OK in 10-year strategy driven by market growth, renewal, streamlining of operations

Enacy Mapakame
Faced with persistent difficulties weighing on the business, the country’s largest retail chain, OK Zimbabwe’s ten-year turnaround strategy is expected to bear fruit in the long run.

The strategy is focused on market growth, brand renewal and streamlining operations.

Analysts already project a bleak outlook for the consumer sector owing to a myriad of challenges like low disposable incomes which poses a threat to consumer-oriented firms like OK Zimbabwe, forcing them to be innovative.

According to the group, the plan includes diversifying revenue streams through initiatives like the launch of five Alowell pharmacies, with another one planned for the current year.

Additionally, capital expenditure plans for the year include the opening of standalone liquor stores as well as a bulk cash and carry segment in Graniteside as it diversifies revenue streams.

Despite a 15 percent increase in sales volume and a 22 percent growth in basket size in the first quarter of 2024 compared to the same period last year, OK Zimbabwe is grappling with a 10 percent decline in customer count.

While a new, more stable currency has been implemented, the removal of a 10 percent trading benefit for formal businesses has further impacted foreign currency earnings.

Management remains committed to maintaining sales volume growth by ensuring consistent product availability, continuing fair pricing initiatives and upholding other customer-centric strategies.

Analysts, however, believe OK Zimbabwe faces a significant challenge in returning to profitability and recapturing market share. Consumer spending in the coming year might be weaker due to a drought linked to El Niño, potentially hindering volume growth.

“In our view, OK Zimbabwe faces an uphill battle returning to profitable terrain as well as in regaining market share,” said IH Securities.

“Consumer spend in the current year could likely come in weaker on the back of the El-Nino-induced drought, curtailing volume growth,” said the research firm.

For the full year to March 31, 2024, OK has admitted to a challenging environment, which remained constrained throughout the course of the financial year, weighing on consumer pockets.

Economic uncertainties affected business planning as well as consumer confidence. Retailers like OK have also lamented the pricing distortions from mandated use of the official rate resulted in shedding of further volumes to the informal sector as pricing was 25 percent to 40 percent higher than in informal channels.

As a result, volumes for the year fell 29,19 percent year on year with formal retailers only accounting for 20 percent of the country’s retail sales.

In terms of financial performance, revenue grew 677 percent in historical terms to $2,02 trillion with gross margin firming from 20,9 percent in the prior year to 36,6 percent in the current financial year.

Revenue remained 30 percent dollarised, marking high exposure to local currency headwinds.

However, the operating margin decreased from 4,76 percent to 4,32 percent owing to cost escalations in utilities, wages as well as backup power costs.

The group posted a loss of $62,34 billion, and did not declare a dividend for the period.