The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

THE REVISED VAT treatment of uncooked groceries will hike the cost of reinvesting in its stores by 10 percent, AML Foods top executive is warning, forcing it to “pivot” while dampening the food distribution industry’s appetite for expansion.

Gavin Watchorn, the BISX-listed food retail and franchise group’s president and chief executive, warned that the increased costs imposed by the Government’s tax policy change will only worsen the “tremendous inflationary pressures” faced by Bahamian consumers at a time when spiking oil and fuel prices due to the Middle East conflict are impacting every stage of the grocery supply chain.

Affirming that the Davis administration’s move to treat the elimination of VAT on uncooked foods as ‘exempt’, rather than ‘zero rated’, is forecast to increase the Solomon’s and Cost Right operator’s annual expenses by $4.5m, he told shareholders in the group’s just-released 2026 annual report that AML Foods’ “effective taxation rate” has risen to equal 35 percent of operating profits.

Urging government policymakers to understand that the VAT change will have the opposite effect of what the Davis administration intended by increasing business costs, with these rises ultimately passed on to Bahamian families through higher grocery prices, he added that the impact may also force AML Foods to “pivot in how and where we want to invest”.

Mr Watchorn pledged that the BISX-listed food group is doing its part to ease cost of living pressures, having increased entry-level salaries for employees by 15 percent and investing almost $30m in constructing its Grand Bahama distribution centre and Cost Right’s Nassau store re-opening.

“Both of these investments will allow us to source in larger quantities and lower our cost of goods,” he told investors. However, Mr Watchorn said efforts to combat inflation and pricing pressures took a blow when the Government opted to treat the elimination of VAT on all uncooked goods from April 1, just prior to the general election, as ‘exempt’ rather than ‘zero rated’.

This has meant means food stores, as well as pharmacies, gas stations and any business that sells uncooked produce will no longer be able to recover VAT they themselves pay on all input expenses related to these items. As a result, if uncooked foods account for 60 percent of a company’s inventory, they will be unable to regain or ‘net off’ 60 percent of the VAT paid on their light, water bills and other expenses.

Such VAT changes also apply to food distributors and wholesalers, and Mr Watchorn wrote: “Recently there have been several changes in government policy that have had a significant impact on our company, including the classification of grocery items as VAT exempt rather than zero-rated.

“The impact of these policy changes is expected to increase AML Foods’ operating costs by up to $4.5m annually, while increasing the costs of reinvesting in our business and in new stores by 10 percent. Our effective taxation rate will now be approximately 35 percent of our operating profits.” For AML, those operating profits stood at $16.546m for the year to end-April 2026 which, based on that percentage, works out to $5.971m in dollar terms.

“These changes have happened at a time when tremendous inflationary pressures and increased costs on freight, insurance, energy costs, rent and other expenses are continuing to increase the already-high cost of doing business in The Bahamas,” Mr Watchorn said.

“Local service providers and wholesalers have shared with us their increased costs of doing business, and grocery retailers are experiencing a steady pattern of cost increases, further compounding the pressures on the grocery retail industry.

“We hope that policymakers recognise that there are many factors that contribute to the rising cost and complexity of doing business, as these ultimately impact the affordability of groceries for Bahamian consumers. While we believe that these policy changes were not intended to discourage investment, unfortunately their cumulative impact is likely to have that long-term effect on our industry,” he warned.

“We will continue to seek growth opportunities, but the impacts of these policy changes may ultimately result in pivots in how and where we invest, and how we operate our businesses, as we ensure that we strike the right balance between serving and supporting our communities and partners, while being the best stewards of our shareholders’ capital.”

Looking back at the previous year, Mr Watchorn said AML Foods had still managed to grow its top-line for a 15th consecutive year despite the loss of its Solomon’s and Cost Right stores at Old Trail Road due to the devastating fire that occurred on April 14, 2025. Total sales for the year to end-April 2026 jumped by $5.9m or almost 3 percent to hit $208.9m as the BISX-listed food retail and franchise group targets a $300m top-line by 2030.

“Despite the loss of over $40m in annual revenues from our Old Trail location, we recorded a 3 percent increase in sales for 2025-2026, our 15th consecutive year of sales growth,” he added.

“Our relentless focus on improving customer experiences, increasing the selection and availability of relevant items and expanding our products and services to new markets has resulted in increased weekly customer visits and basket size…. We determined immediately after the fire that we would remain committed to growth, and that we would not allow that event to define us or to derail our ambitions.”

Mr Watchorn said AML Foods had opened three stores within the past 16 months, including the former Prime Island Meats & Deli on Exuma and the ex-Captain Bob’s Seafood in Harbour Island. The latter was acquired for $682,000 and re-opened under the ‘Harbour Island Markets’ brand in May, with the also re-named Eleuthera Markets rounding off the the three to give the group nine food stores in New Providence, Grand Bahama and the Family Islands.

Looking ahead, the AML Foods chief said the renovated Prime Island Meats & Deli, now known as Exuma Markets Hooper’s Bay, is set to open during the current second quarter of the group’s present 2027 financial year.

“Our expanded Cost Right Nassau store is due to open in the Spring of 2027. These new and remodelled locations will allow us to expand our great customer experience to other communities throughout The Bahamas,” Mr Watchorn added. AML Foods also in July 2026 acquired the land and building for its Exuma Markets Georgetown outlet at a cost of $2.85m excluding VAT, legal and other costs.

Explaining how the $28.6m insurance proceeds, including $5.4m in business interruption insurance, from the Old Trail fire were used, AML Foods said: “Fiscal 2026 included $28.4m of insurance recovery proceeds, partly deployed into $12.1m of BGRS (Bahamas Government Registered Stock or bond) investments, $10.2m of property, plant and equipment additions and $2.9m for the acquisition of Prime Island Meats & Deli.”

Franklyn Butler, AML Foods chairman, told investors: “We advanced the recovery of our Cost Right Nassau store, continued to invest in our distribution network and e-commerce capabilities, expanded and enhanced our customer loyalty programmes, and reinforced our commitment to serving communities throughout the Family Islands.

“The execution of these strategic investments have created a stronger, more efficient business, and positions AML Foods for sustained growth as we work toward our plan to achieve revenues of $300m by 2030.

“The operating environment, however, continues to present challenges, and increasing operating costs and policy changes continue to place additional pressure on our business. We hope policymakers will continue to recognise the many factors that increase the cost, and reduce the ease, of doing business, as these ultimately impact the affordability of groceries for Bahamian families.”

AML Foods itself, in summing up the industry outlook, said: “The grocery industry in The Bahamas is operating within an increasingly complex regulatory environment. Changes in taxation, Customs procedures, consumer protection and other regulatory obligations can require retailers to respond within relatively short implementation periods.

“For large grocery operators, regulatory changes can have a disproportionate operational impact, requiring modifications to systems, processes, product classifications, pricing, reporting and internal controls. Regulatory compliance, therefore, represents both a financial and operational risk.

“Looking ahead, the group will need to remain responsive to an evolving regulatory landscape, maintaining strong tax governance, effective internal controls and flexible technology platforms capable of accommodating changes efficiently. Continued engagement with regulators and industry stakeholders will also be important to ensure that new requirements are implemented effectively, while minimising unintended operational impacts and preserving the intended benefits for Bahamian consumers.”