Zimbabwe Acquisition creates new giant food retailer

OK Zimbabwe, a supermarket chain, has acquired Food Lovers Market, giving it exclusive rights to the brand in Zimbabwe. The acquisition will improve the retailer’s position in the premium retail market, according to a statement from the company.

“The company successfully concluded the acquisition of the assets and business of Talwant Investments trading as Food Lovers Market in Harare’s Borrowdale and Avondale as well as Bradfield, Bulawayo,” said company secretary Margaret Munyuru.

The deal includes the assets and business of Food Lovers Market in several locations, including Harare and Bulawayo, but excludes the Greendale store.

Manyuru said the transaction includes the granting of a Territorial License Agreement, which provides OK Zimbabwe with “territorial exclusivity” for the expansion of the Food Lovers Market brand within the Zimbabwean market.

OK Zimbabwe CEO, Maxen Karombo, said the acquisition would enhance the company’s participation in the premium retailing of gourmet food, fruits, and vegetables. The company also plans to build economies of scale by supporting local farmers and food processors to serve a wider range of stores.

OK Zimbabwe, which also owns other popular brands, Bon Marche and OK Mart, would enhance its participation in the premium retailing of gourmet food and fruit and vegetable categories.

“The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of OK Zimbabwe. “Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores,” said Karombo.

Food Lovers is a South African supermarket chain that operates franchised grocery stores in southern Africa. During a recent analyst briefing, Karombo said the company had also entered into other new business spaces such as the pharmacy running under the brand Allowel. He said through the pharmacy, the group would be providing a health service to its customers.

Financial performance of OK Zimbabwe for the six month period ended 30 September 2022

For the first half of the year, revenue for the company grew by 34.91 per cent to ZWL 129.0 billion, compared to ZWL 95.6 billion in the same period the previous year. However, while volumes had grown by 1 per cent during the first quarter, they decreased during the second quarter, resulting in a net decrease of 8.23 ​​per cent over the entire half-year period due to consumers’ reduced purchasing power.

Financial performance of OK Zimbabwe for the six month period ended 30 September 2022. [Photo/ OK Zimbabwe]

Profit before tax for the period increased by 150 per cent to ZWL 7.6 billion, compared to ZWL 3.0 billion the previous year, representing a profit margin of 5.88 per cent. In historical cost terms, profit before tax was ZWL 3.5 billion, compared to ZWL 0.9 billion the previous year, a 300 per cent increase. Profit after tax increased by 193 per cent to ZWL 4.0 billion, compared to ZWL 1.4 billion the previous year.

The company used borrowed funds to support its growth initiatives in line with its short-term and medium-term plans. However, this led to an increase in interest charges by 119 per cent.

The company also faced a significant burden from the IMT tax, which grew 245 per cent to ZWL 1.6 billion, compared to ZWL 450 million the previous year, due to the expansion of the tax ceiling. This tax, which also applies to foreign currency transactions, increased business costs and taxes, as it is not tax-deductible. The company is working to engage with fiscal authorities to review the structure of this tax to reduce its negative impact on compliant formal businesses.

Capital expenditure for the period was ZWL 2.1 billion, a decrease from ZWL 3.9 billion in the same period the previous year in inflation-adjusted terms.

Benefits of acquisitions in the retail industry

Acquisitions in the retail industry can bring many benefits to the acquiring company. These benefits can include an increase in market share, access to new customers, and the ability to expand into new geographic areas.

Read: Zimbabwe’s manufacturing sector dominates mergers, acquisitions in 2021

One of the main benefits of acquisitions in the retail industry is an increase in market share. By acquiring another company, the acquiring company can quickly gain a larger share of the market. This can be particularly beneficial for companies that are looking to expand into new markets or gain a competitive edge over their rivals.

Companies also acquire businesses to access new customers. When a company acquires another company, it also acquires that company’s customer base. This can be particularly beneficial for companies that are looking to expand into new markets or gain a competitive edge over their rivals.

Acquiring another company can also allow a retail company to expand into new geographic areas. This can be particularly beneficial for companies that are looking to expand into new markets or gain a competitive edge over their rivals. This can be done by acquiring a company that already has a strong presence in the target market, which can make it easier for the acquiring company to enter the market.

Acquisition can also bring in new skills, technology and expertise, which can help a retail company improve its products and services. This can help the company better serve its customers and gain a competitive edge in the market.

In addition to these benefits, acquisitions can also help retail companies to improve their efficiency and reduce costs. This can be done by consolidating operations and eliminating redundancies. This can help the company to better serve its customers and gain a competitive edge in the market.

Disadvantages of acquisitions in the retail industry

Acquisitions in the retail industry can bring many benefits, but they can also have some negative consequences. Some of the main disadvantages of acquisitions in the retail industry include the high cost of the acquisition, the difficulty of integrating the acquired company into the acquiring company, and the potential for cultural clashes between the two companies.

One of the main disadvantages of acquisitions in the retail industry is the high cost. Acquiring another company can be a very expensive process, as it often involves paying a premium for the acquired company’s stock or assets. This can be a significant burden for the acquiring company, especially if the acquisition does not end up being as successful as expected.

Another disadvantage of acquisitions in the retail industry is the difficulty of integrating the acquired company into the acquiring company. This can be a time-consuming and complex process, as the two companies may have different cultures, systems, and processes. This can make it difficult to achieve the desired synergies and cost savings that were expected from the acquisition.

Cultural clashes between the two companies is another potential disadvantage. The employees of the acquired company may not be comfortable with the new company’s culture and management style. This can lead to a lack of motivation and low morale among employees, which can negatively impact the company’s performance.

Acquisition can also lead to the loss of key employees or customers as a result of the acquisition. This can be particularly damaging if the acquired company had a strong reputation or loyal customer base.

Acquisitions can also lead to a loss of focus on the core business, as the acquiring company may become preoccupied with integrating the acquired company. This can lead to a lack of attention to the company’s existing operations and customers, which can negatively impact the company’s performance.

Read: Mergers and Acquisitions in African Fintech

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