Jeronimo Martins. Part 2. Management & competitors

Management

Current Jeronimo Martins Chairman of the Board of Directors and CEO is Pedro Soares dos Santos, who started as a purchasing assistant when he was 23 years old. He performed a wide variety of jobs on the company, moving up in the ranks until he became CEO on November 1, 2013. Former CEO was his father, Alexandre Soares dos Santos.​

Ownership & alignment

Francisco Manuel dos Santos was the great grandfather of the current CEO. He bought a fine grocery store located in Lisbon - supplier of the Portuguese Royal House at the time - with financial problems, in 1921. That store turned into the current company.

The society under the same name - Sociedade Francisco Manuel dos Santos, SGPS, S.E. - is the one controlling 56.14% of the shares, split between Pedro and José Soares dos Santos, being the last of them also on the Board of Directors.

Hence, based on more than 100 years of familiar ownership of the company and large stake in it, the alignment with the shareholders is ensured.

Remuneration

Pedro Soares remunerations consist of 51% fixed amount (31.2% in salary and 19.9% in pension plan) and 49% variable remuneration, which is linked to four KPI’s. See picture below:

Setting revenue growth and ROIC as KPIs ensure long-term focus of the business.

Shareholders return

Since Pedro Soares dos Santos took over Jeronimo Martins the company returned almost 66% to its shareholders on almost a decade of tenancy as CEO. That is a modest 5.2% CAGR. However 2 things should be considered:

1. Landing on Colombia’s market.

   Jeronimo Martins opened Ara in 2013, a business where they have been losing money until 2023, when it is expected to become profitable. Hence, the value generated during this period is expected to be unlocked and returned during the following years/decades.

2. Macroeconomic headwinds.

   The Portuguese debt crisis occurred from 2010 to 2014. During this time Portugal was put under EU institutions supervision. If we calculate the shareholders return since the end of 2014, then we get the company returned 12% CAGR.

Competitors

Depending on the banner, competitors differ because the countries Jeronimo Martins operates are considerable afar from each other.

Competitors of the main banners are presented by the country they operate.

Poland

Biendronka is the banner with the largest market share in the Polish market, its main competitors are:

Zabka - Small convenience stores (7-Eleven alike). It has 6,000 stores throughout Poland and some in the Czech Republic.

Lewiatan - 3^th largest banner on the Polish market with 3200 stores. It’s a classic format with counters were customers can order butchers or meat for example.

Carrefour - The French multinational is present in Poland with 900 stores, but divided into many different formats: 89 hypermarkets, 150 supermarkets, 600 convenience stores, etc. and various other formats.

Dino Polska - 2156 stores at the end of 2022. It is the supermarket banner with the largest growth rate.

Lidl - German supermarkets have 525 stores throughout Poland. The most similar value proposition to Biedronka.

Polo Market - Polish company born in 1997. It currently has 280 stores in Poland.

Portugal

In the Portuguese market the main players apart from Pingo Doce are:

Continente - Portuguese multinational present in Portugal with 1342 stores - 26% of the market - are divided into many different formats. In 2021, Continente was the first European brand to open a store with no check-outs or product scanning (Continente Labs).

Lidl - With over 260 stores, Lidl commands an 11.7% market share. Lidl’s private label assortment makes up 80% of its offerings.

Os Mosqueteiros Group - holds an 11.1% market share and it is operated by Les Mousquetaires and Intermarché. Noteworthy is the private label brand, contributing 26% of the group's sales.

Aunchan Retail - French retailer operating in Portugal since 1970. It has 65 stores of different formats and hold 5.9% of the market share.

Colombia

Ara is the 5^th largest retailer on the Colombian market. Among its competitors there is a clear leader, Éxito, with 25% of the market share and other 3 banners, holding around 10-15% of the market.

Carulla - premium supermarket chain that caters to a more upscale clientele seeking quality and gourmet products.

Jumbo - It competes by offering a diverse range of products at competitive prices.

Olímpica - Olímpica holds a significant market share in the Caribbean region. It is particularly popular in this region for its affordability and variety.

Competitive advantages

Having listed the competitors, it is important to highlight which competitive advantages does Jeronimo Martins banners have over the rest.

Economies of scale

Biendronka and Pingo Doce are among the biggest players of their markets, with over 20% of the market share. Consequently, they can get better deals from suppliers. Moreover, as they have a denser stores network, facilitating the optimization of goods distribution.

Vertical integration

Vertical integration allows the company to offer differentiated products with larger margins for the company.

Jeronimo Martins Agro-Alimentar supplies Pingo Doce and Recheio with a variety of high quality products (dairy, greens, meat, fish). In contrast, Biedronka is less vertically integrated than the Portuguese retailers.

Jeronimo Martins Agro-Alimentar has announced its dairy exploitations are being tested for exportation. Furthermore, acquisition of 10.1% stake of Andfjord Salmon will probably try to reinforce the salmon offer on Biedronka.

Customer engagement

Biedronka is one of the brands with better customer perception in Poland. Marketing campaigns, convenient store locations, loyalty programmes and others made Polish customers Biendronka be the first supermarket that comes to their mind.

My personal experience when traveling to Poland has been locals recommending me to buy my groceries in Biendronka although there were also other options in the area. Same rationale applies to Pingo Doce in Portugal, where I do my groceries when staying in the country.

Biendronka vs Dino Polska

One of the reasons I found Jeronimo Martins and I started this trilogy was finding an alternative to a very popular stock among the Fintwit community, Dino Polska.

Dino Polska ($DNP) is a Polish supermarket banner under an ambitious expansion strategy. It’s key competitive advantages compared to Biedronka would be:

1. Economies of scale

   Biendronka stores network is 50% larger than Dino and consequently its capability to offer better deals based on economies of scale.

2. Barriers of entry

   Biendronka shops are mainly located in towns and cities where multiple supermarket chains are available and compete between them. Meanwhile, Dino Polska model is focused on small villages (60% of the store network) where only one supermarket is enough. This prevents any new competitors from establishing in the same village where Dino would eventually be more cost-effective.

   This distribution has also a hidden implication, which is related to the uneven distribution of wealth between cities and rural areas in Poland. It is reported that Biendronka stores in urban areas have a younger customer profile with higher income while the rural areas customers are mainly older people with lower income levels.

   In my opinion this is an advantage for Biendronka considering European demographic trends.

3. Vertical integration

   Dino Polska successfully integrates their meat business into the supermarket retail.

   On the other hand, Biendronka it’s trying to introduce dairy and fish products from Jeronimo Martins Agro-Alimentar, mainly based in Portugal. That vertical integration will probably find more challenges in comparison to Dino and the Portuguese banners of the group.

4. Adaptability

   This is not a competitive advantage per se. However, I consider it one great strength of Biendronka, that Dino might lack as it is in less dynamic and competitive environments.

   Biendronka has a strong focus on cost-effective managing the business and they embrace digitalization for initiatives like improving their marketing campaigns and loyalty programmes through its app, partnering with Glovo to order your groceries in 115 cities or introduce self-check out counters (approximately 80% of the shops network its expected to have them installed by the end of 2023).

   It is also remarkable the remodeling of its shops to introduce meat&delicatessen counters and introducing 2500 non-consumable items. Personally, I think these two initiatives are a response to Dino Polska value proposition and expansion strategy.