ECONOMICS & ECONOMICS INTELLIGENCE: The post-Covid future is online
THE Covid-19 has by far become a significant disruption catalyst in terms of how business is being conducted and how it will evolve into the future.
Of course, understanding the disruption better will definitely go a long way in terms of managing it. The impact of the outbreak of Covid-19 has led to social distancing and this will disrupt a number of business models even after the lockdown periods.
Already, billions of people around the world are now under orders to stay at home, as governments grapple with the global pandemic.
Mass isolation and more stringent measures for gatherings are giving business leaders plenty of reasons to worry about.
The impact has been seen through worker strikes, mass layoffs and even losses in market valuations. The demand for ride-hailing services, tourism/hospitality and aviation has fallen off a cliff.
The global travel and tourism industries have essentially disappeared, leaving companies like Airbnb and its hosts in the lurch. The bottom line is that leaders will have to re-invest business models to not only compete but survive in the new environment.
In other words, the disruption caused by the pandemic could be an opportunity for global thinkers to seize market share.
An exciting trend in the developed world has been IoT (The Internet of Things) and Industry 4.0.
In this regard, the online grocery shopping concept has been gaining momentum. Global retail giants like Walmart have dominated the sector with well-developed supply chains and buying power which enable them to maintain decent profit margins.
However, this concept has not fully evolved in developing countries such as Zimbabwe. While online grocery companies save on rental costs, adding the logistics cost to process and deliver groceries to each customer makes the unit economics unattractive.
In addition, it is estimated that “modern grocery retail” accounts for only 22 percent of grocery distribution in the sub saharan African region, the rest reaching customers through informal channels.
That said, Morgan & Co maintains that the online shopping concept is the next phase that food retailers in Zimbabwe should be focussing on and channelling resources towards.
As opposed to other consumer goods categories such as clothing, food is a good candidate given that it is highly-defensive. An analysis of OK Zimbabwe FY2020 results shows that the food retailer was negatively impacted by Covid-19 as it witnessed reduced retail traffic at consumer-facing outlets given the lock- down measures.
Overall, volumes were down 16 percent y-o-y.
The business was also impacted by other macro-economic head winds in Zimbabwe such as the shrinkage of general disposable incomes.
OK Zimbabwe is a low-cost player that offers consumer products across various socio-economic groups. The retailer operates in three different main formats: OK Stores, Bon Marche and OK Mart, selling groceries, basic clothing and textiles as well as house products.
The different formats allow the company to cover all socio-economic groups of the population. This means that different online grocery shopping models can be deployed, customised according to the different formats and socio-economic groups.
Morgan & Co Research has a BUY recommendation on OK Zimbabwe as it remains a top-quality company with a sound business which manages to combine strong revenue growth with attractive returns and a low-cost structure.
As management consultants, we are open to working with various businesses on specific Business Engineering Engagements (with a focus on Digital) as we feel this will be key in the post Covid-19 environment.
● Matsika is the head of research at Morgan & Co, and founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or firstname.lastname@example.org / email@example.com