Jerónimo Martins: Deflation's Persistent Grip and the Fight for Volume
Polish basket deflation deepens, yet disciplined execution drives EBITDA growth — but management sees no turning point in H2.
JMT.LS · Earnings Call · 2026-07-30
Deflation Turns Structural
The first half of 2026 was supposed to be a normalization period for Jerónimo Martins. Instead, “The first half of 2026 proved more demanding than we initially anticipated, particularly with regard to strong pressure on food prices and fuel-related costs.” — Ana Virgínia, Chief Financial Officer · 2026-07-30 The result: group sales rose 5.1% to €18.3B, but the engine of that growth was volume, not price. Every banner delivered volume-led growth, with Biedronka's like-for-like volumes climbing ~5% even as its basket deflation hovered around 6% in Q2. CFO Ana Virgínia was blunt about the driver: “we do not see at this point when the turning point will take place” — Ana Virgínia, Chief Financial Officer · 2026-07-30 regarding Polish food inflation. This marks a clear shift from the tone of 2025, where the company repeatedly flagged reopening cost inflation and wage pressure. Then, the fear was passing on cost; now, the fight is simply to hold price leadership while suppliers themselves operate in deflation. Basket deflation has become the company's dominant keyword in 2026, appearing in nearly every quarter's top three. But the nuance in the latest call is the food PPI discussion — Virgínia explicitly said they had expected food PPI to turn positive in H2, but it hasn't, and she now sees no inflection point. This is more than a quarterly wobble; it suggests a structural shift in Polish food pricing, driven by excess supply (e.g., pork, dairy, fresh produce) and a consumer still saving rather than spending. The company's response has been to double down on price competitiveness, even if that means sacrificing some margin.Biedronka's Balancing Act
Biedronka's margin expansion of 25bp in H1 was hailed as a “great job” by the CFO, but the sustainability is questionable. The improvement came from better mix, store layout efficiencies, and a softer Easter comparison — not from pricing power. When asked if they would reinvest this margin into competitiveness, Virgínia conceded: “Biedronka will want to provide the best prices and the best opportunities to the consumer.” — Ana Virgínia, Chief Financial Officer · 2026-07-30 This tension defines Biedronka's operating reality: volume growth is impressive (market share stable in value, likely up in volume), but it comes at the cost of cash margin. The company is essentially trading margin for volume to protect its cost base and leverage, a theme echoed in prior calls. In 2025, she said, “we keep operating in a low basket inflation versus a still high cost inflation.” — Ana Virgínia, Chief Financial Officer · 2025-10-30 Now it's the reverse — deflation on the top line while cost pressures persist on labor and logistics — creating a difficult operating leverage dynamic. consumer environment remains cautious, and the company sees no change in H2. “if to have more volumes, I have to transport more boxes, my people in the store have to replenish more often.” — Ana Virgínia, Chief Financial Officer · 2026-07-30 This is the operational cost of deflation, and it's why the company's efficiency programs and store remodels are so critical. The opening of Biedronka's 18th DC is a tangible example.Volume growth is the company's main weapon, but it's a double-edged sword.Outlook: No Turning Point in Sight
In the prepared remarks, Virgínia summarized the near-term reality:This cautious tone is consistent with the prior year, but the confidence in a recovery has faded. In 2025, she suggested inflation would return by late 2025; now she admits they don't see the turning point. The company is preparing for a prolonged period of deflation, which means volume growth will remain the primary growth driver, and margin protection will depend on relentless cost control and mix management. The stock has been pressured by these dynamics, and the market is right to question whether Biedronka's volume share gains can translate into profit. The company's global scale and resilience are clear — EBITDA margin rose 16bp to 6.8% — but the question is whether this is a temporary defensive stance or a new baseline. The lack of any positive signal in food PPI suggests the latter. This is a company facing a structural change in its largest market, and its ability to navigate deflation while protecting margins will define its investment case. The story is not a breakdown but a slow grind, and the market will watch for any sign of a pricing inflection in the coming quarters. For now, Jerónimo Martins is winning the volume war, but the margin battle is far from over.Based on the information currently available, we do not anticipate any material improvement in market conditions during the second half.