Archives March 2023

Buy local, competition regulator tells OK as condition for Food Lover’s takeover

OK Zimbabwe must buy 85% of its produce from local farmers under conditions set by the competition regulator for its takeover of three franchises of fruit and vegetable retailer Food Lovers Market.

The company, one of the country’s big two retailers, announced a deal in December to run three Food Lovers outlets; Bulawayo, Avondale and Borrowdale. The deal does not include the Food Lovers outlet at Honeydew in Greendale, which remains independent.

The Competition and tariff Commission (CTC) approved the transaction, but said the supermarket chain must keep current agreements with suppliers in place and make sure that most of the produce on the shelves of Food Lovers is locally sourced.

According to CTC, OK must “maintain or improve the existing trading agreement conditions with wholesalers and farmers that include inter-alia delivery and payment terms; procure at least 85% of its fruits & vegetable requirements from local farmers.”

The company must also “maintain or improve the existing employment contracts of (Food Lovers Market) employees at least for two years”.

OK is buying the fresh produce retailer as part of an attempt to step up its presence in what it called the “premium” retail market.

Its CEO Max Karombo said: “The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of the OK Zimbabwe Limited Group. Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores.”

According to the CTC, the transaction does not bring a significant shift in market share between the merged entity and OK’s biggest rival, Pick n Pay.

However, CTC says it is important to avoid “monopsony”, where a market is dominated by one buyer.

Says CTC: “Monopsony power exists when a single buyer, OKZL in this instance, can dictate prices paid to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers. It is therefore important to consider the possibilities of the merged entity engaging in such practices.”

OK Zim’s Food Lovers ordered to buy local

Ok Zimbabwe will have to procure the bulk of its vegetables from local farmers as part of conditions for its approved acquisition of Food Lovers Market.

Early this year, OK Zimbabwe announced its acquisition of Food Lovers Market Zimbabwe (Food Lovers) in Harare’s Borrowdale and Avondale as well as Bradfield, Bulawayo.

The transaction excludes the Greendale Store, which remains independently owned. According to Margaret Munyuru, OK Zimbabwe’s Company Secretary, in an announcement in mid-January, the transaction includes the grant of a Territorial License Agreement, which endows OK Zimbabwe Limited with territorial exclusivity for the expansion of the Food Lovers Market Brand within the Zimbabwean market.

OK Zimbabwe management believes that “with this acquisition, OK Zimbabwe Limited will enhance its participation in the premium retaining of gourmet food as well as fruit and vegetables categories.

“The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of the OK Zimbabwe Limited Group.

“Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores,” said OK Zimbabwe chief executive officer Max Karombo.

Buying from local suppliers is one of the conditions set by the Competition and Tariff Commission (CTC) before the deal was allowed to sail through, Business Weekly can reveal.

As one of its conditions set by CTC, OK Zimbabwe will have to procure at least 85 percent of its fruits and vegetable requirements from local farmers.

Concerns also arise on the possibility by OK Zimbabwe to terminate employment contracts once the merger is consummated.

According to CTC, in its Q4 2022 Newsletter, termination of employment was unlikely given that OK Zimbabwe submitted that most Food Lovers employees will be offered employment contracts by OK Zimbabwe.

The Commission’s view is that there is need for a smooth transition of the taking over of the business of Food Lovers by OK Zimbabwe such that employment contracts are not abruptly changed.