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 retailing of gourmet food as well as fruit and vegetable 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 the five 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.
As a condition for approving the merger, the CTC directed OK Zimbabwe to maintain or improve the existing employment contracts of Food Lovers employees at least for two years.
The diversified retailer was also ordered not to be involved in the approval process of franchising arrangements between Fruits and Vegetables City Holdings, which owns the Food Lovers franchise and other retailers.
The CTC noted that the franchise rights entail that OK Zimbabwe will be involved in the approval process for prospective independent operators to be issued with franchise agreement by Fruits and Vegetables City Holdings.
The CTC’s view regarding this arrangement is that it may usher OK Zimbabwe the incentive to “block” other retailers from accessing franchise agreements with the franchisor.
This is because Zimbabwe has the financial muscle to roll out Food Lovers’ countrywide and therefore considers potential entrants as competition.
If it so happens, such a practice is anti-competitive, said CTC. OK Zimbabwe is also required to maintain or improve the existing trading agreement conditions with wholesalers and farmers that include inter-alia delivery and payment terms.
This condition was set as it was feared that the merger can result in the exploitation of customers or suppliers.
According to CTC, dominant firms can engage in exploitative conduct by either exploiting consumers through charging higher prices; or exploiting their suppliers by suppressing producer prices or manipulating supply contracts.
“Monopoly power exists when a single buyer, OK Zimbabwe 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 in engaging in such practices.”
OK Zimbabwe Limited is a diversified, customer-oriented retail Group providing comprehensive access to a broad range of merchandise and allied services developed in response to its customers’ requirements for convenience and value. With three well-defined brand formats known as OK, Bon Marche and OKmart, the Group has established itself as a proudly Zimbabwean-grown, customer-oriented retail organisation.