Jeronimo Martins SGPS SA
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Good day and welcome to the Jeronimo Martins' First Quarter Results 2018 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ana Luisa Virginia, Chief Corporate Center Officer of Jeronimo Martins Group. Please go ahead, Madam.[Technical Difficulty]Please go ahead. Pardon the interruption, we are unable to hear the speaker.
So good morning, ladies and gentlemen, and thank you for joining this call to present Jeronimo Martins' 2018 first quarter results. As a reminder, materials include the press release and a slide presentation that is available on our corporate website and that you may follow as I take you through it.Overall, the beginning of 2018 was positive and in line with our expectation. In Poland, we kept seeing a positive consumer demand, supported by a healthy economy and more disposable income. In Portugal, the economic environment continues to benefit from the increased touristic activity. And in Colombia, consumer confidence maintains recovery trajectory despite still being negative. The competitive landscape remained intense across all our markets with promotions playing a major role in driving sales and food inflation slowing down. By building up on the commercial momentum of the previous quarter, our businesses were able to take the most out of Easter season. In this context, Q1 '18 results, driven by sales focus and positive calendar, were very robust.Looking at the key performance figures. Group sales grew 14.2% to EUR 4.2 billion, 12.1% up on previous year at constant exchange rate. Group EBITDA was EUR 215 million, 12.2% above the same period last year. The margin was 5.1% of sales, which compares to 5.2% in Q1 2017. Excluding Ara and Hebe losses, Group EBITDA grew 11.4%, the respective margin at 6%. Net attributable results were EUR 85 million, 9.1% up on 2017. We ended the quarter with a positive cash position of EUR 80 million.The income statement for the first 3 months of 2018 confirm a strong underlying sales-driven performance that was boosted by our ability to take full advantage of Easter trading. As like here, that increased ways of past over sales is already impacted by Biedronka's annual wage review that this year took place in January instead of April. The non-controlling interest having reflect the evolution of Pingo Doce's results on the back of some pressure on operational results due to the wage increase implemented throughout Q4 '17 and also the non-recurrent items.Finally, net financial costs were EUR 5 million in Q1 '18, reflecting higher interest-bearing debt in Zloty and Colombian Pesos. And just remind you, in Q1 '17, this had included a positive exchange difference of EUR 3 million. Cash flow was negative at EUR 83 million, in line with the normal seasonality of the working capital after the Christmas season. The decrease in tax payments is a calendar mismatch and does not represent a lower tax charge. At the balance sheet level, a quick reminder that EUR 385.2 million in dividends will be paid on the 10th of May. In line with our investment program for the year, CapEx in Q1 '18 amounted to EUR 141 million, of which 56% were allocated to Biedronka and 14% to Ara. With sound contribution from all banners, group like-for-like sales growth in the first quarter was 7.7%. Total sales grew 14.2% to reach EUR 4.2 billion, an increase of 12.1% at constant currency. The positive calendar effect resulting from the early Easter was also a key driver of the performance.And now just some brief notes on each business areas. In Poland, food inflation fell from 5.6% in Q4 '17 to 4% in Q1 '18. Biedronka registered the basket inflation close to 0 in Q1. Our biggest company maintained a clear focus on sales with extra promotional intensity being put in place to reap the benefits of the Easter season. These sales actions contributed to a remarkable like-for-like performance of 8.6% in the quarter. The positive calendar effect is estimated at 3 percentage points. In Europe, sales increased 15.6% to reach EUR 2.9 billion, a growth of 11.9% in local currency. Over the 3-month period, Biedronka opened 11 stores to net addition and refurbished 39 locations. Hebe delivered sales of EUR 47 million, 30.8% up on previous year, which corresponds with 26.6% growth in local currency. The banner opened 11 stores in the first quarter, 9 net additions, ending March with a total network of 191 locations. In Portugal, the competitive environment remained strongly promotions-driven and food inflation fell from 2% in Q4 '17 to 0.7%. Pingo continued to invest in creating the best shopping opportunities in the marketplace and in developing its key pillars of differentiation: private brand, fresh and customer experience. Like-for-likes were outstanding, reaching 6.4%, excluding fuel. We estimate the calendar impact to be of 2.5 percentage points. Total sales grew 7.1% to EUR 882 million and 8 stores were refurbished in the quarter. At sales, sales amounted to EUR 210 million, 4.2% ahead of previous year, while like-for-like remained strong at 3.6%. In Colombia, Ara delivered sales of EUR 134 million, 54.4% up on Q1 '17. In local currency, this represents a sales increase of 74.5%. Focused on building sales, Ara opened 25 new stores this year, reaching a total network of 414 stores by the end of the quarter, all being on track to execute the store opening plans for the full year, net total 150 new locations.At the level of operational results, group EBITDA amounted to EUR 215 million, growing 12.2% when compared with Q1 '17, plus 7.5% at constant exchange rates. As expected, Biedronka was the main contributor for EBITDA growth. Ara and Hebe losses where as EUR 24 million, which compares to the EUR 23 million posted in Q1 '17. Ara losses in this first quarter reflect the fact that of a total of 414 stores in the network, 102 were opened in the last 6 months. Group EBITDA Margins stood at 5.1%, down from the 5.2% registered in Q1 '17. Biedronka posted an EBITDA margin of 6.8%, in line with the same period last year. EBITDA margin of distribution in Portugal was 4.5%, down from the 5% registered in Q1 '17, which incorporates the fact that the wage increase implemented in Pingo between October and December last year.We had a strong first quarter, delivering robust sales performance also leveraged on the positive calendar effect. We have so far confirmed our own expectations for the operating environment across all geographies despite noting the lower than expected food inflation seen in this first quarter across the 3 markets. We maintained a positive outlook, particularly over our main market Poland, where we will remain focused on sales growth while adapting to the changes resulting from the Sunday trading ban. In this respect, we certainly need some more time to have full visibility on the impact of these changes, although we are confident that we will be able to incorporate the effect in the medium term. All in all, Q1 leads us [ to confront ] the outlook for 2018 disclosed last February, including the guidance for CapEx and the evolution of losses from our not-yet-established businesses. We are confident that in particularly challenging times like the one we are experiencing, our banners are prepared seizing the opportunities to further grow while reinforcing their competitive position and their respective market share.Thank you for your attention. Operator, I am now ready to take questions.
[Operator Instructions] We'll take our first question from Filipe Rosa from Haitong Bank.
So 3 for me, if I may. The first one on Biedronka. So looking at the evolution of the EBITDA margin in Q1, we have, on the one hand, this headwind from the higher wages, but we also see at the cost-related level an increase of the gross margin that I assume that given the weight of Biedronka, the gross margin of Biedronka is also increased. So going over the next quarter, the impact from wages will be much smaller because it's already comparable. Should we assume that there is some upside risk to your EBITDA margin for the full year or should we assume that this cash and debt you have had in Q1 from gross margin will be reinvested to drive like-for-likes? That's my first question. The second question also related to Biedronka, regarding the -- will be to your expansion program, okay. You have -- now, it's the third year of very strong like-for-likes close to double-digit. Are you reconsidering your expansion plans in a way that it seems that there is more capacity for you to have stores as stores seem to be more and more saturated at this stage? And my final question on that. How should we see the evolution of like-for-like this year? I think that based on the information that you provided, like-for-like is negative or around 0. Do you think that in the current backdrop, it will be possible to achieve positive like-for-likes in Colombia? And are you changing anything in terms of your store profile to try to improve the performance in terms of sales per square meter?
Sorry, can you just repeat the final -- the end of your question on Ara, because I didn't heard it. Just the last part.
Okay. Ara, so like-for-like -- it seems like like-for-like is negative, okay, according to my questions. But my question is whether you are doing anything at the store level to try to improve a little bit the like-for-like performance and eventually the sales per square meter, which have dropped in Q1 and that -- those that we can calculate, they have dropped like 7% year-on-year in Q1. So just trying to understand what are you doing trying to address that or is this just about the dilution you're mentioning coming from these 102 stores that you opened in a very short timeframe?
Okay. Thanks, Filipe. So starting by Biedronka. It's true that -- so we usually don't disclose gross margin, but you're right now. Of course, the major weight on the consolidated gross margins is, of course, Biedronka. And -- but the fourth -- all the gross margin has usually to see or to do also with the sales mix of the period. So basically, at this point, we are not expecting to have, at least, or having an easier time in Biedronka in terms of the possibility of considering a big upside on the EBITDA margin. On the other hand, of course, we also think that the company will be able to accommodate with the continuous, let's say, competitive environments and even, of course, then we have to take into consideration that we will still have to see what is the full impact of total of the Sunday trade ban on the top line, and this is also an extra pressure. So, at this point, we see no reasons to change the guidance and to consider that there is an upside or risk of downside. We prefer to keep focused on at least having a stable margin. Although, also I have been saying that most important for us, and you mentioned that, that if we have to reinvest to [ grasp ] our promotions to attract people to stores and of course, continue to be relevant for the consumer. We will be focusing at least on keeping more stable or improving our pretax ROIC more than our EBITDA margin. On the expansion plan for Biedronka, we don't see any reason to change it. So we have been saying that we will be opening in the next year between 70 to 80 net additions or having 70 to 80 net additions as we are going to open slightly more than that, but also close some less efficient or smaller stores. So, at this point, and just because of the fact that we are being able to post a very positive like-for-like, we don't see any reason also to change the expansion plan that we have for Biedronka. And looking at our competitors' expansion plans, again, there is no big change on that. So, for now, we keep the guidance that we have been giving on the number of new stores. On Ara's like-for-like, my apology. So we don't have a negative like-for-like in Ara. What we have is as you mentioned. We have a dilution that comes from the fact that most of the stores are new to the network and that, of course, knowing that we have a different situation in Colombia than in Poland, where when we open a store, everybody knows Biedronka, and so it's very easy to the cycle of ramping up of the sales in each store is very fast. Of course, in Ara, this is different. Ara is not known all across Colombia, and it has really -- and this has been proven even since the first region that is still growing, that there is a cycle to the stores and there is a build-up that is done since the beginning, and that continues even throughout the following years. So this has to do particularly with [ evolution ], so no like-for-like, even, in fact, there are, compared with the economy and compared with [ Sears ] or at least the ones that are listed, a very strong like-for-like.
The next question comes from Maryia Berasneva from Morgan Stanley.
My first question is on impact of the Sunday trading ban. I appreciate that this is early days, but what is your first read on the industry trends, the impact on your like-for-likes? And maybe you can talk on the trading you see so far in early Q2?
Good morning, Maryia. So as we said, we think it's very early to make conclusions, particularly when these 2 months is, where the trading ban has been applied, are very peculiar with the Easter effect. So, at this point, we cannot extract fully the impact. What we think is that, of course, there is an impact coming from the input sales that should happen from the Sunday trade ban, but we also know that the company is doing all its best to go with an increased traffic on the remaining days of the week and also crafting and adapting the operations to make sure that people instead of buying on Sunday do their shopping on the other days, and that -- the operations are really fully prepared to cope with that. But at this stage, we cannot disclose any impact on the like-for-like, because really, it's very difficult to say this, taking into consideration that we are talking about 2 particular months that have the calendar effect in a very strong manner.
Okay. And maybe just a quick clarification question then. How much of your like-for-like component was attributed -- like-for-like growth was attributed to growth in traffic and how much of it was down to ticket growth?
Okay. So it was basically and only due to the ticket growth because, of course, the traffic is even influenced, not only by the promotion crafting, but particularly by having less number of days that -- where the stores were opened, because of the Sunday trade ban. So all the like-for-like comes from higher average ticket.
Okay. In terms of the promotional share, you have currently shared with us on the previous call the promo share number, which stood at 33%, which was a slight increase in the fourth quarter. Could you please clarify where the promo share stands today and how does it compare to the same period last year?
Just a word of caution, so the promotion -- it's not just promotion, but also the, what we call, the in&out campaigns that have been one of the sales actions that the company has been using, even to take advantage also for the trading up. So this year has increased and we are talking on the first quarter considering the dynamics that were [ impinging ] through the Easter season, we reached around 38%.
Okay. And in terms of the promotion activity across the market and the competition, it would be great if you could comment on what trends you're seeing?
So basically, Maryia, no change on that. I think that what -- the trend is really to keep -- or the market -- for the market to be very competitive, particularly and taking also into consideration the Sunday trade ban, we know that all players will push for sales. And this, of course, knowing that there is one last day in certain week of sales, we don't expect any ease in terms of the competitive environment in Poland. That's the scenario and that's the context in which the company has been preparing itself.
Okay. And just one last question on wage increases in Poland and Portugal. And in terms of the levels, you've commented previously that in Poland, you're targeting 6% increase year-over-year. What wage increase have you so far -- are you seeing so far year-over-year based on trends year-to-date? And what is share of -- what percentage of sales do the staff cost account for, for Biedronka and Pingo Doce banners?
Okay. So, Maryia, for the wage increases, in Poland, the increase that we mentioned was in the personal cost over the years. So taking any conclusion out of this 3 first months is, -- it's quite temporaneous. So I think that you should keep the 6% for the full year. On the full year, we are talking about percentage of sales of around 6.5% for Biedronka and slightly ahead of that, almost 10% for Pingo.
Okay. And staff cost percentage of sales, where do they currently stand?
For the -- I referred, so the 6.5%.
6.5%, okay, that's fine.
The next question comes from Jose Rito from CaixaBank BPI.
So my first question on the Sunday ban. You have already mentioned that it's too early to provide some reference in terms of impact on like-for-like in traffic, but we have been seeing several news saying that Biedronka has been using promotions equivalent to the redeeming some products on Friday and Saturday basically to compensate the Sunday ban. My question is if these increased promotions to drive traffic on those days, should these also create some pressure of margins? And that will be my first question. My second question regarding profitability in Portugal. Do you think that with strong like-for-like performance that we have been seeing, obviously, you increased salaries in the last quarter of last year, and this has been impacting profitability. But if we continue to see a strong like-for-like performance eventually, we could have a smaller margin evolution for Pingo Doce in Portugal or even some increases going forward. And finally, a question on Colombia regarding CapEx and losses. Comparing the losses and CapEx per square meter, we have other players in Colombia, namely D1 and Justo y Bueno. We can't find a relevant gap being much higher in the case of Ara. Can you give a little bit more color on what is the reason behind these? And if you are planning to adjust the concept in Colombia in order to close these gaps in terms of CapEx and losses per square meter versus competitions?
Okay. Thank you, Jose. So on the Sunday trade ban, I think it's a little bit what I referred in the first place. We have to take into consideration that, yes. We have to take all the actions to make sure that we don't lose or at least, we minimize the impact on the top line, although being very positive on the consumer spending in Poland. This, of course, will also help to compensate part of that. But that's the reason why, and when I answered to the first question in the call, when we say that we don't see much room for an upside on the EBITDA is also because we take into consideration that, considering all the moving parts, there will also be some pressure on the promotional side coming from the fact that all the players will have one less day in most of the weeks in the year of sales. And so, yes, there will be some pressure, but we think that we will be able to manage it. On the profitability in Portugal. So we have a very good like-for-like and I think that [ Pingo Doce ] will do his best not only on the like-for-like, but even on the operational side to mitigate the impact. But the fact is that personnel costs after the cost of goods sold is the major heading in a fixed cost structure. And so, there will be -- or the company will do everything to mitigate and to be able to increase its EBITDA margin if it's allowed to. But for the moment, and on the short term, meaning this year, we don't expect to see a big increase compared with the quarter on the contrary because, even when it will be comparable, it will be only in 2019 as most of the increase took place throughout the fourth quarter of 2017. On the CapEx and losses in Colombia. So, although, of course, we are talking about having a similar business model from a backstage perspective with D1 and Justo y Bueno, Ara is not using exactly the same or operating exactly the same kind of store. And so, at this point, yes, we have -- or we expect to have a higher increase in CapEx thus far than these 2 players because they have a much more, let's say, orthodox discount model, like the German type of '70s. It's not the case of Ara. We really want to make a store for the future with growth potential. So we think that despite, of course, do everything in our reach to be more efficient, even with the learning curve in the investment [ thus far ], and this means that we will, of course, try to decrease the level of CapEx [ thus far ]. But we don't expect to adjust to the same kind of model of D1 and Justo y Bueno. We prefer to have, let's say, a store that has a little bit more of quality and is already prepared to carry the assortment that we think will meet the needs of the Colombian consumers.
Okay. But on this last question, I understand that if you think down the road, eventually in 10 years, Ara stores will be completely different and better prepared to benefit from an upgrade on the consumer environment in Colombia. But at this stage, considering that those peers also have the same sales per square meters are quite equivalent, don't you think that eventually you will not need to have a feel-good store as Ara, for instance, D1 and Justo y Bueno? That's my question, which is why not having a more simpler store at this stage and eventually, in the future, increase CapEx and upgrade the stock? It seems that is something that you are not considering at this point.
Jose, I understand that we don't think that the difference will be noticed in 10 years. I think that the difference will be noticed from now, because through that, we don't have -- or from the numbers that we have access, there is not a big difference. But I think that while you still have and considering, as I said, that the stores have a quite long cycle in terms of attracting traffic and people proving that the private label, the fresh that we carry are really differentiating. I think that we will be able to have much growth potential, even in medium, short term than other players. So we don't see at this point, although I see that we have to be more efficient in some of the levers and the fundamentals of the business, and we'll be working for that. We don't see any reason to change than to adapt it. I think that this will be something that probably our competitors will have to also. So it's not the 10 years, I think it's -- we have much more potential from now and the cycle of growth for the stores proves that we will need to be ready just now.
The next question comes from Maxime Mallet from Deutsche Bank. Please go ahead.
I have 3 actually. The first one is with regards to Easter boost in Poland. I might have missed it, but could you please repeat what the Biedronka impact was specifically for Poland? And then the second one was with regard to the supply chain inefficiencies in Colombia. If you could remind us when you expect you would see an improvement there, and if we could expect as soon as Q2 to have an improving losses in Colombia? And the last one is with regard to, well, your target of reaching break-even for Ara and Hebe. Do you still believe you can achieve that by 2020?
Thank you, Maxime. So, for the Easter boost, of course, we have to take into consideration that Eater will also have a calendar impact in April, because this year, Easter coincided with the last weekend of March. But the number that I gave you in the call, so it's was our estimate for Biedronka, it was 3 percentage points growth in the first quarter. So, of course, in April, we expect a slightly negative calendar impact that was already in our estimates. On the supply chain inefficiency in Colombia. So as we have been mentioning, this has a lot to do with the scale of the operation, because it's not just the question of the whole supply chain, it is also a question of the cost of goods sold in Colombia, both private label and a brand. So we expect to -- that to be improved, not only with our logistic infrastructure that we will be adding this year and in the following years, but also, of course, with the higher sales that will be able to give us some advantage and some better footfall to improve our margin. On the breakeven, I don't have this. So as we have no change on that, on Hebe, we expect that, of course, to be a little bit more challenge now probably with the Sunday trade ban, but we expected very short term. So probably next year, we will already be breaking even at EBITDA level. On Ara, what we've been saying is that we need the scale to reach the break-even, and that we don't expect to happen before 2020. So we said that at the end of 2020, we will probably be a network of stores that will allow us to build the scale to have the proper EBITDA breakeven, so after 2020.
Okay. With regard to Easter boost and the slight negative impact you are expecting in April. So you do not expect Q2 will have a minus 3% negative Biedronka, in fact, then?
No, no, no, not at all, of course.
The next question comes from Kiranjot Grewal from Bank of America Merrill Lynch.
Could you give us, firstly, some color on the strategies you've rolled out to counter the Sunday trading ban in Poland? And then, on Colombia, I mean, could you give us some color on what the discount competition is doing, has there been any changes there? And what are your, say, 3-year plans now for Columbia? Is it just to focus on existing markets or could we see a move back to rolling out new regions? And then, lastly, maybe some color on relative pricing in Columbia versus the other discounters, particularly given you said your models are a bit more premiums than other discounters?
Okay. Thank you, Kiranjot. So I -- of course, we will not disclose all the strategies for competition reasons, but I think that they are already visible. So basically, as -- and it was mentioned even in one of the question -- one of the previous questions. We are questioning the promotional dynamic taking into consideration that we want to attract more traffic towards -- to compensate for the traffic that we lose from being closed during Sunday through the remaining days of the week. So for that, of course, all the operations and all the supply chain has to be ready to cope with a slight different timetable and to an increase traffic in the stores. And of course, this means an effort from our operations to have everything on stores or everything in place in stores that already has higher traffic. But nevertheless, so the idea is really to craft the promotions and to have our schedule and our personnel ready to cope with this difference in terms of the calendar and the increase in sales on the other days of the week. So it's basically the most important. On Colombia, so we haven't seen any big difference or a big shift in the competitive environment. Basically, the most active players continue to be the discounters, as you mentioned. So no reason to change our approach to the market. The only thing, of course, is, and as we mentioned, is I wouldn't call it the more premium store, I would call it the store that can or is ready to run a different assortment or slightly more assortment and just the basic one. So that -- we think that we'll be able not being less competitive than the others. So our price position is not different, and we are not less competitive than the other discounters, on the contrary, but we think that we have to have a better store in defense to really cope with the consumer that will want that and not just very limited and very basic assortment for the future. On the new regions, so at this point, we are keeping the same regions. Probably in the next 3 years, we will be also in another city, but for the moment, I think that we will be very focused on the growth opportunity that we still have, particularly in Bogota.
Okay, that's great. I mean, the last question would be, I mean, can you see any cash flows that could ease the Polish wage inflation for this year?
Sorry, Kiranjot, on the food inflation?
No, on the Polish wage inflation. Anything that could ease the pressure from the wage inflation?
At this point, I don't think so. We are not seeing measures that from a conjuncture point of view would lead to a lower wage pressure really.
The next question comes from Nicolas Champ from Barclays.
Couple of questions, first of all on inflation. There was a quite significant deceleration of inflation in Biedronka in Q1. Could you elaborate on the evolution for the quarter? Have you seen the consistent slowdown during the quarter? And how do you see food inflation in Biedronka will trend over the next quarters? What were the main drivers behind this deceleration? The second question is about the Sunday trading ban. So I understand this is quite difficult to assess impact so far. But could you please help us at least by saying -- quantifying the percentage of sales that is typically generated on a Sunday at Biedronka in the past on average? And the third question on the Sunday trade ban regarding your action trend. Have you adapted the inventory level on Saturday, for instance, just to impact -- to avoid any negative impact in terms of shrinkage for your fresh products due to this Sunday trading ban?
Thank you, Nicola. So on inflation, the way that we have been seeing is of course some easing, and that has to do not only with the fact that we are seeing some deflation in the fresh products, we are also seeing some deflation in some of -- the price of some of the commodities. So this has somehow offset what we would expect to be a pressure to have inflation coming from higher wages. So basically, we have these 2 different aspects to have into consideration for the future. So on one hand, we have higher wages in Poland and particularly on the Polish production that food makes us expect to have a pressure for inflation; and on the other hand, we have the lower price of the commodities and on top of that, also the competitive environment and knowing the sector as we do, we know that this will prevent probably prices to go much higher, even if there are -- there is some pressure from the manufacturers from the fact that they are having also increased wages on their prospector. So all in all, 2 different trends to give us or at least less visibility on really what will be the inflation in Poland this year. On one hand, the pressure before a positive food inflation with the wages and on the other one, the competitive environment and the commodities price pushing the prices or keeping the prices low. On the Sunday trade ban, so as we have already mentioned, for Biedronka, Sunday was not the strongest day in the week, on the contrary. So on total sales, it's was less than 1/7 of the sales of the week. Nevertheless, of course, it's one less trading day, and we have to adapt, and that's what we have been doing. So, you're right. So it's not just crafting the dynamics in terms of top line, it's also the whole operation that has to be prepared with a different calendar effect and a different traffic in the stores, and that's -- this means adjusting not only the timetables of the personnel, but also adapting the inventory to make sure that we don't have or that we minimize the out-of-stock and have the biggest sales as possible.
Next question comes from Carole Madjo from Exane.
Quick questions from me on Portugal. Could you maybe explain in more detail the initiatives you took at Pingo Doce to drive this strong LFL growth and should we expect this to continue going forward? And more broadly, can you give us an update on the food retail market in Portugal?
Thank you, Carole. So it's 2, and we have been mentioning that overall Portugal has been a more positive environment. It's coming also from the fact that the economy is progressing in line with, let's say, the global economy and the European markets, but particularly, the fact that Pingo Doce was able once more to prepare its campaigns and its promotions to make sure that the consumer can see the relevance, continue to visit our store were the most important, because, unfortunately and in contrary, for Poland, we are not really seeing a trading up. What we are seeing is the consumer to be very eager from the promotion. And so we have been crafting it in a way that is slightly different from the past in a certain way to really make the most up in terms of the top line and at the same time to be more efficient on the operating cost. So no reason for now to see any difference in terms of market. So it continues to be very competitive. It's a market that doesn't grow much. All the players are continuing -- or continue to add capacity and proximity, and this, of course, puts pressure -- extra pressure on the market, but we think that Pingo Doce is one of the -- the one that is best prepared with that. So, basically, all the players are opening smaller stores, proximity stores, and these, of course, put some more pressure on the competitive environment, but no big change on that. On the positive side, we see this, let's say, it's more optimistic and the touristic activity also being increasing, and this means that Pingo Doce is making the most to take the growth that it can off the market.
Okay. And just a clarification on the inflation. I think you mentioned 10% before. Was it the wage inflation growth or the wage as a percentage of sale.
No, it was the wage of personnel costs on the cost structure, on total sales.
Our next question comes from Cedric Lecasble from Raymond James. Please go ahead.
Just some follow-ups from many subjects that already -- have been addressed already. So first one on the wage momentum. In your negotiations, and what you have passed on to your workers, what's the idea, what's the next step, it's an annual negotiation. Do you have any reasons to believe that it will stay like that at the same levels for, let's say, some time in Poland, is that you have no reason to [ settle over ]? And in Portugal, it's been a little more recent as the economy picked up a little more recently. Do you think there could be an acceleration in the kind of wage effort you will have to make in the coming months or years? That's the first question. And the second question, your basket inflation versus inflation -- food inflation numbers in Poland and Portugal. In Poland, historically, you had a gap of around, let's say, 200, 300 basis points versus general food inflation. Do you think market conditions in Poland will allow you to keep this kind of gap and be more aggressive by 200 or 300 basis points versus inflation, even if the inflation came down more dramatically? And same kind of question for Portugal to understand also your pricing strategy?
Cedric, so on the wages, so what we think is, of course, we do our review in terms of wages every year. And so if you are asking me if we are considering to do any other review during the year, at this point, we do not expect to do that. What we will continue to do, of course, is to address all the other benefits that also our employees are allowed, particularly from our internal social responsibility. But for the moment, we don't see any reason to consider a second wage review as it happened in previous years in Poland. In Portugal, so also no, although the economy's picking up and the government has already announced what is the minimum wage progression that it expects. So the company has already incorporated that in its expectations and how it should feel to go with this wage progression, somehow anticipating what will happen in national -- at least on the national minimum wage. But at this point, we don't expect much difference stemming from that. So, yes, there is pressure, but we are preparing now to -- or we think that we are better prepared to build with that progression. On the basket inflation, so, yes, Biedronka has been keeping a gap for the market. And we don't expect or at least, we don't see, at this point, any reasons for that to ease, because, of course, we want to really make sure that we continue to be the price leader in Poland. So basically and, of course, depending on the competition, and we don't see it as I mentioned, so it's even pushing for a lower food inflation than we initially expected. So we don't think that the company has reasons to decrease this gap, on the contrary.
And the same thing would be true also in Portugal, because in Portugal, actually, the market is growing less, also you have positive figures, so that goes into market. So the question is more can the uptick in micro-momentum may increase the pressure on the equation with pressure on wages and no weird way to pass it to the consumers?
Okay. I understand the question, but so, it's true that, as I mentioned, the market is very competitive. You continue to see and adding to the installed capacity, and you don't see really the consumer trading up. So there is some pickup in volumes and there is the strategies that we put in place and the action for the consumer to take advantage of the opportunities. And that's why the company continues to have a basket inflation that in fact is likely a deflation this year. So in this case, we don't think that there is -- at this point, we don't expect really the wage increase that may happen maybe favorable, so we don't see it in the equation and as really being the major source of pressure. So it was really because we have already done the review last year of the wages that is putting pressure now on the EBITDA margin of Pingo. So not the future reviews, those are already incorporated.
The next question comes from James Tracey from Redburn.
Three questions from me. First one is on this margin pressure that sort of you flagged in Poland with selling price inflation running well below operating cost inflation, given that your wage costs so much lower than most of your competitors; therefore, the pressure on competitors, operating cost is higher. Do you think that the industry is putting up gross margins to back-fill for that or not? The second question is on the maturity curve of sales in Colombia. So you used to say that stores in Poland would open up at around 70% of full maturity in year one and potentially 90% in year 2. Can you give an indication of what that is in Colombia? And finally, are you able to give an indication of EBITDA margins in Colombia for mature stores, excluding central costs and distribution costs?
Okay. Thank you, James. So on margin pressure, it's what I referred. So in this case, we don't think that there is much room for the players, because it's true that we are seeing a very positive consumer demand on one hand, but at the same time, all the players will want to make sure that they are able somehow to compensate for the fact that they have one last day of trading in most of the weeks during the year. So on this, we think that we do not expect a major change on the competition dynamic in Poland. What we think is that Biedronka is the one that is, let's say, -- or the one that will be less affected in the sense that the waste of Sunday, and the competitive positioning and the leadership position gives us an advantage with other players, but that doesn't mean that, of course, we don't have to continue to reinvest to make sure that we continue to be perceived and continue to effectively be the most competitive chain in Poland. As to the maturity curve in Colombia, so yes, in Poland, it's very fast. In Colombia, what we see is that the first store that were opened 5 years ago continue to grow. So this means that there is a length to the maturity of the store that is much longer. And we think that this is a normal situation because, of course, Colombia is not, Poland is a very different market in a very different stage where, yes, there exists an opportunity and a big opportunity in proximity, but where the stores will take longer to mature. But this was something that we had already in our equation. So if you tell me the stores in the coffee-growing region, the first ones, are not still mature, very far from that. On the indication of the profitability of the -- all the stores. So basically, what we -- it's basically what we mentioned. So the only costs that we still do not have where we wanted it is the cost of goods sold. So this means that we need the scale to really ramp-up on the operating leverage, even on the first stores, and hence, the expansion plan being crucial to us and the attaining of a certain scale.
Our next question comes from Sreedhar Mahamkali from Macquarie.
Ana Luisa, just to pick up on that point on gross margin. Do you see the curve improving with relative scale building over the past couple of years or so or do you -- is it much more of a step change once you get to 7 stores, 8 stores, something like that, or is it actually already improving, but not improving fast enough versus your expectations? That's first question, just in terms of gross margin trend in the P&L evolution in Colombia. And related --.
In Colombia, okay.
Sorry, Colombia, yes. The second point is, you've raised, I think some time ago, the price perception issues in Ara. Have you seen an improvement in underlying consumer metrics on price perception? That's the second question. And the third one, just coming back to Sunday trading ban. I know we're all trying to get an idea, it's a bit too early and all that stuff. Appreciate any insights you can give. Just trying to understand since it's kicked in, which is probably early March or 10th of March or 11th of March. Has trading been generally in line with your expectations in terms of traffic trends and sale for you or the market? If you can make some broad comments, that will be pretty helpful?
Okay. Thanks, Sreedhar. So on the gross margin, it has been progressing and it is progressing according to our expectations. Of course, we would like that to go faster, but we have -- we are aware that it takes time and it takes or -- and it needs more stores, and -- as we mentioned. So we need really the scale to continue to ramp-up, but yes, it has been improving in terms of gross margin in Colombia. Also the price perception is improving as the companies are doing or adjusting their marketing needs to take their or to address this question of price perception. So we think that we can. It's -- of course, it's only 3 months of the year, but we think, yes, it has improved. We have to confirm it with our market research. On the Sunday trading ban, yes --.
Sorry, just on the gross margin, I mean, are you able to return these improvements in gross margin or do you having to sacrifice that just to improve with price perception point?
No, we have been improving despite being able also to improve the price perception on that. Yes, we reinvest a part of it, but not totally. On the Sunday trading ban, so as you said, it's basically in line with our expectations because we knew that if there would be pressure, particularly on the input sales, so I don't -- won't repeat myself, but I think really that we have to wait longer to have a full picture of what is the impact and how -- not only we will be able to compensate for one last trading day, but also how the others will address and to really have a full picture of the full impact. So at this stage, really, it's slight early. As we -- as I said, we think that Biedronka being a proximity player will be one that will deal with it better, we think, but of course, all depends also on what the others will do, and that's why we also have to maintain all the relevance of the action and the dynamics in the operation or to prevent the consumers to choose other players or choose to buy nevertheless on Sunday. We have the ones that are allowed to keep open.
Just clarifying a final point, did you say earlier -- I might have misheard you. Did you say earlier that there was no big shift in promotional participation market-wide since the ban kicked in or do you see there was some --?
No, I said it even increased our percentage. So yes, the market is crafting promotions to compensate for the Sunday trade band. And in the case of Biedronka, we slightly increased the ways of promotions and in&out campaign in the total sales.
And that market-wide is the same, market [indiscernible]?
I would say so. There is no reason for the -- for instance, the hypermarkets that need to really make sure that they compensate for the Sunday trade ban. I would imagine that they would be very active also on the promotion to take that part of the sale.
And you haven't got any data like you're sharing 38% for the market-wide promotional clarification and is there [indiscernible]?
No, that is very year early, yes. And with Easter, it's very difficult.
The next question comes from Andrew Porteous from HSBC.
Just a couple from me. I'm just trying to get behind what the expectations and assumptions are around holding profitability in Poland, because it seems if there's gross margin pressure, OpEx pressure, that actually holding margin might be a bit of a struggle, unless you can sort of make-up for it on the sales line, which might see market challenge given what's going on with the Sunday trading ban. So I'm trying to get -- are you assuming that you fully mitigate any impacts of the Sunday trading ban within that? I'm just trying to understand where the risks are around that. And then the second question is on wage inflation. I just wanted to get a sense of what's going on in the market. I think you might have answered it already, but is there is a market-driven increase in wage inflation or is it something that you're pushing through to reward your staff and probably put some pressure on your competitors as well?
So thank you, Andrew. On holding profitability in Poland, so of course, as I already mentioned here, being the leader in Poland with a very relevant market share, we know that, of course, Biedronka has different ways to manage and there is a lot of moving parts. So yes, we are increasing CapEx; yes, we are seeing pressure on wages; but we also see a consumer that is trading up and Biedronka being able to cope with and being able to craft and capture the opportunity, so really managing and very actively the sales and margin mix. And so on this, what we really think, and this is the driver for the company, is to really make sure that we do not decrease our return on invested capital so that we will continue to be quite profitable, and we think that in the current context, we will be able to do that, of course, with a lot effort from the team to mitigate all the negative impacts, being the wages or the fact that it has to adapt a very efficient structure and logistic system. We will be able to do that for -- with a lot of effort from the team to mitigate all the negative impact, being the wages, or the fact that it has with that a very efficient structure and logistics system, but you have to cope some days with 6 days' opening, others with 7. But -- so we think that there are a lot of moving parts that are very actively managed by the team down there to make sure that it mitigates and doesn't have an effect on its profitability, and if possible, not even on its EBITDA margin. On the food inflation, so, as I mentioned, what is driven by the whole economy. Sorry, I thought it was food, it's rate inflation. If it's market driven, I think it's driven by the labor markets, in fact, because, we are having scarcity of offer of labor in Poland. And that, of course, combines with the minimum wage increases that the government has been doing and all the social initiatives that took place, of course, makes or put pressure for all the wages to increase, but I think there will be, of course a limit to it, because even the public servants have to be -- the wages have to be revised. But on that, it's a market issue from that perspective. I don't think it's because we want or those -- the retail sector wants to increase salaries, it's -- the increase in salaries is in all sectors, in all industries and even in the government.
Just as a quick follow-up, could you give us an idea of where your hourly wage rates are relative to some of your hypermarket competitors?
Currently, I think that we are quite in line with the market.
Our next question comes from Nick Coulter from Citi.
I'll be brief. Just few quick one on Biedronka, if I may. Could you remind us what the traffic rate was in the fourth quarter last year or across the second half of the last year?
Nick, sorry?
Is that better? Can you hear me? Hello?
Hello. Nick?
Hello. Is that better?
Yes, much better, sorry.
Sorry, new headset. So 2 questions, if I may. Firstly, can you remind us what the Biedronka traffic rate was in the fourth quarter of 2017 or across the second half of last year? And then secondly, on mix, could you talk more about what's driving the mix and the trade up and how that feeds through into the positive price margin development that you're seeing while still it's all being quite a lot of inflation relative to the market?
Okay. Thank you, Nick. So on the traffic, what we said last -- regarding last year was that the number of visits was slightly down in terms of like-for-like, but that has to do with even the way that we craft the promotion. So on like-for-like, there was a slight decrease in traffic that was more than compensated, as you know, by the average ticket. On the sales and margin mix, so it really has to do with, first of all -- and the first thing was, of course, increasing the ranges a couple of years ago. And then what we are doing really is then to update and to fine-tune the assortment on one hand and on the other, using, as I mentioned, very actively the in&out campaign to take advantage of this appetite of the Polish consumer for newer things or for, let's say, a certain upgrade on their consumption.
I presumably believe that supply is funded by that, you're fast driving your gross margin. In fact, your promotions are accretive rather than dilutive.
Of course, it's part of the way that we manage the gross margin, the way that we craft the promotions and of course, the way that we negotiated and we priced it, of course.
It appears there are no further questions. Ms. Luisa Virginia, I'll turn the call back to you for any additional or closing remarks.
Thank you once again for attending this conference call, and I wish you all an excellent day. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.