At the beginning of this year, the retail landscape in Zimbabwe experienced a seismic shift. Choppies Supermarket, a familiar fixture, changed hands as its Zimbabwean owners sold the business to Pin Tail Trading, now operating under the Sai Mart banner. Sai Mart is owned by none other than Bulawayo-based Minister of Industry Rajeshkumar Indukant Modi, known to most as Raj Modi, an already well-established player in the retail space.

Intrigued by this development, we at Zimpricecheck decided to investigate how the changeover was progressing. We ventured into Sai Mart outlets in Harare, bracing ourselves for the usual retail experience. What we found left us utterly gobsmacked. The USD prices displayed on the shelves were so competitive, so unbelievably low, that we had to do a double-take to ensure we hadn’t stumbled into a tuckshop by mistake!

Consider these examples:

• 2 Litres of Cooking Oil: Respected brands like Pure Drop and RAHA were selling for a mere US$3.30. To put this in perspective, some downtown tuckshops are charging as much as US$3.50 for the same items. It is important to note that Sunfoil, priced at US$3.00 per 2 litres, was not in stock.
• Geisha Bath Soap: Vendors typically sell this for US$0.70 each, and Sai Mart matched that price exactly.
• C and B Mayonnaise (750G), Flour, Milk: The same story: US$3, US$2, and US$1.20 respectively.

There were a few exceptions where Sai Mart’s prices were slightly higher. For instance, Mazoe Orange Crush sells for US$3.50 in tuckshops and other informal outlets, but in Sai Mart it was priced at US$3.99. Similarly, 100 teabags were selling for US$2.20, compared to US$2 in tuckshops. This discrepancy is understandable given the higher overheads associated with running a larger supermarket, particularly in uptown areas where rental costs are significantly higher.

The Exchange Rate Riddle

We were initially perplexed by these surprisingly low prices, but the answer became clear as we approached the tills. Prominently displayed were notices showing the applicable exchange rates for the day:

• $36 ZWG per 1 USD
• R19 per 1 USD
• P14 per 1 USD

Ah, the first rate, $36 ZWG per 1 USD, explained everything. While the government and various outlets have consistently portrayed the informal sector as tax-evading villains, the real reason formal businesses struggle to compete is that they are shackled by artificially low official exchange rates. The official rate currently sits at $27 ZWG per 1 USD.

According to current regulations, supermarkets are now permitted to use the exchange rate at which they obtained their foreign currency when converting between USD and ZWG. However, this policy is fraught with complications:

• Multiple Forex Sources: Most supermarkets acquire their foreign currency from diverse sources. Which rate should be used for conversions then? While a weighted average might seem logical, determining the weights (based on sales or purchases?) becomes an accounting nightmare. How would they even know which foreign currency purchased what?
• Official Sources Only: Supermarkets are only allowed to obtain foreign currency from official sources, primarily the interbank rate. Unfortunately, these markets have been plagued by more willing buyers than sellers. And when foreign currency is available, it’s often at artificially low prices due to various governmental interventions.
• The Black Market Shadow: Supermarkets are forbidden from trading or obtaining foreign currency on the black market. However, the government is fully aware of the prevailing black market rates. Using a rate like $36 ZWG per 1 USD strongly suggests sourcing foreign currency from the black market, inviting unwanted scrutiny and potential investigations.

In reality, supermarkets often resort to rates slightly higher than the official rate but still below the black market rate. This is where the problem lies. To avoid exchange rate losses, supermarkets end up charging exorbitant prices in ZWG.

• Low USD Prices, High ZiG Demand: If supermarkets offer low USD prices, people holding ZiG would rush to the black market, convert their ZiG to USD at higher rates, and buy goods at a discount. The supermarket would then be left with piles of ZiG and a dwindling supply of foreign currency. This is the risky strategy that OK opted for, leading to serious restocking issues and the closure of five branches. You can read more about OK Zimbabwe’s challenges here.
• High ZiG Prices, Unattractive USD: Alternatively, supermarkets can play it safe and charge high ZiG prices, resulting in unattractive USD prices. For example, if a bottle of cooking oil is priced at $118.80 ZWG (the price Sai Mart is charging) and Pick N Pay uses a rate of $30.4 ZWG per 1 USD, the USD price would be US$3.91. This price difference can deter shoppers, especially when it adds up to a significant amount during month-end shopping. Most people with USD would simply go to cheaper tuckshops or convert their USD on the black market for better rates. The supermarket ends up facing the same challenges as OK: a shortage of foreign currency and low foot traffic, given that 70%-90% of transactions in Zimbabwe are conducted in USD.

Is Sai Mart Playing by Different Rules?

As noted, supermarkets are legally permitted to use exchange rates that reflect the cost of obtaining their foreign currency. While using a rate of $36 ZWG isn’t illegal in itself, it certainly raises eyebrows. This explains how Sai Mart (aka Choppies) can offer such competitive USD prices. They aren’t technically breaking any laws, but one can’t help but wonder if other supermarkets would be able to use similar rates without facing consequences.

The prevailing sentiment on the street and social media suggests that Sai Mart’s unique advantage stems from its owner’s position. They are, in essence, playing by a different set of rules.

As we noted earlier, this strategy is likely to boost foot traffic. The majority of shoppers prefer to pay in USD and are less concerned about exchange rates. They will flock to Sai Mart for the cheaper USD prices. We’ve already observed a significant difference in stocking. The shops are now well-stocked, resolving the stocking issues they faced in December before the change of ownership. In fact, shelves at Choppies Nelson Mandela were so overloaded that workers had to remove some items.

Frequently Asked Questions (FAQs)

Q: Why are Sai Mart’s USD prices so low compared to other supermarkets?

A: Sai Mart is using a higher USD to ZWG exchange rate than most supermarkets, allowing them to offer more competitive USD prices.

Q: Is it legal for Sai Mart to use this higher exchange rate?

A: Supermarkets are allowed to use the exchange rate at which they obtained their foreign currency. However, using a rate significantly higher than the official rate raises suspicions and could invite investigation.

Q: Why are other supermarkets struggling to compete with tuckshops and the informal sector?

A: Formal businesses face challenges like restrictive monetary policies, higher overhead costs, and competition from the informal sector, which often operates outside of formal regulations and taxes.

Q: What is the official exchange rate in Zimbabwe currently?

A: The official exchange rate is currently around $27 ZWG per 1 USD, but this is subject to change. You can find the latest official and black market exchange rates on our website here.

Q: What happened to OK Zimbabwe?

A: OK Zimbabwe is not leaving the country, but they have had to close five branches due to the difficult operating environment. You can read more about their challenges here.