Pick n Pay in Zimbabwe.Photo by Tawanda Karombo

Harare - Pick n Pay’s Zimbabwean joint venture partner in the country’s TM Supermarkets is closing some of its department stores, it emerged this week, with one set to be turned into a Pick n Pay outlet in October.

South Africa’s second-largest supermarket chain, which has a 49 percent stake in TM Supermarkets, already has two branded stores in Harare.

The Zimbabwean retail sector, despite having depressed margins and battling to procure stock from struggling local producers, has attracted investors from the region.

Botswana’s Choppies Supermarkets also seeks to expand in Zimbabwe. However, Pick n Pay is gearing up to boost its presence in Zimbabwe through exposure to the extensive branch network of TM Supermarkets, which has grown to 53 from 49.

As part of its bid to enhance its presence in South Africa’s northern neighbour, Pick n Pay was set to have five more branded stores in the country in the next two years, Meikles Africa Limited said on Wednesday. Some other supermarkets carrying the TM Supermarkets brand are being modernised to better stand competition from rival OK Zimbabwe, which has also significantly invested in refurbishments.

“The [department] stores are to relinquish the basement and ground floors of Greatermans in favour of a new Pick n Pay supermarket, which is to open in October 2014,” the company said on Wednesday.

The new Pick n Pay store will be located in the central business district in Harare. By the end of the period under review, five stores “had been fully refurbished while eight stores are being refashioned and are at different stages” of completion.

Turnover in the TM Supermarkets unit, which encompasses the two Pick n Pay stores in Harare, marginally declined from $336 million (R3.6 billion) to $334m from the end of last year to March this year.

However, John Moxon, the chairman of Meikles Africa, said “the customer count throughout our store footprint increased by 8 percent compared with the prior year”, while the “average cost of product to the consumer declined”.

Earnings before interest, taxes, depreciation, and amortisation (Ebitda) from the supermarkets operation declined to $11m from $11.6m the year earlier. But “margins were similar to those of the prior year” although deflationary trends in the economy resulted in the prices of goods and commodities going down, the group said.

The impact of new stores on turnover and profitability would be felt in the ensuing financial period. After the financial year, five new sites had been “secured for development in the 2015 and 2016 financial years, with potential of increasing the trading space by… 18 percent”, Moxon said.

Meikles Africa has other interests in Zimbabwe’s economy that span city hotels, resorts and agri-processing. The group recently announced a partnership to venture into mining. The Meikles Centar Mining unit was in the process of acquiring a 51 percent stake in a group with gold mines in the country for $3m.

Moxon said the country’s hospitality sector had continued to grow, helped by an improved perception of risk in the country among international visitors. Zimbabwe had benefited from hosting the UN World Tourism Organisation general assembly in August last year, with tourist arrivals in the resort areas increasing.

However, arrivals at Meikles’ city hotels “were limited in line with the subdued business climate”. The group had since completed refurbishment of its main hotels in Harare and Victoria Falls. Ebitda earnings from the hotels division spiked to $1.3m from $612 000 the year before, with revenues for the unit rising 5 percent to $15.6m.

“Revenues per available room at the Meikles Hotel [in Harare] and the Victoria Falls Hotel increased by 2 percent and 15 percent, respectively.

“We attribute this to the high quality of our product offering following the refurbishment,” Moxon said.

Pick n Pay shed 1.55 percent to R56.61 on the JSE yesterday.