Inflationary tailwind boosts margins at Zimbabwean supermarket chain

Grocery retailer OK Zimbabwe recorded sales of ZWL802 million (USD399 million at the, artificially high, official exchange rate) during the 12 months to March 2019, up 37.6% on the year-earlier period. EBITDA also rose strongly, to ZWL76.8 million, giving it an extremely healthy EBITDA margin of 9.6%.

The business that eventually became OK Zimbabwe opened its first store in Harare as long ago as 1942. It currently operates 56 supermarkets (under the OK and Bon Marché banners) and six OKmart hypermarkets.

According to the retailer, “the lag of cost increases behind revenue growth” played a role in boosting its performance. The annual rate of consumer price inflation in Zimbabwe accelerated from 2.7% to 67% between March 2018 and March 2019. It also cited promotions and refurbished branches as playing a role.

These outweighed such negative factors as a shortage of foreign currency, which resulted in “erratic” supplies of some goods, and frequently electricity cuts (arising from a prolonged drought in a country where hydroelectricity is a major source of power): “The lack of electricity is affecting operations. We operate our stores on generator power, and this is costly in both fuel and repairs. This has forced us to rationalise our opening hours to ensure that we are open at peak times.”

The Sagaci Research View: Most supermarkets would be happy with an EBITDA margin of 5% – let alone one approaching double digits. But with consumers panic buying, OK was able to raise prices on its existing stock before the inflationary shock hit its supply chain. With Zimbabwe’s annual inflation rate soaring to 176% in June (and the government announcing that it will not publish any more inflation data for six months), the outlook is getting even uglier for local consumers.

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