(Bloomberg) -- Jeronimo Martins SGPS SA will continue to offer low prices at its market-leading Biedronka chain in Poland to lure more clients, even as a fierce price war is hurting profits and wiping out billions from the company’s market value.
“The ultimate goal of Jeronimo Martins’ strategy is always to have the consumer with us,” Chief Financial Officer Ana Luisa Virginia said in an interview. “If we lose the consumer we have to invest much more to get him back.”
Jeronimo Martins shares tumbled 17% on Thursday, the most since 2008 and wiping out €2 billion ($2.2 billion) in market value, after the company reported a 28% year-on-year decline in net income for the second quarter. The stock fell another 2.6% on Friday.
“The market reaction was somehow expected by us,” said Virginia. “We started the year fully aware that we were coming from two very exceptional years and that there were clear signs of slowdown and correction.”
While the company’s focus on increasing sales is expected to result in higher revenue this year, net income should “decrease versus 2023,” said Virginia. She cited ongoing pressure on the margin on earnings before interest, tax, depreciation and amortization, which decreased to 6.4% in the first half from 6.9% a year earlier. The Lisbon-listed stock has declined 32% so far this year.
“The issue now is the never-seen combination of low food inflation, after two years of exceptionally high values, with very high cost inflation,” said Virginia. “This drives further competition among players to fight for volumes and protect earnings.”
Expansion Plan
Jeronimo Martins bought Biedronka in 1997 and has promoted the brand’s “everyday low prices” while building up from a couple of hundred shiny-yellow stores, mostly in smaller, hardscrabble cities, to a network of nearly 3,600 stores and almost 30% of the Polish market.
Virginia ruled out any possible acquisitions in Poland, even as the ongoing price war is giving large retailers and smaller stores a hard time. She expects Biedronka to emerge stronger once consumer spending picks up in the eastern European country.
“The current players are quite solid and I would not expect major changes in the market structure,” said Virginia. “Biedronka has a strong market position so acquisitions are hardly a way for it to grow in Poland.”
Biedronka’s plans to open its first stores in Slovakia by the end of the year remain unchanged, she said. Jeronimo Martins is also investing in expanding its business in its home country of Portugal as well as in Colombia, where it owns operates the Ara supermarket chain.
“Biedronka in Poland will always be central in our portfolio. This being said, we have been developing new growth avenues to improve our mix,” said Virginia. “We are not changing our investment plans.”
--With assistance from Konrad Krasuski.
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