Biedronka's Seven-Percent Hole: Jerónimo Martins Grew Volumes Through Deflation — and Watched the Cash Drain Out

Biedronka's Seven-Percent Hole

Jerónimo Martins delivered the quarter its own prior calls kept postponing — and not in the way management hoped. The group sold €27.8bn in the first nine months (+4.8%, +3.8% at constant FX), grew EBITDA 7.6% to €1.9bn and lifted the margin 18bps to 7.0%. Every banner improved its EBITDA margin. That is a genuinely good operating outcome against what the CFO called “a very demanding backdrop across all our markets, particularly in Poland” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. The problem is what it cost, and what it says about the pricing cycle.

The deflation that never broke

For at least three calls running, analysts have asked the same question in different clothes: when does Polish food inflation come back? In July, Ana Luísa Virgínia answered that the hoped-for cost pass-through had not materialised: “we do not see at this point when the turning point will take place. So it's probably getting easier in the fourth quarter. In the third quarter, I think it's going to be difficult” — Ana Virgínia, Chief Financial Officer · 2026-07-30. Q3 was not just difficult — it was worse. Biedronka's basket deflation ran “above 6%, almost 7%, in fact. Quite strong and a very difficult environment to operate” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. Management's own framing in the release had already flipped from “food disinflation” to outright basket deflation, now the number two theme in the company's keyword set and a phrase that has recurred since 2024 but never with this intensity.

So the market's central question — the circuit-breaker to a rational pricing backdrop — got a strikingly honest non-answer: “at least until the end of the year and probably until overlapping the first quarter, it is going to be difficult to see inflation kicking in in the market” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. That pushes the inflection narrative into mid-2027, two years after the first “it will come in H2” call. Anyone modelling a price-led recovery in food inflation should mark that date down.

Volumes are the whole story — and volumes don't pay in cash

The remarkable part is that Biedronka grew volumes 5% while its basket fell nearly 7%, holding market share at 30.8% year-to-date August despite a −0.4% like-for-like. The CFO was clear this was not traffic: “the 5% is basically volume and mix driven. It's not so much the increase in the number of visits, but the fact that it's increasing the volumes and also with an improved mix” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. That mix — value-added private brand, refurbished layouts, promo engineering — is what produced the margin expansion, alongside the increasing scale at Ara. It is a high-wire act: volume growth strong enough to dilute fixed costs while competitive environment pressure prevents a single zloty of price recovery.

But this is where the balance sheet starts to speak louder than the P&L. Cash flow before dividends was −€183m. Net cash, excluding IFRS 16, is down to €118m. Management attributes the outflow to working capital — deflated sales values compress stocks and trade payables — and pressed that it is normal seasonality with a positive Q4 to come. Yet the strategic admission is the real news: “I do not think we do not exclude the possibility of having a net debt position instead of a net cash” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. For a company that has defended a net cash position as a hallmark, that is a quiet regime change, and it comes with a €135m other-profits-and-losses line including two separate €40m foundation contributions — one from the 2025 AGM allocation, one an extraordinary top-up for Storm Kristin in Portugal and the 10 August Colombia earthquake. Management was explicit that the extra piece is not recurring, but it still left the period.

Ara is the engine, and the fuel bill is the new headwind

Ara is the counterweight: sales +37.9% in euros, +20.6% in local currency, like-for-like accelerating to 11% in Q3, 68 net new stores. Colombia is where the growth and the scale dilution live. It is also where the financing cost bites — the appreciated Colombian peso pushed interest charges up, and the IFRS 16 FX swing on euro-denominated Polish leases flipped from a €1m gain to a €12.5m loss. Meanwhile Pingo Doce grew 4.1% to €4.1bn but slowed to flat like-for-like ex-fuel in Q3, and Recheio went negative at −1.6%.

The genuinely new theme in this quarter's language is energy. fuel related costs jumped to the number one keyword for the company — a phrase that was nowhere near the top of the agenda a year ago — and the CFO confirmed it is already in the numbers, not a forecast: “we are already experiencing that, particularly in Europe, so in Portugal and in Poland, mainly on transport at this point... even double-digit increase on the transport costs” — Ana Luísa Virgínia, Chief Financial Officer · 2026-10-29. This is not a Jerónimo Martins idiosyncrasy; it is the same high fuel costs and high fuel prices wave that has swept through the global tape's transport and consumer names all year. For a discounter, transport inflation is pure operating deleverage with no pricing outlet, because the market won't accept higher shelf prices.

What management stopped saying

The loudest signal is an absence. Through 2025 the calls were dominated by wage increase and high cost inflation — Polish minimum wage up more than 9%, the “main issue” framing. This quarter, wage inflation barely registers; asked directly about 2027 store pay, the CFO deferred entirely to the new year, offering only that Biedronka would be fairly remunerating and would not take purchasing power from colleagues. Equally, price leadership — once the totem of every call — is now expressed defensively rather than aspirationally, and Q4 gets a new caveat: a mandatory four-day Christmas closure in Poland plus the anniversary of a prior-year gross margin one-off.

If Biedronka is able, in the current circumstances and with so much pressure from the food deflation and food basket deflation, and considering the competitive environments and even the muted consumer, if we are able to maintain margins, I believe it will be an impressive performance.

That is a hedge dressed as confidence. Read it against the prior year's stance — “we are not so keen in passing the whole inflation” — Ana Virgínia, Chief Financial Officer · 2025-10-30 — and the arc is clear: a company that once chose to absorb costs to protect share now has no costs to pass and is absorbing energy inflation instead. The available income argument the CFO keeps making — that the Polish consumer has money and simply chooses to save it — is a bullish read that three consecutive quarters of deepening deflation have failed to validate in the sales line.

The verdict: execution is excellent, the franchise is intact, and 5% volume growth in a deflating market is a genuine achievement. But the story has changed from “when does inflation return” to “how long can a discounter fund volume growth out of its own balance sheet.” With net cash at €118m, capex running hard across four banners, and management openly floating net debt, the answer is now a financing question as much as a merchandising one.