The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed food retail group yesterday said it had slashed shrinkage by 20 percent compared to the first half as it closed its 2019 financial year by more-than tripling final quarter profits.

Gavin Watchorn, AML Foods president and chief executive, told Tribune Business that the group’s $1.57m net income for the three months to end-April 2019 showed it had delivered on “the work put in earlier in this financial year” to reverse the 75 percent bottom line decline experienced during the same period in 2018.

Fourth quarter net income came in 236.4 percent ahead of the year-before $467,000 comparative, although it was unable to fully compensate for a slow first half. Full-year profitability for the Solomon’s and Cost Right owner was off by 10.9 percent, standing at $3.595m as opposed to $4.034m in 2018.

Mr Watchorn, though, voiced optimism that AML Foods will deliver improved profitability in its 2020 financial year as it completes the group-wide roll-out of its new Enterprise Resource Planning (ERP) system.

He revealed that the technology investment, which will integrate the food retail and franchise group’s information systems into a single platform, will enable it “to manage the business in a substantially different way” that drives increased efficiency and improved decision-making.

The AML Foods chief said the ERP installation, which is currently 50 percent complete and in four of its eight stores, should be completed by 2019’s calendar year-end after several unanticipated challenges were overcome.

Acknowledging that last year’s VAT rate hike to 12 percent continued to act as a drag on consumer spending, Mr Watchorn said reduced shrinkage (theft and product going off, being lost or damaged) together with higher customer transaction spend had begun to drive an improvement in margins.

He also warned that the BISX-listed food retail group’s patience has its limits when it comes to the $3m investment to purchase the former City Markets head office and warehouse on East-West Highway as the site for its new head office.

That deal continues to be bogged down in litigation between various groups involved with the City Markets employee pension fund, the site’s owner, and to which AML Foods is not a party.

Mr Watchorn warned that the group was “not going to wait for ever if the legal battle drags on”, and may soon start seeking alternatives, especially given that its existing lease at Town Centre Mall is due to expire in less than two years, and it is searching for a new location for its Cost Right brand as well as a new headquarters site.

“AML has its objectives and strategies, and we’re not going to wait for ever if the litigation drags on,” he explained. “We’ll have to make a decision aligned with our strategies.”

With fourth quarter sales up 3.2 percent at $43.7m, Mr Watchorn told Tribune Business: “We are seeing some results come through with the work we’ve been putting in early in the financial year.

“We’ve been going through a lot of changes internally, most of it around the new ERP system we’re putting in. It requires a lot of change, causing us to look at processes and how we do things in driving greater efficiency.

“We know we have opportunities to get even more efficient and improve the customer experience, which leads to better results. How do we make that better, and that in turn drives sales performance and bottom line results. We need to do a better job on keeping items in stock, and a better job on the overall experience. That’s where the focus is right now.”

Mr Watchorn confirmed that the ERP roll-out should be completed by calendar year-end, and added: “It’s been longer than expected. We ran into some challenges we didn’t expect, and had to work our way through those. I’m very confident it will allow us to manage our business in a substantially different way from what we had before.”

Efficiency gains and “a better day-to-day performance” are the first benefits expected to be yielded by the ERP investment, with easier data access and improved decision-making throughout the AML Foods group - which also includes the Domino’s Pizza franchise - set to follow.

Although consumers continue to feel VAT’s impact on their disposable income and spending power, Mr Watchorn said AML Foods had countered this by focusing on what it can control.

“We’re seeing good improvement in shrink,” he revealed to Tribune Business. “Shrink has improved by 20 percent, and that’s an improvement from the first and second quarters into the third and fourth quarters. Our operations team and security team have worked very hard on that in the last couple of months.

“Our average spend is also trending slightly up. It’s based on things we’re doing to drive transaction growth in certain categories rather than an average growth in consumer spending.”

Mr Watchorn provided no further details, although he was likely referring to efforts to push consumers towards purchasing bigger ticket items. While AML Foods is no longer seeing the 9 percent sales decline it experienced in the six weeks immediately following the VAT rate increase, its top executive said the effects on Bahamian consumers persist.

“Fundamentally a very large amount of the Bahamian population live pay cheque to pay cheque, so for a lot of people the increase in VAT was the equivalent of a 4.5 percent increase in the cost of living,” he added.

“Pay rises did not run at the same level. The VAT increase was essentially a transfer of wealth from individuals to the Treasury, and people need time to adjust, time to react. It’s having an impact on people’s spending habits. VAT has made people make fundamental decisions about their lifestyle and spending.

“Our sales have increased over the last two quarters, the last quarter in particular, and we’ve done a lot of things internally to help drive that, but if you ask the average person on the street they’ll tell you the impact VAT has had, that it’s reality and it’s their pockets that are impacted.”

Regardless of whether The Bahamas becomes a full World Trade Organisation (WTO) member or not, and is able to reserve the retail sector exclusively for Bahamian ownership, Mr Watchorn said AML Foods would have to compete with online rivals that are increasingly selling to locals.

“We have to recognise that and make sure we provide a service to customers that makes them shop with us,” he told Tribune Business. “WTO or not, AML is not going anywhere and will compete with whatever happens.”