Jeronimo Martins SGPS SA
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Good day, and welcome to the Jeronimo Martins First Quarter Results 2022 Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia, Chief Financial Officer of Jeronimo Martins Group. Please go ahead, madam.
Thank you, Sharon. Good morning, ladies and gentlemen, and thank you for joining this call. As a reminder, and as usual, in our corporate website, a set of materials is available, including the release, a slide presentation and a factsheet adding a bit of color on our activities in the quarter.
2022 started with rising prices, particularly in food, transport and energy due to bottlenecks in international supply chain, following the pandemic. Despite increased pressure on disposable income, we operated in a resilient consumer environment in the quarter. The start of the war in Ukraine at the end of February had an immediate impact on consumer confidence, driving a sharp deterioration in the 3 countries where we operate, while inflationary pressures accelerated substantially.
In Poland, from March, on the one hand, consumer demand became more value-oriented. And on the other hand, there were incremental volumes related to some stockpiling to food donations and the influx of Ukrainians into the country.
In Portugal, and despite disposable income being also under stress, Q1 benefited from the comparison with the same period of the previous year, that was marked by strict restrictions due to the pandemic.
In Colombia, global pressures over the price of the food added to the still visible disruptions on the national supply chain provoked by strikes and social protests in 2021. Food inflation, which exceeded 20% in the quarter, is further hampering an already weakened consumer demand.
Despite the challenges and fast-changing context in all markets, our banners performed strongly, thanks to the consistent work carried out by the businesses over time to build price-leading position and relevant value proposition. Sales grew 15.2% to reach EUR 5.5 billion. At constant exchange rates, sales increased by 16.8%. Higher inflation in all banners involving peaks in some categories in Poland due to the start of work also contributed to this performance.
Following strong sales and margin mix resilience, EBITDA grew 15.5% to reach EUR 372 million. At constant exchange rates, EBITDA increased 17.3%. We closed March with a positive cash position of EUR 803 million, excluding liabilities from capitalized operating leases. Our first quarter P&L is shaped by the strong growth in top line. 3 comments here. Firstly, gross margin -- gross profit margin benefited from a resilient margin mix, particularly in the first 2 months of the year and also from easier comps against Q1 2021 that included the Easter season, which is typically more promotional. In March, in Poland and Portugal, we started to see some signs of trade down. This was weakened in Poland by the increased rate on sales of basics and essential categories related to consumer reaction at the start of the war and to the influx of Ukrainian refugees into the country.
The second comment is on costs. Cost inflation has been on the rise since the beginning of the year and further accelerated in March, pushed by the war. At the group level, food inflation and resilient volumes growth, together with an outstanding improvement in Ara's and Recheio's operational leverage offset at the EBITDA margin level, this inflationary pressure on cost in the quarter.
The final comment is on other profits and losses that amounted to EUR 30 million and include EUR 9 million related to donations and solidarity measures towards Ukraine. These actions represent the donations of products and money to NGOs working on the ground to assist Ukrainian refugees, supports to our Ukrainian team members and the removal of Russian and Belarusian products from our stores.
Since the first moment of the military offensive, Biedronka stood side-by-side with Poles in an impressive effort to help the refugees fleeing the war. Cash flow was negative in EUR 196 million, reflecting the seasonality of the business as our year-end working capital position typically includes greater supplier debts due to the Christmas season. In addition to this, achieving our store opening ambitions by the end of 2021 resulted in a greater change in working capital and higher CapEx payments in Q1 2022.
The balance sheet remains extremely solid and with the necessary flexibility to execute our planned EUR 850 million CapEx program and also to pay the EUR 493 million dividend that were approved at our last week AGM to be paid by May 18. These are still not reflected in Q1 balance sheet.
In one more quarter, driven by sales, all banners did well. The contributions from Biedronka and Ara stood out. The consistent focus through the years on keeping prices low and permanently offering strong promotions has allowed our banners to continuously grow despite challenging circumstances. Group like-for-like was at 13% and all banners increased market shares in the quarter.
Biedronka maintained its strong sales momentum, continuing to leverage on price and quality of the value proposition. Sales grew by 15.4% in local currency, including a like-for-like of 12.2%. The banner maintained price competitiveness having been able to contain price increases to this consumer, on average, 2.5 to 3 percentage points below the market. The banner opened 16 new stores, having closed 5 and remodeled 61 locations. Market share increased around 1 percentage point in the quarter.
Hebe recovered strongly against the tough Q1 in 2021 that was significantly impacted by restrictive market context. Sales grew by 28% in local currency, including a like-for-like of 20.8%. The omnichannel approach continued to deliver well and e-commerce sales represented 16% of total sales.
For Pingo Doce, commercial actions remain at the center of the strategy as consumers pressured by the effects of inflation are increasingly price sensitive. Therefore, we see already the wave of private brands over total sales increasing. Sales grew 6% to reach EUR 985 million, with like-for-like of 3.5%, excluding fuel, and the banner reinforced its market share.
With no restrictions on the HoReCa channels activity and resuming tourism, Recheio recovered strongly and grew sales by 31.6% to EUR 228 million. The work done on price competitiveness during the last 2 years positions Recheio as a key player in HoReCa recovery.
Moving on to Colombia now. Ara started 2022 from a position of strength with the right offer and the right commercial dynamics in a fragile consumer context. The severe acceleration of food inflation in the country is putting extra pressure on household disposable income. Against this backdrop, Ara remains committed to mitigate negative impact from consumption as much as possible through strong promotional actions. The banner, again, won the recognition of the Colombian consumers in the neighborhoods where it is present and delivered an outstanding sales growth of 65% in local currency, including like-for-like at 39.5%. Basket inflation, despite being below the market, also contributed to this performance. The banner opened 14 stores in the quarter, having closed one location.
Group EBITDA reached EUR 372 million, 15.5% up from Q1 2021. This corresponds to a 17.3% increase at constant exchange rates. All businesses contributed to this overall performance, though Biedronka, as expected, was the main growth driver. Ara's improvement is also very much worthy of note. EBITDA margin for the group was at 6.7%, in line with the same period in the previous year. The strong cost inflation was offset by sales growing ahead of food inflation and strong EBITDA margin improvement at both Ara and Recheio.
All in all, we had a strong start to the year even if we know that the comps against Q1 '21 are not easy to read. Our companies were able to protect volume growth despite mounting food inflation, and this was reinforced by the extra volumes generated by the influx of Ukrainians into Poland. The higher operational leverage mitigated the pressure of cost increases. The context is extremely uncertain. And since the beginning of the war, we have seen further pressure from generalized price increases, uptrend in interest rates and consumers showing signs of caution.
We trust we have the right business models and very clear priorities to continue to outperform in these challenging circumstances. Therefore, as stated slightly more than 1 month ago, at the time of our 2021 full year results release, we will continue investing to maintain price leadership and grow volumes even if cost inflation further strain the margin of the banners. In our view, this is the right thing to do for all our stakeholders, not just for the longer term, but also to deliver cash margin growth in the short term.
As such, we maintain all the guidance provided in the beginning of March and reiterated our confidence in the capacity at Biedronka to continue to grow and respond side by side with the Polish people to the pressure at the borders provoked by the war, in the strength of the Portuguese businesses to reinforce their relevance in the market and in Ara's renewed energy and determination to focus on strong value offers to improve sales and profitability.
Thank you for your attention. Operator, I am now ready to take questions.
[Operator Instructions] Your first question today comes from the line of William Woods from Bernstein.
A couple of questions for me. Could you just talk us through the kind of peaks and troughs of Q1 trading and how you exited into Q2? And then also in Poland, would you be able to comment on the impact on obviously the news on gas supply into Poland, how much is that affecting you? And then finally, obviously, the store openings were a little bit low versus kind of the run rate or the phased run rate that happened last year. Are you experiencing any material delays there? Or is it all kind of on track that we should see it phase towards H2?
Many thanks for your question. So in terms of trading, I think that you saw the growth in all banners. So we are quite happy with what happened particularly because the banners maintained their competitiveness and all banners, in fact, zoomed ahead, of course, of their internal growth in terms of inflation -- internal basket inflation.
So basically, what we see in the trading and particularly in March, as we mentioned, is some change in the mix come in parts, and that's why we cannot still predict what this totally means. We see some stockpiling in the basic products. And that happened particularly in Poland but also in Portugal in Pingo Doce.
So people tending to buy more of the basic products that -- where they are seeing the higher inflation, flour, oil. So these kind of products have increased in the mix. And the other sign, of course, that we tend to read carefully, because it usually tends to point to some trade down, is the fact that people start to move from A brands, unless they are in promotions, to private brands which although being of quality have a lower price. So these were the -- some of the signs that make us to be cautious also on our outlook in terms of consumer behavior.
In Poland, so the gas supply, of course, the country says that they are working in alternatives, and they will be able to provide the gas that will not come from Russia. Of course, what we tend to anticipate is some further pressure on the cost of energy. So this is basically what we tend to incorporate, and that's why we flagged that, at this point, it's still difficult to predict the total inflation on all the cost headwinds and basically, because some of these cost increases will only or will go through the supply chain. So firstly and usually, the inflation in fertilizers, in seeds, in -- are going firstly to the commodity prices. And then, of course, to the industry prices that -- and as we are seeing increases in all headings, some paper, so from packaging to the energy to the transport, this will tend to pass through the supply chain. And some of these effects, we think that they will only come up from May onwards even. So it's for that scenario that we are preparing.
On the openings, so no delay, I think it's the usual cycle of opening. So we opened a lot of stores in Q4 and that's reflected, as we mentioned, on the working capital -- year-end working capital position and on the CapEx and working capital change this quarter. But in the first quarter, so no sign of delay, although we know that, of course, there are some challenges even on the prices of equipment, et cetera, but that we are, as much as possible, incorporating in our own operations.
Your next question comes from the line of Rob Joyce from Goldman Sachs.
I got 3. So first one, apologies if I missed it, but did you say what your like-for-like volume growth was in Poland? And can you say if you're trending above or below that in the first months? Second one, you did mention the potential -- or you've seen some of the shift into private label. Can you just remind us how that impacts your P&L? Obviously, it's a lower unit selling price. But is it a lower unit profit per item when people shift from A brands into private label? Or is it broadly the same? And then finally, can you give us an insight into any wage inflation you're seeing in Poland? I'm seeing some reports that wage inflation is stepping up. Are you seeing that in your business? And is that any concern into the back half of the year?
So on the like-for-like volumes, yes, we grew, so part of the inflation or the growth in the like-for-like is, of course, the impact of the cost price. But we grew volumes around 4.5% in our Polish banner. In terms of private labels, so usually, our gross margin for private label is slightly lower. So we tend to be really very competitive for the kind of quality that we provide to the consumer. This has been part of our strategy in terms of differentiation, so provide really good quality products with the best price possible. And so this puts pressure, of course, on our gross margins. It's true that we have different mixes. Essentials usually also have a lower margin. But then, for instance, in Portugal, the new solutions, which is a category where we are betting in terms -- it doesn't mean, of course, it has all the costs of preparation, et cetera, but it has a higher gross margin. So we tend, of course, and the way that we craft the promotions is then, of course, to comply and try to also defend our profit at the gross margin level, but it tends also to put some pressure as we flex.
In terms of wage inflation in Poland, so we did our salaries review and considering at the beginning of the year that there would be an increase in inflation. So we reviewed all salaries since the 1st January. Now of course, what we are seeing is inflation ticking slightly up than we expected. But at this point, the way that we see it is that we maintain quite competitive in terms of wages, if we don't exclude, of course, having to review, but we continue even in terms of bonus. There was a quite significant increase for our people in Poland, together with Portugal and with Colombia.
Okay. And just quickly on the volumes, are you seeing any change in those volume trends in more recent trading?
Rob, of course, I cannot give you information on current trading -- on April trading. But of course, we will have Easter in -- or we'll have all the effects of Easter, to be honest. So last year, it was on the first weekend of April. So part of the growth was already in the last weeks of March. Now we will have it in April. So it's a little bit difficult to see. We have -- we see other kinds of signs. But at this point, I think that's -- it's difficult to say. What we flagged is that with this level of food inflation, so even with the reduction in VAT, the fact is that inflation is on the high single digits, almost 10%, so it's about 8% now in Poland. And so we see a lot of pressure and dependency for the consumer to try to anticipate this and be more cautious on the way that they buy. And that's why the company not only have launched a campaign that is our anti-inflation shield, but really to show to the consumer that they can continue to buy the more value-added products with very competitive prices. And this will be very important, as we said, to maintain the volumes and to protect margins in percentage points.
Your next question comes from the line of Jose Rito from CaixaBank.
So I have 3 questions. On the stockpiling effect in Poland in Q1, how much was this, if you can isolate the effect? And if you are still seeing this effect in April? The second question on the trading down in Poland and Portugal, that started in March. Has this intensified in April or the trend seen in April broadly similar when compared to March? I know that we had Easter and it's a little bit difficult to isolate, but if you can provide some reference in terms of the evolution of this trading down effect. And thirdly, the anti-inflation shield in Poland should have some impact on the gross margin. Can you share some references for these?
Thank you, Jose. So it is very difficult, of course, to isolate all the stockpiling effects. We know that there were increases in some of the categories that had to do with, of course, the fear that -- of the war and of course, the question is that, this puts -- of course, as we said, this also helps volumes, but we don't expect it, of course, to be the majority of the 4.5% that we mentioned -- that I mentioned answering to Rob. So I would say that, yes, it had some effect, but it would not be the majority of the 4.5%.
In terms of the trading down effect, so what we said in March, we see the first effect. This is, of course, still difficult to completely measure. Where we -- why we say this? One, of course, is what I mentioned, the fact when people start to buy more private label, and I'm talking particularly in Portugal, where we saw that. This means, of course, that they tend to keep the same quality but at a lower price or otherwise. So this will mean that the A brands will have to be in promotions to keep selling most of the time. So this is a first sign. And other sign, of course, of trading down or the way that we see the trading down is measuring or taking a look at our loyalty card that points to some decrease in the average ticket of some of the clients. So these are the only 2 signs at this point that we can really measure to take the first conclusion that people are tending to buy less or try to somehow make some further savings.
On the anti-inflation shield, of course, this will tend to put pressure as we anticipate and as we flagged because, I should say, the way that -- and what I said is that we are seeing, and we were anticipating inflation pressure on the supply chain, and we planned for that. What is happening is that this inflation pressure is above what we expected initially. And some of these effects, as you know, is not immediately reflected in the prices of retailers because they tend not or they tend to be the last ones to want to increase price to consumers. So this is something we will see probably in terms of further pressure down the line and within the next months. So by anticipating a pressure on the cost of goods sold because, of course, our suppliers will have not only the cost of production prices going up, and I'm talking about packaging with the increase in prices in paper, I'm talking about paper and plastic, of course, I'm talking about the commodities. And so even the wage increases, all that will put further pressure for all our producers and then get even the industry suppliers to, of course, want to increase prices.
And this means if we are taking the stance that we will maintain the prices of the most relevant products in Biedronka for the consumer, the more essential ones, of course, this will put pressure on our gross margin. But that can be offset, of course, without the kind of actions to -- that the company is considering in order to mitigate this, not increasing prices, but making sure that people continue to have access, as I said, to the more value-added products that usually have higher margins.
So just a follow-up on the trading down. My understanding from your answer was that the effect is still not that relevant, right, both in Portugal and in Poland.
No, the first time, as we mentioned, Jose. It's small signs that we are seeing.
Your next question comes from the line of Xavier Le Mene from Bank of America Securities.
One, actually, just to understand, you have still cautious outlook. I know you already answered about cost of goods sold and the pressure you've got on your costs but I just want to understand, is your cautiousness more driven by the flexibility you want to retain in order to reduce prices? Or is it more actually due to the anticipation of higher costs? So I'm a bit lost here because it sounds like you're talking about both impacts, but I just want to see what is really driving the cautiousness.
Thank you, Xavier. So it's both. Although the way that we see it is, we think that -- and we are confident that in terms of relative position in the market, we are the best positioned to deal with inflation because of this position of leading in price continues to provide quality. So in relative terms, we feel quite comfortable in our approach to consumers. The question is, of course, on the top line that if consumers started to see that they are paying much more for food, and of course, we cannot retain the total price increases that we are seeing on cost -- on the cost of goods sold, we tend to fear that, of course, this will hamper, as we said, the volumes, and this will mean a higher trade down, which, of course, will put pressure on the gross margin in percentage points.
But the other thing, of course, is the fact that we don't see at this point or we don't have total clarity on where the growth in terms of inflation on costs, and I'm talking about all headings, in fact. So at this time, we are not talking of a particular situation in energy or transport. We see this in all headings, in fact. And so as we fear that the volume somehow cannot compensate totally in terms of the operating leverage for the increase that may happen, and we are not totally being able to predict on the cost side. So we know that our costs are growing double digits together with sales. But we see very strong increases and very strong pushes for these increases. And that's why we are mentioning that we consider, of course, that our results will grow in cash terms, but in percentage terms, that may be pressured or -- and it is not just in Biedronka, the margin of Ara or Recheio, those could be better if it would be not for this extra pressure on costs. That's what we mean with pressure in margins in percentage points.
Okay. And just a quick follow-up on that. Does that mean that so far, you have not seen the market to be irrational or the competition or your competitors being more aggressive?
No, no. Currently, from all the data that we gather and, of course, we measure quite carefully even the price gaps in all businesses and in all countries, we keep in relative terms or in some cases even slightly increase the gap versus what was happening at the year-end.
Your next question comes from Joao Pinto from JB Capital.
My first one on Q1 consolidated gross margin was flat for the group. Is it fair to assume that it was also flat in case of Poland? Second question also on gross margin. You already said that higher share of private label could affect gross margin. However, is there any changes to the in-and-out promotions? Are you seeing lower demand for these type of products? Or do you expect these type of products to still play an important role for the margin mix? And finally, what was the increase in the footfall in March after the war versus before the war?
So on the gross margin, of course, Biedronka is the one that weighs more in our P&L. So we can conclude that in terms of total margins, there was more or less the same trends. What we have to take into consideration in this case, Joao, is that until the end of February, what we were seeing is basically the same kind of pattern. So there would -- there were salary increases. The people have available income. There were some signs, of course, and inflation was picking up. Interest rates were already growing, but we weren't seeing at least from -- people would take advantage of the opportunities to buy the more value-added products, et cetera.
So there was no effect even in our -- in terms of gross margin. And that was important to keep. And as I said, this also depends on the total mix and sometimes even -- and it is the case of Portugal, as we said, private brands is increasing in Portugal. This effect is really compensated by other products that have higher gross margin. It doesn't mean that they don't have, of course, then a bigger contribution also to costs, which is the case, as I mentioned of the -- of all the new solution categories, so the takeaway and the restaurants. They usually have gross -- higher gross margin because we only attend for the cost of goods sold. Of course, then we would have to put all the other costs that are related with these businesses to help pull the feasibility. So -- but at this point, we were able to maintain the margin due to this because of this kind of sales and margin mix.
On the footfall, so what we see is -- as we mentioned, was people trying to buy more of the essentials and also, of course, to tend to -- as I also mentioned, to be a little bit more cautious on the choice of the products. This being said, in and outs and promotions will play a very important role, and here, not only in Poland, but particularly here in Portugal and in Colombia, where people, of course, have even less available income or saw less increases in their salaries and are, let's say, more dependent and have a more fragile context, I would say, although the cost pressure in Poland and the pressure on the border is now accelerating this improvement. The fact is that in Portugal, if you do not do promotions, the categories go immediately down. So this is what we saw immediately from this also hike in inflation in Portugal, but also in Colombia and in Poland.
Okay. And my third question was about the increase in the footfall in March versus before the war -- the increase in number of clients.
We keep the -- all the clients increased, Joao, but this is very -- so the number of tickets, let's say, because the number of clients we seat for -- on different research or looking at our cards. But in terms of the number of tickets, they grew quite significantly in all months, but you also have to take into consideration that last year, with the pandemic, people would tend to concentrate part of their buying in less visits to the stores. But even taking this effect, what we see is an increase in the number of tickets beyond that. And -- but that hasn't changed dramatically from -- after the war.
Your next question comes from the line of Andrew Gwynn from BNP Paribas.
Two questions, if I can. So firstly, if we went back to 2014, I mean, we saw a significant step-up in branded promotion in the Polish market. I think it's sort of really more in 2013, in fact, and it did cause some disruption to Biedronka. So I mean, given what you've mentioned so far, is that a bit of a risk to contemplate as well beyond just consumption? So effectively, some of the supermarket and even hypermarket competition becoming really incredibly promotional.
Second question, and this is going to be quite difficult to answer, I suspect. But just help us out a little bit more in terms of our models. So obviously, I appreciate you've given some color, hoping to grow cash EBITDA. But what effectively are you solving for? Is it something to -- you're looking to continue to gain market share? Is it just traffic trends? Is it an overall like-for-like? Just try and help us build out our forecasts.
Thank you, Andrew. No, I don't think that Biedronka takes any risk of having a similar situation to what happened in 2014. I think that Biedronka this time is ahead and proactively doing what it can in terms of -- to maintain and protect its competitiveness. I think that in 2014, we over or underestimated the situation and the drive of promotions in the market. And so we have to react to others that launched very significant and relevant promotional campaigns, particularly at the hypermarket level. At this point and taking our lessons from what happened, what we are doing is really to anticipate as probably and you noticed, we really -- it's much easier for us to have to prepare and plan and anticipate the campaigns than have to react to others. So that's why we tend to be the first mover when it comes to really doing aggressive, not only promotional campaigns, but even to do the price increases to make sure that we keep the competitiveness.
So I don't think that there is any risk of -- at this point of market disruption because we, as I mentioned, over time have been consistently working on this to create -- not only to create the right price perception with the consumers but really to deliver because, of course, otherwise, the price perception will tend to fade away.
And I think that this will be quite important for the second question that you mentioned, which is we tend to see, excluding inflation, the market to shrink, the retail -- the food retail market because we think that under this context with such a high inflation -- food inflation and not only food inflation, with the hike in interest rates, that will affect the mortgages, and it is not still totally reflected in the available income of consumers at this point -- of the family.
The fact that other costs like energy to households will be under pressure and the income of households will be definitely under pressure. This will tend, of course, as we mentioned, to mean trade down or the -- trying to substitute or replace more value-added categories for others. And the second thing, of course, is -- so we believe that we are, in relative terms, we'll be the one more prepared and that we will gain market share.
But again, this is not a situation -- as we will see also a double-digit increase in our cost, this is not the ideal situation that we see. We would prefer to have a market share increase, but in a market that would be growing not only due to price inflation, but particularly because people are being able to buy other kinds of products, and they are buying the ones that are more value-added so that the market is more healthy in terms of growth. So we expect to protect our position and be the ones that gain more share under these circumstances, yes.
But when you decide to kind of dial up or dial down investment, what specifically you're monitoring? Is it simply just market share, maintaining the market share and maintaining customer satisfaction? Or is there something else in there that you're trying to hit?
It's really to maintain the competitiveness and making sure that the consumer, despite having a price increase, because we see -- still see us as the one that has the best prices. So because this is not just a question of gaining share but also not to deceive what is the promise of the banners in terms of what they are offering to the consumer, so the best prices for a product with quality, which is something that, under the current context, it will also be something that we will tackle very carefully because, of course, with so many pressures on the supply chain, there will be other issues, not only in terms of food security, but food safety even. So -- and this is something that we monitor very careful, and we don't want to deceive the consumer in terms of these 2 very important levers that really drive the sales, not only for the short term but for the longer term.
Okay. That's all very clear. And then just one very quick point of clarification. When you gave the update in March, I think you spoke about investment in Poland, and now it's really just investment across the banners. I guess that's just recognizing practicalities rather than anything more significant, but I just wanted to double check.
Andrew, in the full year, in fact -- usually, we don't -- as you know, we don't give guidance for our margins. But the market tends to assume, at least for Biedronka, that it'll be a stable margin without IFRS 16. And as we noted and this -- due to the ways of Biedronka, we flagged that on the full year release, but that doesn't mean that we are not seeing the pressure all over. What we see is that all the others were recovering from some quite, let's say, very difficult situation, particularly in Colombia and in Portugal, so with the Cash & Carry business suffering from the lack of tourism, et cetera. So there was a progression, a very positive -- there is a very positive progression in both margins. The fact is that we would probably have a better improvement even if it would not be for the pressure in inflation. So that's what we mean by having pressure in all business areas.
[Operator Instructions] Your next question comes from James Grzinic from Jefferies.
Just 2 quick questions, Ana Luisa. I guess the first one, are you saying that the shape of the margin in Biedronka was worse in March relative to January, February, given the timing of the acceleration in cost pressures, the trading down that you started seeing? I guess that is the first question. And the second one, can you perhaps help us understand the building blocks of that, really quite nice, I think it's almost 200 basis points built in the Ara margin year-on-year? I'm just wondering how much of that maybe both in gross margin and maybe volumes helping buying conditions with suppliers and their own economics? Or how much is fixed cost leverage? How much is sales densities build? If you can help as much as you can on that, that would be very helpful.
Thank you, James. So the shaping in the margin in Biedronka, you have to take into consideration several situations. And it's very difficult, and that's why we are saying that there hasn't been a very significant change in the number, but in the composition, yes. What do I mean by that? So for instance, last year, we were in a situation of pandemic with even the idea of having the -- and we were with Easter, so in March, and this tended to even have higher promotional campaigns and really too put some pressure also in last year in the margin in March.
So I think that this without having -- or without giving much more detail because I do not think -- we really manage the total margin and not only the total margin, but even the way that we craft depending on the kind of cost structure that we get and the kind of operational leverage that we get. And that's why it is so important to get the volumes because for us, James -- and I think that I would like really to make this clear, for us, the important thing is to get the volumes in order to get the cash margin regardless of putting some pressure in terms of the margin in percentage points.
So it is much more important for us to keep the top line and to keep the volumes going up, enable for us to then dilute the cost structure. And this is why probably it helps also to justify the progression in Ara's EBITDA margin because the fact is that, without having increased its total margin, Ara is investing or is having -- just for you to have, of course, a proxy, we are in Ara with 4 percentage points difference for the food inflation in the country in our own basket inflation. And as you may imagine, this is basically essential due to the structure of the market. It's a low income market. So people are quite price-sensitive.
So Ara is really not passing all its cost inflation in the cost of goods sold to the consumer. And despite of this, of course, all the increase in terms of volumes and this gains comes from the fact that you have much more clients going up and buying Ara. This is allowing to strongly dilute the costs and is responsible for the big increase and the shift in the EBITDA margin of Ara.
There are currently no further questions. I will hand the call back to yourself.
So thank you all for your questions and for attending this conference call. We realize our challenging and uncertainty operating contexts right now. The results of the work being done by our teams to reinforce their competitive positions, and the strong financial situation of the group reassures us that we will be able to continue to build a profitable and sustainable business. At the same time, we will not fail our social responsibilities, namely in what concerns doing our part to relieve the humanitarian crisis in Ukraine. Thank you, again. And I wish you all a nice day and a nice weekend. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.