It’s no secret that OK Zimbabwe, a household name in the country’s retail sector, is facing significant challenges. While rumours of a complete withdrawal from Zimbabwe have been circulating, these are unfounded. The truth is that OK Zimbabwe is not leaving; instead, it is taking drastic measures to stay afloat, including closing five of its branches. This move comes as the supermarket chain grapples with a particularly difficult operating environment that is proving too much for many formal retailers.

The current situation is highlighted by the closure of five OK branches: Robson Manyika, Glen Norah, Kuwadzana Express, and Mbare (all located in Harare), plus the Chitungwiza Town Centre branch. A sixth branch is also scheduled to be closed in March, the chain has said. A total of six branches being closed or about to close. This is more than what they initially revealed. These are significant closures for a company that has long been a cornerstone of Zimbabwean retail.

The problems facing OK Zimbabwe are not isolated. The company is facing considerable headwinds with other retailers finding the trading environment just as difficult. The closure of these five branches, which had been struggling, are a symptom of a much deeper malaise. A combination of monetary policy, rising overhead costs, changing supply chains, and competition from the informal sector has created a perfect storm for formal retailers.

Monetary Policy a Key Culprit

One of the biggest hurdles facing OK Zimbabwe is the restrictive monetary policy framework. Formal businesses like OK are compelled to use a rate much closer to the formal exchange rate when conducting transactions in local currency. This rate is often lower than the black market rate which most manufacturers now prefer. Furthermore, unlike smaller retailers, OK cannot offer USD discounts. This results in cash flow problems as most suppliers and manufacturers now insist on payments in United States dollars. To recoup loses, formal retailers have to charge much higher USD prices to absorb the losses resulting in less competitiveness in an already competitive market.

The Burden of Higher Overheads

Unlike smaller, more nimble tuckshops, formal retailers like OK Zimbabwe operate with much higher overheads. They have more expensive premises to maintain and greater staff numbers. These overheads cut significantly into the company’s margins. Tuckshops often have lean operations and focus on a limited line of products. This allows them to have lower prices and greater flexibility. This means their operation is a lot more sustainable.

Technological Disruption and Supply Chains

Technology has brought significant changes to supply chains. Traditional wholesalers are becoming increasingly irrelevant, with manufacturers choosing to deal directly with retailers, even smaller ones. This can be beneficial but formal chains are often more rigid and slow to adapt to these changes. The result is that formal retailers may be slow to react and more likely to be stuck with outdated supply chains.

The Informal Sector’s Advantage

The biggest challenge for formal retail are informal traders. These traders often deal primarily in USD cash, and this allows them to offer lower prices. They do not deal with the banking system, where online payment options are expensive for customers, due to government imposed taxes like the IMT tax. Informal retailers can also dodge the burden of fiscalisation and taxes, allowing them to be far more competitive. In many instances customers are happy to accept this.

More than Just External Factors

It is easy to simply point to external factors such as economic conditions and monetary policies, however, OK Zimbabwe’s internal decisions appear to be playing a part. As Pindula News revealed, critics are questioning the company’s management structure, pointing out a bloated team with high perks. Decisions regarding land acquisitions and dividends declarations have also come under scrutiny, as it seems these might have misallocated funds and tied up cash. This is something that was revealed by the Business Weekly publication.

The company is also reported to have US$17 million and ZiG537 million in outstanding payments to suppliers, who have responded by withholding stock despite partial payments. This has led to significant stock shortages in many OK outlets, with some shelves often being bare, or stocked with less popular items. This also explains why some branches, such as OK Mbare, appear to be stocking drinks to try and give an impression of fullness.

Ripple Effects

The impact of the branch closures goes beyond OK Zimbabwe. These closures will lead to job losses not only at OK but also within the upstream and downstream industries. Downstream industries, such as farmers, suppliers, and manufacturers, rely on OK to sell their products. Upstream businesses, such as those providing logistics and maintenance, will also be affected.

Navigating a Difficult Path

OK, Zimbabwe’s current situation underlines the harsh realities of Zimbabwe’s retail sector. While the company insists it is not leaving, it is clear that significant changes are needed to navigate these turbulent times. The closure of these five branches, and possibly more, is a reminder of the challenges faced by formal businesses and the importance of flexibility and adaptability in the face of an ever-changing market. For the average shopper, the future of where they buy their groceries from seems to be in for a change. It appears, for the time being, that smaller retailers and informal traders are better positioned to serve their customers’ needs.