Jeronimo Martins - Part 1. Business breakdown

Jeronimo Martins business

The company was founded in Lisbon in 1793 by Jeronimo Martins, a young Galician entrepreneur. The company began its international expansion in the 70s of the previous century, opening Biendronka in Poland in 1995. Most recently in 2013, expansion continued with Tiendas Ara in Colombia. Fast-forward to nowadays, Jeronimo Martins has 131100 employees and operates in 6 different countries.

Jeronimo Martins is mainly a discount food retailer but it also operates Health and Beauty retailers in Eastern Europe, agrobusiness subsidiaries and two hospitality chains in Portugal.

The different companies of the group are:

• Biedronka: Major food retailer in Poland with 4000 shops opened.

• Hebe: Health & Beauty retail in Poland - with online expansion towards other Eastern European markets - focused on female customers.

• Pingo Doce: is a supermarket chain in Portugal with 472 stores. 51% of the ownership corresponds to Jeronimo Martins and 49% to the Dutch chain Aholz Delhaize.

• Recheio: cash & carry business with 39 stores in Portugal.

• Ara: discount food retailer in Colombia. Is top 5 players in the food retail industry with growth opportunities to consolidate

• Jeronimo Martins Agro-Alimentar: group of business on the dairy, aquaculture and farming sector.

• Jeronymo Martins Restauraçao e Serviços: firm which manages kiosks and coffee shops in Portugal.

• Hussel: specialized chocolates and confectionery chain in Portugal where JMT has a 51% stake.

Breaking the revenue generated per business area, on 2022 annual report JMT provides the following chart for illustration:

From figure above we can extract the following insights:

1. Revenue stream exposure to Poland accounts approximately 71% of the group’s revenue (69.3% from Biendronka + 1.4% from Hebe).

2. Revenue stream exposure to Portugal accounts for 21.3% of the group’s revenue (17.7% from Pingo Doce + 4.6% from Recheio).

3. Revenue stream exposure to Colombia accounts for 7% of the revenue stream from to Ara.

4. Agro-Alimentar and hospitality services are reported together and are a negligible part of the revenue.

Business units breakdowns

In this section the business units contributing - or with a projection of significantly contribute - to a significant share of the revenue are broken down in this section, ordered by sales volume.

Biedronka

It’s the flagship of Jeronimo Martins Group. It’s Poland biggest food retailer with 26% of the market share. Biedronka shops are evenly distributed across Polish geography with presence from smaller villages to large cities. This makes Biedronka shops to be on a constantly competitive environment were customers can opt for diverse options: a comparable competitor, mom&pop stores, convenience stores, etc.

Biedronka business model key aspects are:

1. Marketing: Building a loyal customer base through marketing initiatives is a key part of Biedronka strategy. 127 campaigns were run during 2022 (more than twice per week) and there is a loyalty customer card which promotes getting bigger discounts as customers use it.

2. Digitalization and online shopping. Biendronka has made strong movements towards digitalization and the adoption of its app by the customers. Marketing campaigns are data driven and partnership with Glovo has been strengthened offering 3500 different products in 113 cities.

3. Focus on customer experience: Biedronka is currently rebuilding its shops in order to install meat & delicatessen counters with customer service and increase the amount of self-checkout machines. Also, the mobile app was rebuilt in 2022 and allows customers to have a more tailored experience.

4. Differentiation: 40% of products offered at Biedronka are of their own brand. Moreover, special focus on promoting local brands and producers nationwide is being placed.

Pingo Doce

It is a Portuguese food retailer with 21% of the market share and it can be considered the current successor of the original shop chain. Its stores include a restaurant and take-away area. The business also integrates para-pharmacys Bem-Estar, petrol stations and the clothes retailer, Code.

Its business model is very similar to Biedronka, relying strongly on marketing campaigns to get to the customer base. In addition to what Biedronka value proposition, Pingo Doce benefits from the vertical integration of Jeronimo Martins Agroalimentar. This backward integration provides the following competitive advantages:

• Control of product supply and quality. Customers will find the product always on the shops and with a consistent quality level.

• Economies of scale: barriers of entry created by cost control and synergies due to the vertical integration.

• Transparency: customers' awareness and demand of sustainable products with a traceable origin.

Ara

It is the discount food retailer brand in Colombia. The Colombian branch was established 10 years ago, opeining its first shop in Pereira - considered the benchmark for the Colombian supermarket customer. The business model of this chain is identical to the one of European branches.

After 10 years - growing sales since 2017 at a 40% CAGR - it is expected to reach the break-even situation during 2023. What at a first glance does ot look great it is in fact showing extraordinary great execution from Jeronimo Martins in comparison to toher cases of the industry.

For example, Mercadona - the Spanish supermarket branch - started its expansion to Portugal in 2016. After seven years it is expected to start generating benefits during 2023-2024. Considering Mercadona extensive logistic network in Spain, Jeronimo Martins expansion to a far country where they had no presence its exceptional.

Recheio

Cash and carry store founded in 1972 and then acquired by Jeronimo Martins in 1989. The concept was not developed by Jeronimo Martins but acquired and expanded through and M&A strategy of local comparable businesses along Portugal.

It is focused on two types of customers:

1. HoReCa (Hotels/Restaurants/Catering). Portugal’s tourism reactivation has fueled the sales on this segment of customers.

2. Small retailers such as convenience stores and Mom&Pop’s. There is a signed a partnershipt with Amanhecer chain, with 537 stores.

Among its playbook, there is an important focus on developing a new store concept for HoReCa customers, use digitalization for costs optimization and enhance the sustainability and quality of their own brands.

Hebe

Founded in 2011, it is the Care & Beaty retailer of the group with 315 stores in Poland. Sales grew during the last 5 years at a CAGR of approximately 15% (including covid-19 impacted years).

In 2022 it expanded to Czech Republic and Slovakia by releasing its online shops there at the end of the year. Online sales curretly correspond to 14% of its sales, and the web registers 10.3 million online users monthly. To support this expansion, activities such as finetuning of stocks, digitalization and catalogue expansion have gained focus.

Jeronimo Martins Agro-Alimentar

This segment does not really generate any revenue. Its focus is the supply of high-quality strategic products to the food retail businesses in Portugal, mainly dairy products, beef meat and fish from its aquaculture business unit.

Regarding diary industry its worth to mention that the company has began testing one of its dairy explotations for exportation. Moreover, on the aquaculture business, on summer 2022, Jeronimo Martins adquired 10.1% of Andfjord Salmon for 16.8€ million.