuse to accept ZiG), while still getting away with refusing to accept ZiG and charging prices that, when converted to ZWG, will not result in substantial losses. In reality, most of these businesses are paying a higher exchange rate in the background. The natural solution has been to use the ZiG as the primary currency. So, for example, a tube of Colgate toothpaste is sold at around $35 ZWG. When most people sell their USD to black market traders, they are likely to get this rate of $35 ZWG per USD (the mid-rate). Those with ZiG also know the informal rate and will therefore perceive the price of the tube of toothpaste to be the equivalent of US$1. However, the store is using a rate of around $30.40 ZWG, so if someone tries to pay in USD they will be asked to pay approximately US$1.15. The price of US$1 is comparable to that of tuckshops, and the price of US$1.15 is higher, but not so high that it would be of material concern to most people. The ecosystem has evolved to the point that there are black market traders who hand out ZiG bank cards at the entrances of supermarkets to those who want to buy using USD. They usually offer a rate that is closer to $35 ZWG per USD. This allows shoppers with USD to pay using ZWG, at rates which make the prices of most items in supermarkets comparable to those in tuckshops, which are generally considered to be the cheapest.

This however creates problems of its own. Using ZiG will entail bank charges and other handling fees that eat into profit margins. Supermarkets need foreign currency to pay for items like fuel. The ZWG, despite the hype, has proven to be a volatile currency, and holding large amounts of ZiG will inevitably lead to exchange rate losses. Any attempts to obtain foreign currency on the informal sector can be easily detected by the RBZ’s Financial Intelligence Unit (FIU), who often freeze the accounts of suspected black market traders and demand large fines. Finally, the bulk of Zimbabweans use the USD, with USD transactions accounting for as much as 80% of all transactions.

The reason why OK made the switch to USD pricing from the ZiG regime was to try and compete with tuckshops, who were eating into their market share. One of the biggest draws of tuckshops is their simple USD pricing. Rice, for instance, sells for around US$2 per 2kg bag, a bar of soap costs US$1, and a 2kg bag of flour has sold for US$2 for the past couple of years. Pricing items in USD made them easier to understand, and it was clear for shoppers to see that OK’s prices were competitive without having to use a calculator. Prices also, in theory, did not have to change much as they were indexed in USD. Unfortunately, things did not go to plan. Firstly, as we have already discussed, there was the issue of the exchange rate. Even if OK priced items in USD, they still had to account for that conversion. If they priced their items too low in USD, ZiG shoppers would flood in with their cards and buy at rock-bottom prices. If, for example, OK decided to price their toothpaste at US$1, and their shop exchange rate was $30.40 ZWG per 1 USD, if a ZiG shopper paid this amount but OK had paid $40 ZWG for their foreign currency, the shopper would essentially be paying US$0.76 per tube, resulting in a loss of US$0.24. Zimbabweans are very adept at finding such pricing arbitrages, and soon the shop would get a massive influx of ZiG at a loss, as opposed to getting the USD they wanted. Remember, we said the government might not say it outright but they dislike it when businesses use a rate far higher than the official rate. The result was that OK was forced to raise USD prices to prevent this arbitrage. This made them unattractive to the USD shoppers that they wanted to entice in the first place. They instead became attractive to those who were paying using ZiG, whether it was their own ZiG or ZiG obtained from black market traders who hang around supermarket entrances offering to swipe cards. OK does not have a choice. That choice has already been made for them. The switch back to ZiG is their only option, and it appears they are embracing it.

The Bigger Picture

The struggles faced by OK are not isolated. The entire retail sector in Zimbabwe is facing significant challenges. The economic instability, combined with stiff competition from informal traders, and supply chain problems, has created a very difficult environment for formal retail businesses. The move by OK is, therefore, symptomatic of a larger problem that needs to be addressed by policymakers.

We will continue to monitor the situation and provide updates on the evolving retail landscape in Zimbabwe.