South African giant retailer Pick n Pay is expanding over renewed profit in Zimbabwe. Good results from Pick n Pay and local partner Meikles will step up the retailer’s presence in Zimbabwe and retail competition at a time when the modern retail landscape in the country is changing.

The positive end-of-year results reported by both Pick n Pay Zimbabwe and its local partner Meikles Limited will be applied to upgrading and expanding the group’s store networks, made up by Pick n Pay Supermarkets and TM Supermarket stores. The announcement was made by John Moxon, chairman of Meikles Limited.

Meikles’ y-o-y revenues, in the supermarket segment jointly owned with Pick n Pay Zimbabwe, rose by 17%. Although the partnership’s liabilities were also up from last year, EBITDA increased by almost 45% to $34.5 million and, without any debts from borrowings, Meikles has said that all available resources will be applied to expanding the business. The company did not give any details on what the expansion plan meant in terms of number of new stores it will open, locations or  which of the current outlets would be upgraded. An important detail that also is an unknown is in which proportion the expansion will be driven by Pick n Pay and TM stores.

State of play

According to Trendtype’s Leading Retailers in Zimbabwe Dashboard, Meikles Limited – who operates both the Pick n Pay-branded outlets and the TM Supermarkets stores – has 55 stores in the country.

Pick n Pay/Meikles’ expansion happens at a time where modern grocery retail in Zimbabwe is growing and with potential change ahead. All four main supermarket chains have reported good results and are expanding. The partnership’s main competitor, OK Zimbabwe, reported a 19% revenue growth last year and, despite significant difficulties with access to forex, the company added 4% to that in its full year results from March 2018. Botswanan retailer Choppies has also performed well in Zimbabwe and has bet big in expanding in the country. However, despite recent store openings, it has now seen its local partner as the centrepiece of a legal battle over its involving high profile political figures that could eventually mean its exit from the country. Lastly, Dutch retailer Spar is opening new stores and reflourishing after it was taken over by a Zimbabwean consortium led by independent retailer Darren Lanca.

OK Zimbabwe has, at the moment, a slightly larger store network than Meikles’ but a lower national penetration, being present in 20 cities across the country. Meikles’ supermarkets alone are present in 26 cities in Zimbabwe and, in total, Meikles leads in floorspace. Despite the differences, the two retailers have a similar store portfolio, with a very strong presence in Harare, runner up operations in Bulawayo and noticeable presence in the rest of the country. Apart from that, both target the same consumer segment, especially given that OK Zimbabwe seems to have decreased its investment in Bon Marché – the group’s higher-end outlets -, closing at least one in the past weeks.

Choppies, which is the third largest modern retailer in the country, still figures significantly behind in terms of floorspace, and has stores in less than ten cities. However, Choppies is the leading retailer in the secondary city of Bulawayo and, catering for a lower-end consumer segment, seems to have that market for itself.

Spar has caters to lower-end consumers and has a balanced store presence across the main cities in the country, with some of its portfolio being centrally managed and part of it in the hands of franchisees.

What’s next

With the four main retailers reporting good results, the Zimbabwean grocery retail market is showing potential. The first question is to know whether it still has room for growth or if expansions by all retailers will start to exceed demand by consumers. That point will determine the moment in which the expansion of one will necessarily mean the decrease of another’s network, also given that the market is unlikely to be able to support four growing major retailers.

It appears that the modern grocery retail in Zimbabwe will have two major competing lines.

OK and Meikles are natural competitors and seem to be adopting similar strategies, with a special focus in Harare. One’s expansion will go right against the other’s. Meikles deal with Pick n Pay should give it an important advantage in supply especially, and we expect that, in the medium term, without similar buying power, it will be harder for OK to sustain an operation in pair with Meikles’.

On the other hand, Spar and Choppies have a similar store configuration and national presence. After the exit of Spar SA, Spar’s operation in Zimbabwe still significantly relies on independent retailers. This is a considerable disadvantage and underscores the one of its biggest weaknesses. On the other hand, just like Meikles, Spar benefits from outside backing with which Choppies cannot compete. Overall, however, Spar’s operation still looks more precarious.

An unknown factor is whether the positive results in Zimbabwe will be inviting of new players that could disrupt this scenario. Most obviously, Zimbabwe would be a simple and natural expansion for South African retail giant Shoprite, especially. Shoprite has a strong presence across all of the countries in the Southern cone, except for Zimbabwe, after it exited the country in 2013. Additionally, the amount of trade that goes through the border between South Africa and Zimbabwe would make this relatively easy task for Shoprite.