By Rufaro Hozheri| Financial Analyst
Meikles Limited, one of the oldest retail giants in Zimbabwe and listed on the Zimbabwe Stock Exchange (ZSE), recently released its FY24 results. This diversified conglomerate, once a major player in sectors ranging from health and beauty stores to bar and restaurant franchises, has seen a significant shift in its revenue streams.
The company’s supermarket division, now known as TM Pick n Pay through a 51/49 percent partnership with South African Pick n Pay, has become its primary revenue source, contributing over 98% of total revenues.
Despite the strategic focus on the supermarket division, the current economic environment in Zimbabwe has turned TM Pick n Pay into a target for dumping the local currency. Operating within a multi-currency regime, where the US dollar and the Zimbabwean dollar are the main legal tenders, about 80% of economic transactions are conducted in US dollars, with some sectors reaching 90% dollarisation.
This situation raises questions about the demand for the local currency, especially after the introduction of the Zimbabwe Gold (ZiG) currency earlier this year, aimed at reducing dollarisation to 70% by year-end.
For corporates, taxes paid in local currency provide some demand. However, for individuals, the situation is more complex. Meikles’ financial results suggest that TM Pick n Pay stores have become a dumping ground for the local currency.
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Formal retail outlets are required to quote an exchange rate close to the official rate, which is often overvalued compared to alternative rates. This discrepancy pushes people to exchange their foreign currency elsewhere and use the local currency in these shops.
Meikles reported that revenue in foreign currency was below 20% of total sales, attributing this to uneven enforcement of exchange rate policies. In contrast, OK Zimbabwe, a close competitor, reported an increase in USD sales from 10% to 30% over the same period. This disparity highlights the challenges TM Pick n Pay faces in aligning its currency mix with the broader economy.
Furthermore, TM Pick n Pay continues to price a significant portion of its products in local currency, unlike competitors such as OK and Spar, which quote prices in USD. From a customer perspective, goods priced in a stable currency like the USD are generally cheaper, as they do not include margins to hedge against currency depreciation. Consequently, TM Pick n Pay’s sales volume declined by 4.2% in the financial year under review.
Other listed companies, like Dairiboard and Delta Corporation, report higher USD sales, with Dairiboard noting that 84% of their sales were in hard currency. These companies have even started reporting their financial statements in USD, providing clearer and more useful information for decision-making. Dairiboard’s strategy of getting closer to the market and building sustainable supply chain models poses a direct threat to retailers like TM Pick n Pay, as manufacturers can collect more foreign currency through alternative routes than the formal market.
Distribution Group Africa (DGA), a subsidiary of the Victoria Falls Stock Exchange (VFEX)-listed Axia Corporation, also highlighted challenges in the retail sector, noting that it had to slow down supply to retailers struggling to meet payment terms. These macroeconomic factors make the retail market highly delicate, requiring TM Pick n Pay to be extra innovative to survive.
Despite these challenges, TM Pick n Pay has shown resilience. Its capacity for innovation and adaptation in a tumultuous economic environment will be crucial for its continued success.
As the company navigates these complex dynamics, its ability to balance the demands of the local and foreign currency markets will determine its future in Zimbabwe’s retail landscape.
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