Retailers dance to customers’ tune

23 Nov, 2014 - 05:11 0 Views
Retailers dance to customers’ tune Companies are now pandering to the whims of consumers

The Sunday Mail

Companies are now pandering to the whims of consumers

Companies are now pandering to the whims of consumers

PERSISTENT liquidity challenges coupled with falling consumer demand has spawned discord in the market, with retailers increasingly trying to adapt to the new patterns in order to arrest the unrestrained fall in both profitability and viability.

Consumers are noticeably shifting patterns in favour of basic, low-end products.

As consumers sneeze, companies have been catching a cold, prompting manufacturers to re-jig their product portfolio to spur demand.

While there was optimism that prices might recover, they continue to trek south.

Statistics released by the Zimbabwe National Statistical Agency (Zimstat) last week show that annual inflation shed 0,09 percent on the September rate of 0,09 percent to minus 0,001 percent in October, while monthly inflation for October stood at -0,11, shedding -0,10 percent on the September rate of -0,01 percent.

Zimstat said the trend implies that prices, as measured by the all items Consumer Price Index, decreased at an average rate of 0,11 percent from September to October, as manufacturers and retailers sought to push up volumes.

Crucially, the Zimstat data indicates that the country is back in deflation, the second time this year and the third time since 2009.

Supermarket giant OK Zimbabwe continues to haemorrhage as its revenues for the half year ended September 30 2014 plunged 4,8 percent to US$232 million due to the harsh trading environment. Net profit also fell 10,9 percent to US$4,3 million, while earnings per share (EPS) tumbled 14 percent to 0,37 cents.

OK Zimbabwe chief executive officer Mr Willard Zireva said customer count in the period under review was down a marginal 1percent, while net sales dropped 4,8 percent to US$231 million from US$243 million a year ago. Instructively, the firm doesn’t envisage a turnaround in the short term owing to the obtaining economic environment and increased competition from new market entrants such as Meikles Mega Stores and top Botswana retailer, Choppies.

Choppies is already operating in Bulawayo and once gaining a foothold, it plans to mix it up with established retailers such as Spar, TM Supermarkets and Food World by spreading its tentacles to Harare.

Perhaps the most observable shift in product mix has been at spirit maker African Distillers (Afdis) and Delta Corporation, which have been forced to reduce the price of ciders and clear beer respectively as consumers migrate to affordable products such as spirits and opaque beer.

For example, the retail price of Hunters has gone down to US$1,25 from US$1,60, while Savanna is now selling at US$1,35 from US$1,66.

Afdis recently commissioned a US$5 million ciders plant and has since launched two new products – Esprit and Savannah Dark – in a bid to broaden the company’s revenue streams.

The company is now mulling venturing into the regional market to increase revenue streams since the business’s installed annual production capacity has risen from 34 million litres to 54 million litres.

Afdis managing director Mr Cecil Gombera said recently product affordability has remained a major factor among consumers ahead of brand loyalty.

“This has become more evident on the mainstream and value product segment,” said Mr Gombera.

The local production of ciders is expected to trim costs by almost 30 percent.

Ciders make up 10 percent of Afdis’s portfolio.

As a result, Afdis’s volumes in the first quarter to September grew 20 percent while turnover was up 18 percent.

Erstwhile, ciders and spirit coolers had declined 10 percent in the year to June 30 2014 on a 29 percent fall in cider volumes following a 25 percent increase in prices in response to the surtax and duties on the products.

Brown spirits volumes, however, rose.

Similarly, giant beverages manufacturer Delta Corporation also reduced the price of beer by between five cents and 20 cents across the whole portfolio, saying affordability had become a serious issue among cash-strapped consumers.

Despite the challenges, the beverages sub-sector is one of the few that are performing at over 75 percent capacity.

Overall capacity utilisation in industry currently stands at 36,3 percent, down from last year’s 39,4 percent owing to depressed consumer demand and working capital constraints.

Market watchers believe that National Foods (Natfoods), which recapitalised heavily since 2009, is on track to realising more profits riding on its low-end product placement which is in sync with consumers’ shifting purchasing patterns.

EFE Securities says obeying consumer tastes could drive Natfoods sales growth, especially against less known imported brands.

“Natfoods is also correctly positioned given a more defensive product mix, as consumers continue down-trading with a clear shift towards essentials such as staples in the face of contracting economic activity.

“The company’s low-end product placement makes a convenient investment case for Natfoods given the country’s low level of consumption and discreet expenditure patterns.

“After an above par performance in the full year to June, we expect Natfoods to remain on a buoyant path growing earnings consistently as the factors that drove growth still prevail.

“Natfoods has defensive characteristics and considering the stage of the current economic cycle Zimbabwe is in, the status quo presents an opportunity for the company to consolidate its position as well as grow shareholder value through expansion and capacity ramping ahead of a much anticipated economic turnaround,” said EFE Securities in a research note.

Analysts fear that the current trend is likely to persist, noting that barring any meaningful cash injection in the economy, deflationary pressures will continue to mount.

“In a bid to stimulate demand, some companies are being forced to reduce their selling prices while others are shifting their focus to low margin high volume products. This has resulted in most companies posting very low to negative revenue growth rates and declines in margins…

“Our view is that these deflationary pressures will continue until there is meaningful capital injection into the economy and implementation of government-driven stimulus policies.

Pursuing structural reforms that reduce the saving-investment gap, such as recapitalising banks to better equip them to finance bigger projects within different sectors of the economy also remain key.

Fresh capital injection will aid the domestic companies to strengthen their capital base to face the increasingly competitive environment from foreign companies; fully utilise the potential of their existing sales channels and to achieve effective deployment of their existing resources,” explained local brokerage MMC Capital.

 

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