Created by Bailey our AI-Agent
South African supermarket chain, Pick n Pay, is experiencing a severe setback in its Zimbabwe operations amid a volatile local currency environment. The supermarket, which operates in partnership with Meikles Limited in Zimbabwe, has reported a sluggish performance, despite a sales increase of 5% year-on-year in the last quarter of 2023. The figures do not tell the full story, as sales translated from the weakened Zimbabwe dollar (ZWD) to more stable currencies reflect less impressive results.
The root of Pick n Pay’s current predicament lies in the persistently depreciating value of the Zimbabwe dollar accompanied by the economy's drift towards the US dollar (USD). On the official market, USD to ZWD exchange stands at US$1 to ZW$8,331, yet the parallel market rate hovers around US$1 for ZW$14,000, exposing the discrepancy between official and actual market values.
Registered businesses, like Pick n Pay, are bound by law to conduct their transactions based on the official exchange rate. This regulatory requirement not only hinders their competitiveness but also amplifies the cost of conducting business. According to Meikles Limited, transacting in ZWD has become extensively more costly, with the exchange rate soaring by 784% year on year, escalating the prices of goods and services in supermarkets in comparison to those offered by street vendors. These vendors have become ubiquitous, often operating just outside established businesses and significantly undercutting their prices.
This stark economic reality has had a twofold effect on Pick n Pay. Shoppers prefer exchanging their USD on the more favorable parallel market before making purchases in local currency, impacting the foreign currency inflows into Pick n Pay’s accounts. Consequently, this limitation has strained the supermarket’s ability to restock its shelves and sustain the business, given that suppliers are increasingly demanding payment in USD.
Formal retailers like Pick n Pay are coerced to maneuver an economically disadvantageous position because of the in-store exchange rate policy. As Meikles Limited puts it, this policy acts as an "albatross on formal retail", preventing these entities from reaching the same level of 'dollarisation' embraced by the broader market. The implications span the entirety of the supply chain, resulting in complex procurement and financial management challenges.
However, there is a proactive effort underway to remedy the situation. Meikles Limited has reported that they are in conversations with monetary and fiscal authorities, seeking policy amendments that might align the in-store exchange rates more closely with the economic realities of the market. Thus, there is a collective push from affected stakeholders to catalyze a change that would alleviate the pressures currently faced by businesses operating within this testing financial landscape.
As these discussions between business entities and policymakers progress, the challenges faced by Pick n Pay underscore the broader economic difficulties confronting Zimbabwe. Such scenarios often require responsive and innovative policy interventions to forge a favorable business climate conducive to investment and economic stability.