Covid-19 shifts Zim retail sector fortunes

Zimbabwe’s retail sector is one of the few sectors that could benefit from the coronavirus pandemic as demand for basic commodities rises.

The global outbreak of the health pandemic has already significantly impacted earnings of most business entities, at least in the short-to-medium term.

But ironically, the same pandemic could have worked in the local retail (or fast-moving consumer goods — FMCG) sector’s favour. Prior to the emergence of Covid-19 analysts were largely predicting that the sector was facing further headwinds stemming from rising inflationary pressures which are weighing on consumers’ purchasing power.

Inflationary pressures and currency devaluation was projected to accelerate negative effects on the consumer base due to the high cost of imported products. But with Covid-19 slowing international trade Zimbabwe’s import levels may no longer be the case.

Analysts say the FMCG sector — which, among other sectors, has been declared an essential service — could actually thrive.

FMCG firms that have a particular focus on basic commodities or ‘essentials’ so to speak, are a relative safe haven compared to the broader market.

“We expect sustained demand for defensive mass market products such as maize meal, bread and hygiene products. The additional ‘free time’ from work will also result in an increase of secondary activities that will also complement food consumption during the lockdown.

“We opine that as a result, there will be a lower decline in demand for food and other fast moving consumer goods relative to other sectors of the economy,” said analysts at stockbrokers Morgan & Co.

“While the increase in mass market consumption will be offset, to some extent, by the decline in retail traffic (as a result of reduced operating hours) these dynamics will benefit players that are extensively exposed to mass market products.

“Examples of well-placed players in Zimbabwe include food retailers such as OK Zimbabwe and Meikles’ Pick n Pay as well as listed FMCG manufacturers such as Innscor.”

There is, however, a concern that the pandemic has affected the supply of some basic commodities, which could work against the retail sector.

OK Zimbabwe chief executive Alex Siyavora told Herald Business & Finance:

“It is generally true that during lockdown people are preparing meals at home. Our delicatessen service is affected by this development because the general public have reduced purchases of prepared food. Cooking oil supply has been erratic for most of 2020. The issue is around foreign exchange to import crude oil. However, oil processors expect to start feeding the market from next week. Sugar supply was affected by disruptions to the distribution system.”

Notwithstanding some shortages of basics such as sugar and cooking oil, the availability of basic commodities in retail shops has been generally positive.

But luxury and discretionary FMCG and suppliers face greater risk exposure to the Covid-19 pandemic. The quick service restaurant (QSR) sector is one such area. Said analysts at IH Securities of Simbisa Holdings:

“The current Covid-19 pandemic has naturally impacted the QSR sector, especially proliferated by the national lockdown in anchor market, and a curfew in critical regional market Kenya. Zimbabwe began a 21-day lock-down on March 30 2020, which has been extended by a further 2 weeks; following this, stores will naturally experience reduced customer traffic and limited trading hours, putting pressure on customer counts, negatively affecting at least the remainder of H2 and dampening a recovery which had been observed in Q3.

“We expect regional markets to have a similar experience as countries all around have been placed under lockdown or restricted business operating hours as governments comply with Word Health Organisation’s (WHO) directive in efforts to manage the pandemic.

“Naturally, we anticipate some reversal in the positive customer counts recorded in the region in H1 as well. In response, management has indicated that the focus, both in Zimbabwe and the region will shift to the delivery model (Dial-A-Delivery, DAD) — this will be a critical component of the group’s strategy going forward as we believe that even as Covid-19 infection rates drop and lock-down measures ease, a culture of social distancing will purvey in the short to medium term.

“Simultaneously, the group will focus on value offerings in Chicken Inn and Bakers Inn, which are more tailored to the lower end of the pyramid particularly as disposable incomes come under further pressure and customers migrate towards more affordable meals.”

Despite such concerns data from the local equities market seem to show general positivity towards retail stocks. Both the Zimbabwe Stock Exchange (ZSE)’s Consumer Staples Index and Consumer Discretionary Index have been trending upwards for, at least, the last couple of weeks.–herald.cl.zw

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