Business | Jerónimo Martins

A Portuguese explorer

The successes of a globe-trotting grocer from a struggling small country

|LISBON

THE Pingo Doce supermarket in Rua Tomás Ribeiro is hard to spot, tucked among white-and-blue tiled houses and crumbling stucco facades. But inside trade is brisk as shoppers move from mounds of produce to man-sized slabs of bacalhau (dried cod).

Portugal is emerging from recession and food sales inched up by less than 1% in 2013, according to early figures from the local retail association. At Pingo Doce stores they rose 3.9%, thanks mainly to extensive price-cutting. Jerónimo Martins, which owns half of the supermarket chain, all of a cash-and-carry group and other bits and pieces, is Portugal’s biggest food-distribution group. It is also Poland’s.

The family-controlled firm, founded in 1792, realised in the 1990s that little Portugal was a good place to be from but not a great place to rely on. It made two sorties. One, to Brazil, a former Portuguese colony, flopped: the country was too big, the company too small, and despite speaking the right language, Brazilians proved too different. The other—to Poland, just opening to foreign investment—was a master stroke, or maybe a stroke of luck.

In 1995 the company picked up a cash-and-carry chain there, and got to know the market. It decided that frill-free discounting was the way to go. In 1997 it bought Biedronka, with 243 discount stores, adding outlets in small towns at first and seeking the kind of customers who run out of cash before the end of the month.

Many bigger rivals—Tesco, Carrefour, Metro, Ahold (Jerónimo Martins’s partner in Pingo Doce, as it happens)—bet on hypermarkets instead. Neither the Poles, who like to shop often and locally, nor their government, which worries about the health of the high street and has to approve new hypermarket sites, shared their enthusiasm. Biedronka now has 2,393 stores and around 14% of the market, thinks Andrew Gwynn of Exane BNP Paribas, an investment bank, making it Poland’s biggest food retailer. (Other discounters like Lidl, Netto and Aldi are doing well too.)

Though Poland’s economic growth has slowed, Biedronka now accounts for 65% of the group’s €11.8 billion ($15.7 billion) turnover and 77% of its €777m in earnings before interest, taxes, depreciation and amortisation. Biedronka has softened its approach, making stores cosier and adding the odd bakery, but low prices for decent grub is still the name of the game.

If the goal in the 1990s was to diversify away from Portugal, today it is to hedge exposure to Europe. In March 2013 Jerónimo Martins started up in Colombia, a fast-growing country with underestimated institutions where food retailing is aimed mostly at the well-heeled. Once the group has figured out how to make money there, says Pedro Soares dos Santos, its chairman and chief executive, the operation may serve as a platform for nearby markets.

At the moment Jerónimo Martins is sitting pretty. Its 2013 results, announced on February 25th, showed only a small sacrifice in operating margins to achieve a 10.7% increase in sales. The secret, says its boss, is to cut prices and launch promotions quickly when customers start drifting away; to look after your suppliers and to go into each market as if you were local.

The going may well get tougher now. The company’s share price has fallen by a third since April. That is partly because an investor halved its 10% stake in May but also because competition in Poland is growing. Hypermarket rivals have been cutting prices and many are branching out into smaller stores. Mom-and-pop shops are getting organised into chains.

Mr Gwynn thinks investors are waiting to see whether Jerónimo Martins can maintain its momentum. He is bullish. Like-for-like sales growth in Poland is still over 4%. The firm should meet its target of 600 new stores by 2016, as around half of the grocery market is still in the hands of smaller retailers, according to PMR, a market-research firm focusing on central Europe. And if not? The Portuguese have been discovering new lands for centuries. Jerónimo Martins will be no exception.

This article appeared in the Business section of the print edition under the headline "A Portuguese explorer"

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