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Zimbabwe Food and Drink Report 2011
Business Monitor International, Jan 2011, Pages: 105
The Zimbabwe Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Zimbabwe's food and drink industry.
Following years of dismal news from Zimbabwe’s food and drink sector, things appeared to be looking up in 2010. Over the past decade the Zimbabwean economy shed more than half its value, as ten successive years of heavy contraction between 1999 and 2008 decimated its fast-moving consumer goods (FMCG) industry and shattered its investment appeal. Coming off a strong 2009, Zimbabwe's food and drink industry had finally started to turn the corner. In 2010 the degree of stability provided by the functional unity government and the ongoing consumer spending kick provided by the overdue dropping of the Zimbabwean dollar in 2009 continued to play out. Demand for both basic and nonessential food and drink products continued to increase, which allowed producers to continue raising production capacity. With GDP growth expected to average an explosive 7.2% between 2010 and 2015 (what we see as being the first phase of the recovery), the food and drink industry is expected to leverage off the sharp economic gains with significant growth in consumption anticipated.
Key Company Trends:
Signs of Recovery In Drinks Sector – Throughout 2010 there were many signs that the Zimbabwean drinks sector could be recovering. In a real show of confidence in the re-emerging Zimbabwean consumer market, in May 2010 SABMiller's beer and soft drinks partner Delta Corporation announced its plans to invest US$112mn in the country over the next two years, with capital expenditure going mostly towards capacity strengthening. With so much slack left in the economy – Delta is believed to be operating at just 65% of full capacity – there is plenty of scope for growth.
South African Retailers Make Cautious Moves – South Africa's leading retailers have been looking at investment possibilities in the Zimbabwean market as they look to cut down reliance on their domestic market and establish themselves in the region in order to capitalize on strong expected growth. However, at the end of 2010 South Africa's leading retailers were sending out mixed signals about Zimbabwe. Shoprite was taking stock while Pick 'n' Pay, eager to strengthen its exposure to wider Africa, is due to bump up its stake in the domestic retailer TM to 49% from 25%. Meanwhile, Massmart has thrown its hat out of the ring, at least for now, after selling its Zimbabwean business to OK Zimbabwe.
Fast Food Taking Off? – In a further sign that things may be improving for both the food sector and the greater business environment, in September 2010 multinational fast-food chain McDonald's announced that it is planning to venture into the Zimbabwean market. The company's earlier attempt to enter the market in 1999 failed as a result of growing political and economic instability. Meanwhile, in September 2010 Innscor, a food services and retail firm, announced that it expects its annual sales to grow by about 25% to roughly US$500mn in the year to June 2011. Particularly strong in food services, Innscor operates a wide array of fast-food stores in Zimbabwe and the wider Southern and East Africa regions, and is the Zimbabwean franchisee for South Africa-based Nandos and Steers.
Key Risks to Outlook:
Risks To Economy Manifold – Should the election process or the political climate deteriorate significantly, economic activity would be negatively impacted despite companies' current plans to charge ahead with investments. Additionally, if the clarifications over the indigenisation drive result in more punitive (to foreigners) legislation than we currently anticipate, this would have ramifications across the economy and in the mining sector in particular.
Exchange Rate Fluctuations – The country's dependence on imports also makes price growth vulnerable to exchange rate movements. Although officially operating under a multi-currency regime, the majority of transactions are conducted in US dollars, while most imports come from South Africa. This being the case, any significant rand appreciation versus the US dollar would place upward pressure on price growth.
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