A STRING of shock bankruptcies by several supermarket chains, or their branches has brought to the fore the scale of damage inflicted on Zimbabwe’s formal retailers by an aggressively expanding informal sector.
As formal retail markets struggle to cope with a glut of cheap imports spanning from groceries to clothing and medical drugs, one of the major supermarket chains hinted recently it could divest from the country. The most recent wave of mayhem followed red flags raised by the Zimbabwe Stock Exchange (ZSE)-listed OK Zimbabwe last year, as it spelt out the weight of challenges confronting the sector.
OK is Zimbabwe’s biggest retail chain, with a countrywide network of about 60 branches. “The dangers are apparent, with some retailers already closing shop, others under corporate rescue, and inevitable job losses,” OK Zimbabwe cautioned. Only a few months after the caution, Food World Supermarket has permanently closed its Eastgate branch in Harare, citing diminishing business. Food World’s drastic action followed the closure of its Mbuya Nehanda, Julius Nyerere, and Angwa branches in Harare, which have been converted into malls.
Pick n Pay Group Limited impaired its investment in TM Supermarkets to zero due to Zimbabwe's deteriorating economic climate, while Botswana-domiciled Choppies Enterprise is reportedly considering mothballing its Zimbabwean operation, placing 1 051 jobs at risk. An analysis of retail sector developments by businessdigest showed that another leading retail chain, Haefelis, shut down its Chisipite branch in Harare, sparking another wave of layoffs in a country with 90% unemployment levels.
Metro Peech & Browne, a major wholesaler, slipped into corporate rescue over 12 months ago, citing stiff competition from the informal sector. Zimbabwe's economic challenges have severely impacted formal retailers, as consumers turn to cheaper alternatives, especially smuggled goods on the informal market. “Most formal retailers now are battling for survival,” OK Zimbabwe said last year.
“The rise of the unregulated informal operators, who are mostly arbitraging, has caused more headaches than good for the formal guys like OK Zimbabwe, TM Pick n Pay, Gain Cash & Carry and so many more. This has created a whole new spate of dangerously unhealthy competition. “Some are (businesses) paying taxes, some are not…some are using the regulated bank exchange rate, some (businesses) are not, hence causing artificial or distorted price points in the stores. “The informal retailer is infamously using the black-market rate and marks the same products downwards causing ‘forced death’ on the formal retailer. Can this be solved though in the short and long-term?
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“Yes, only by government policy intervention, which levels the playing field to enable the formal retailer to survive. The dangers are apparent as some have even started closing shops, some are under corporate rescue and many jobs are going to inevitably be lost.” Small traders are well-stocked and more affordable, selling exclusively in United States dollars while avoiding taxes. In contrast, larger supermarkets are forced by the government to price their stock using the official exchange rate and pay taxes, rates, and regulatory fees, making their goods more expensive.
This disparity has led to an exodus of customers to downtown traders. OK Zimbabwe's 2024 annual report revealed a 29,2% decline in items sold compared to the prior year, driven by market pricing distortions and macroeconomic constraints. These constraints included steep price increases, declining consumer spending power, and restrictive supplier trading terms, which adversely impacted product availability. In September, the Retailers Association of Zimbabwe wrote to government, warning of potential store closures due to exchange rate related challenges.
“The situation is clearly untenable and will lead to company closures if authorities do not intervene with policy measures to protect the formal retail sector,” it said.Seven months after its launch, ZiG is under pressure and has lost almost 80% of its value on the black market — where it trades between ZIG40 and 50ZiG to US$1.According to Confederation of Zimbabwe Retailers president Denford Mutashu, high informalisation has significantly contributed to the decline of the formal retail and wholesale sector. Over-regulation and selective enforcement of policies have exacerbated the problem, he said.“There is a need to streamline the regulatory framework and urgently formalise the informal sector to level the playing field,” Mutashu said.
Leading economist Prosper Chitambara attributed the recent closure of several retail outlets in Zimbabwe to differing cost structures between informal and formal sectors.