Market share battle continues as OK Zim takes over Food Lovers Market.

There was a time when, if you thought of Fast-Moving Consumer Goods (FMCG) retail outlet you would most likely think of OK Stores, or Bon Marche if you are from the uptown. During that time, OK Zimbabwe commanded over half of the market share against its closest competitors like Spar, Choppies and TM Stores before the partnership with Pick n Pay. She had the highest the number of outlets, well she still does but the gap has been drastically reduced as the competition is intensifying.

Then it came a time when the Meikles owned TM Pick n Pay adopted an aggressive growth strategy which gave OK Zim as good run for her money. As Meikles Limited sold off the Meikles Hotel, divested from Tanganda Tea Company and exited Cape Grace Hotel, the company found itself awash with cash to focus on the retail outlets side.

Although Spar is run under a franchise, new outlets also came in and the dilapidated ones were revamped making the competition even worse. The BSE listed Choppies, which is stronger in the Southern region of the country including Bulawayo apparently made the food retail business a red ocean. Not to mention the terrible headaches the formal retailers get from the informal tuck-shops, who are price competitive due to less regulatory expenses.

In my opinion, the top echelons of OK Zimbabwe sat down and re-examined the facts and figures and realized that they had to act, for them to stand a chance to maintain their position as an FMCG giant. Acting, in this case would mean embarking on a massive refurbishment exercise, increasing the stores footprint and even employing such corporate actions such as mergers and acquisitions.

This might have given birth to the idea that led to OK Zimbabwe limited acquiring the assets and business of Talwant Investments (Private) Limited trading as Food Lovers Market. A move which I wouldn’t say caught the market with surprise, but rather was received with mixed reactions.

Apparently, OK Zimbabwe disclosed in a press statement recently that the deal will see them owning the assets and business of 3 of the 4 outlets excluding the Greendale branch which is independently owned. Immediately after hearing the news, I bet the first question a lot of analysts asked was if the acquisition would move the needle for the acquirer.

Well, to give a bit of historical context, the company has grown organically over the past years adding 15 stores to their footprint in the past decade. Clearly, the company is now showing that perhaps organic growth alone might not be sufficient to achieve their goal hence the need to implement an acquisition strategy.

Although the acquisition amount is not yet in the public domain, for us to assess whether the deal is a bargain or a waste, it is important to understand there is more to corporate transactions than just face value numbers. The investment value of the target firm might be higher than the intrinsic value and factors such as leveraging on Food Lover’s clientele and business systems coupled with potential economies of scale should be also considered.

Genuine concerns however have already started to come from both Food Lovers customers and market participants in general, whether the standards of the up-market retail chain will be maintained. OK Stores generally target the low to medium earners with some stores even in the high-density areas, whilst their high-income earners are served by Bon Marche.

The supply chain synergies promised by OK’s management would either help the already existing stores to improve their product offering and shopping experience or equate the Food Lovers standards to the already existing Bon Marche standards, which as a customer I reckon they are different.

On the other hand, TM Pick n Pay which now has a total store count of 56 has predominantly targeted the middle-income earners but has also started targeting the premium market. It has appeared as an anchor tenant to most of the newly established shopping malls including the BJ Southgate mall along Chiremba road, the Highland Park Phase 1 and Madokero Mall.

In the 2022 Financial year, which ended on 31 March for both companies, OK Zimbabwe had a turnover of ZW$79.8 billion whilst the retail division of Meikles which is essentially TM Pick n Pay stores was on ZW$66 billion. TM’s sales volume was up 26% whilst OK experienced a 23% sales volume surge.

From a profitability angle, TM reported an operating margin of 4.3% whilst OK was at 7.2%. Looking at the bottom line, TM netted a 3.7% margin against its competitor’s 3.5%. All the numbers are adjusted for inflation and are audited.

In terms of customer transaction growth, OK reported a 13% growth whilst TM had a 11% increase. In 2022 OK Zim had 2,640 suppliers of which 98% of payments were to local suppliers whilst TM had 726 suppliers with close to 100% payment made to local suppliers.

Interestingly, despite operating 12 more stores, OK Zimbabwe had an employee head count of 5,289 whilst TM Pick n Pay employed 5,280 workers. Readers can interpret this information whichever way they find appropriate but its worth noting that each OK employee helped the company to generate ZW$15 million whilst the number is ZW$12.5million for TM.

To maintain their ambiance, both companies are pursuing a refurbishment exercise. TM Pick n Pay dedicated ZW$1.8 billion towards capital expenditure whereas the number for OK Zimbabwe was ZW$3.1 billion.

Although most of the comparison centered on these two companies due to easy availability of information, it is worth noting that even more competition is coming from those parties whose information is not in the public domain. This market has become a red ocean, and as the battle continues, it is most likely that the customers will benefit the most.