Monday, 7 November 2016

OK THRIVES IN A CRUMBLING ECONOMY

One of Zimbabwe’s largest supermarket groups, OK Zimbabwe (OK), says its first half profit surged 87,1 percent on the back of lower overheads.

The retailer’s chief executive, Willard Zireva, on Thursday said revenue for the period had gone up 2,3 percent to $218,6 million from the $213,6 million.

“Gross margins improved due to efficient procurement while operating costs were managed down to achieve improved profitability.

“Working capital has improved significantly, reflecting sufficient liquidity in the business to meet the group’s operating requirements,” he said, adding gross profit had also surged 139,2 percent to $3,1 million from $1,3 million in prior comparable period,

During the period under review, overheads were down from $34,2 million to $33 million as group wide initiatives to contain costs continued with capital expenditure for the period at $5,5 million, up from $3,9 million in prior year.

“However, tighter liquidity and limited access to cash impacted aggregate demand with business operations having since shifted to electronic payment systems,” the OK boss.
During the quarter, the specialist departments of fruit and vegetables and in-house bakeries grew above prior year while the financial services sector operations continue to grow.

The OK boss also said the retailer was waiting on the Reserve Bank of South Africa to approve a deal signed with South African distributor, Kawena, expected to see OK use funds collected in the neighbouring country to pay for imports and raw materials.

The arrangement enables Zimbabweans resident in South Africa to purchase goods for family and friends back home, in a move that will see OK tap into the estimated $500 million per year which is remitted by Zimbabweans in South Africa for family support and other personal projects.

OK, which saw its profits tumbling to $0,7 million in the full year to March 2016 from $7,5 million a year earlier, will according to Zireva focus on further cost reductions to maintain market share and improve profitability.

This comes as local retailers are facing a decline in revenue as a result of limited and constrained consumer disposable incomes.

Faced with worsening economic conditions, consumers are now turning to low-priced goods and low cost outlets have taken advantage of a change in consumption patterns and are thriving at the expense of established retailers like OK and TM supermarkets.

Margin pressure is, however, expected to persist into the year as OK’s product mix has since shifted to low margin basics given the current liquidity challenges and limited disposable incomes which have left the customer squeezed.

The retailer re-opened its First Street branch after renovations that cost $1,2 million, while a new OK Mart was opened in Gweru during the period under review with another OK Mart set to be opened in Victoria Falls next month.

Zvireva also said the outlook was not immediately apparent given the tough operating environment, instead telling shareholders that management was going to ensure the group remained viable in future.

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