9 February 2014

Zimbabwe: Consumer Spending Under Squeeze

IT's now official: the past festive season was not a boon to the retail sector at all. In fact, sales dampened, reflecting the slowdown in consumer spending as Zimbabweans grappled with the harsh economic environment.

For the first time in the multi-currency environment, the country's leading beverages manufacturer, Delta Corporation, reported a slump in lager and sparkling beverages consumption in the third quarter of last year.

Delta Corporation said the significant slowdown in consumer spending and economic activity was particularly pronounced during the traditional holiday peak period.

"We report a total beverage volume for the quarter that is flat against the same period last year. The decline in lager beer volume continued, registering a 25% drop versus prior year for the quarter and 15% for the nine months," the company said.

It also attributed this development to retail price distortions triggered by the increase in excise duties of December 2012.

Excise duty on lager beer was increased from 40% to 45% of manufacturer's price effective December 2012, as presented in former Finance minister, Tendai Biti's budget at the time.

"We continue to engage the authorities on the adverse impact of the high levels of taxes which drive consumer prices," the company said.

Owing to little disposable incomes over the holidays, more people could not afford clear beer and resorted to drinking the traditional sorghum beer.

"Sorghum beer however continued to record significant growth, up 18% for the quarter and 12% for the nine months, indicating a strong consumer acceptance for the category driven by the success of Chibuku Super," Delta said.

Sparkling beverages were not spared either as they went down by 6% for the quarter.

The problem faced by Delta is shared by a number of companies that are failing to sell their products.

In its six months to September 30 financial results, retailer OK Zimbabwe recorded a limited growth in revenue as the liquidity crunch ate into shoppers' disposable incomes.

It warned that business activity was not expected to improve for the remainder of the year "as consumer spending will remain constrained".

Lifestyle Holdings, with interests in fast foods, furniture manufacturing and financial services, recently said its units had been affected by depressed demand as Zimbabweans adjusted their spending in light of the obtaining harsh economic environment.

Group chief executive officer, Tawanda Nyambirai said despite Lifestyle adopting a cocktail of measures to contain rising operational costs, some of the company's units remained in the red.

This, he said, had also resulted in some branches being closed.

"Furniture products being capital products have seen significant reduction in demand as disposable incomes came under pressure from the liquidity crunch that the country is facing," Nyambirai said.

Companies are failing to sell their goods due to the depressed disposable incomes. In turn, the companies that fail to sell goods have passed on the burden to employees -- failing to pay salaries. To date, some workers have not been paid for the past 12 months.

Consumer Council of Zimbabwe (CCZ) executive director, Rosemary Siyachitema said the scenario was reflective of little disposable incomes for consumers, adding that only rich executives could afford the largesse associated with imbibing lager beers.

"People simply do not have the money to spend on such things. Those who do have some money have been keeping it for more important things, there is no money to allow extravagance. So companies will resultantly feel the impact of consumers' minimalist survival," said Siyachitema.

"You dare not part with your money to buy that, rather people save their money to pay fees, rent, pay debts or simply save it to see what the New Year is like," she said.

In a weekly report, a research firm, MMC Capital said the financial performance of the large-cap stocks on the Zimbabwe Stock Exchange (ZSE) generally depicted the state of the local economy.

"The beverages giant's [Delta] depressed numbers confirm that the local consumer's wallet continues to be under immense pressure, as consumer needs continue to outpace the growth in incomes," MMC said.

"The reduction in consumer spending poses headwinds for Zimbabwe as this results in less demand for goods and services."

Delta accounts for 33% of ZSE's market capitalisation.

MMC warned that the falling demand would result in companies reducing production, engage in cost-cutting measures and workers being laid off.

Resultantly, the economy will contract, MMC warned.

Commuter omnibus operators are also feeling the pinch of a slump in consumer spending.

A commuter omnibus driver, Phibeon Chimalizeni said despite waking up as early as 5am, it was difficult for him to meet the US$100 target given by the vehicle owner.

"There used to be good business during month ends but this time it's different. We even tried to charge US$1 per trip so that we meet the target, but there are no passengers because money is scarce these days," he said.

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