Stress on Consumers again on the Rise

The Zimbabwean consumer is under severe strain and has to be cushioned by the continuous reduction of retail prices, according to the CEOs of several Zimbabwe Stock Exchange-listed companies. In statements accompanying financial results for the year to end-December 2015, most CEOs said that after experiencing a challenging year in 2015, over-burdened consumers are now very price sensitive.

Most Zimbabwean manufacturers, retailers and other fast-moving consumer goods companies have had to reduce prices to attract customers, amid continued pressure on disposable incomes. Factors causing the strain include but are not limited to company closures, delayed payment of salaries in both the private and government sectors, and retrenchments not accompanied by payouts. The drought has also affected the more than 50% of the country’s population who depend on agriculture for income.

Linda Masterson, managing director of Edcon’s Zimbabwean unit Edgars, said the clothing retailer has seen a “marked reduction in consumer confidence reflecting in turnover, which trend became more pronounced in the fourth quarter following retrenchments and delayed payment of workers”. Masterson, whose company reported a 13% decline in revenues for the period under review, said: “Sales in the last quarter of 2015 were extremely subdued and were 23% below prior year comparative.” Her company was, however, not the only one affected by the challenging operating environment, with other CEOs echoing her sentiment.

Fast food business entity Simbisa Brands said the average spend in its outlets has declined due to downward pressure on consumer purchasing power. “The effects of severe drought resulting from the El Nino weather pattern and the depressed commodity prices are now filtering to the consumer whose income is experiencing downward pressure,” said Simbisa in a statement.

Management at Innscor, ZSE’s seventh biggest company by market cap, also shared the same sentiment, saying the company managed good growth in volume only by reducing prices to the customer. “We reported a reduction in average revenues per unit as the Group made a decision to reduce prices to assist the customer in a difficult economic environment,” said chief executive Tony Fourie while presenting his company’s results for the six months to end-December 2015.

National Foods, owned 37.45% by Tiger Brands [JSE:TBS], also felt the impact of falling disposable income for the six months to end-December 2015. In a statement accompanying the company’s results, management said: “… pressure on consumer disposable incomes, made it essential to correctly price our product basket to achieve volume growth and drive market share.”

Management at meat processor Colcom Foods were also of the same view, saying the “volume decline is directly linked to low consumer demand resulting from tight liquidity in the market.”

Going forward, the economic problems are expected to continue with Truworths CE Themba Ndebele saying “the trading and credit environment is expected to deteriorate during the remainder of the 2016 financial period”.

At the presentation of his company’s interim results, Ndebele said: “Consumer incomes will come under increased stress levels in an environment characterised by job losses, delayed pay dates and reduced earnings.”

Analysts forecast the deflationary trend in the economy to continue as demand continue to subside.

Latest inflation figures reflected the strain in the economy, with the country’s annual inflation for February having shed 0.03 percentage points to -2.22% from the January rate of -2.19% amid low aggregate demand.

According to figures released by the Zimbabwe National Statistics Agency earlier in the week, prices as measured by the all items consumer price index decreased by an average of -2.22% between February 2015 and February 2016.

Annual inflation has remained in negative territory since October 2014.

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