AML Foods operates the Solomon's and Cost Right brands.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A top food store chain yesterday revealed sales have fallen 10 per cent since the VAT rate hike, with this and other uncertainties forcing it to postpone further expansion plans.
Gavin Watchorn, AML Foods' chief executive, told Tribune Business that a combination of the VAT increase, the Bahamas' planned accession to full World Trade Organisation (WTO) membership and related taxation reforms, together with rising energy prices had prompted its Board of Directors to pause construction of new stores.
The BISX-listed food retail and franchise group, which operates the Solomon's and Cost Right brands, still intends to pursue real estate acquisitions for sites that "make sense" as new stores, but will not 'go vertical' until it sees how these developments impact consumers and the wider economy.
Recalling how group-wide sales plummeted 15 percent in the first four to six weeks after VAT was introduced in 2015, Mr Watchorn estimated it would take between two to three months for consumer spending to "normalise" following the move to a 12 percent rate.
The AML chief added that while store transaction volumes were unchanged, their value had declined, although he warned against "making rushed decisions" given that the new VAT rate has been in effect for just under three weeks.
"I think Bahamian consumers are going to need some time to adjust," Mr Watchorn told Tribune Business. "When VAT was introduced in January 2015 we saw about a 15 percent decrease in sales for maybe the first four to six weeks.
"Before the latest increase we some great weeks. One store was up 50 percent the week before, but they're [sales] down about 10 percent since we went to 12 percent. What we're not seeing is less transactions but less spend. What we're seeing is not what we want to see, but it's not unexpected."
Based on AML Foods' annual sales of $163.057 million for the year to end-April 2018, the post-VAT hike's 10 percent sales decline stands to cost the BISX-listed group some $16.3 million annually on its top-line. Yet it is unclear with this trend, and the magnitude of the fall, will hold for the long-term.
Mr Watchorn said the sales peak immediately prior to the 12 percent VAT rate's implementation, as Bahamians stocked up on groceries and other products to beat the increase, meant it was hard to determine when - and where - consumer spending will level off or 'bottom out'.
"It will take some time," he emphasised. "We have to see what happens with the 'zero rating' of breadbasket items that will provide some relief to consumers. We have to wait a couple of months before it levels out and we see what the normalised level of consumer spending will be.
"We've got to see what it levels out at. We don't want to want to be making rushed decisions in the first weeks, especially as the last week in June was so strong. We have to be lean as always, so we're looking at where we can reduce costs and save money. It will be three months, maybe a little more, before we see how consumer spending fares."
AML Foods' data provides one of the first insights into the VAT hike's impact on the Bahamian retail sector and consumer demand. It will likely fuel existing concerns about the increased taxation's impact on jobs and the wider economy, given that the Government is forecasting the rate increase will suck an extra $400 million from consumers' pockets this fiscal year.
In the meantime, Mr Watchorn said AML Foods had decided to slow down its store expansion strategy given that it - and the wider business community - needed to "digest" how VAT will impact consumer spending and a WTO accession "coming towards us next year".
"We are going to continue to look for sites, and if a site makes sense and ideal real estate location, we will look at that," he told Tribune Business. "But in terms of converting 'green field' into new stores, as a Board we have decided to wait until we see the impact of all these things.
"We have some active discussions going on with parties on different sites. To buy it is one thing, and you're buying for the long-term, but there's too much uncertainty for us to be making a commitment to build large stores right now."
Besides the VAT increase and WTO accession, Mr Watchorn cited rising energy prices as another issue that had given AML Foods pause for thought. Besides global oil prices, he cited the additional charge that will ultimately be added to consumers' electricity bills to finance Bahamas Power & Light's (BPL) rate reduction bond restructuring, adding: "Someone has to pay for the debt on the books at BPL as a result of gross mismanagement."
The AML Foods chief also said there was "a little bit of uncertainty" over how the Government plans to replace revenue that will be lost as a result of having to eliminate, or substantially reduce, many import tariff lines as a result of joining the WTO.
The Minnis administration has said it will likely have to replace between $100-$200 million in lost revenue, but is currently unable to give a precise figure because the terms of the Bahamas' accession have yet to be negotiated.
Mr Watchorn questioned whether the chosen replacement would be a "consumer tax" or "business tax", and how it would be collected. He added that he did not "see the benefit to consumers" from joining the WTO if the Government eliminated import tariffs on one hand, only to levy new or increased taxation on the other.
His comments indicate AML Foods is going to be far less aggressive with the expansion strategy it unveiled in its 2017 annual report, which aimed to add two new stores in southern New Providence over the next five years.
It had planned to continue rolling out its 'neighbourhood' food stores based on the model established by the recently-opened Solomon's Yamacraw outlet, having already acquired a 4.506 acre site on Charles Saunders Highway, between Seabreeze Estates and Pinewood Gardens, as one such location. Another site was being sought in southwestern New Providence.
Meanwhile, Mr Watchorn said AML Foods had this week opened a new staff training centre in Freeport, adding: "We're quite excited about the benefits it will bring to us up there over the medium to long-term."
The BISX-listed group is now planning to construct and open a similar 4,000 square foot training centre, adjacent to its Solomon's Yamacraw store, before the 2018 calendar year-end.
"We will be breaking ground shortly, and it will be operational before the end of this year," Mr Watchorn said. "It's kind of a win-win for us."
Tribune Business sources yesterday suggested AML Foods had originally planned to base its Nassau training centre, and relocate its head office, at the former City Markets headquarters building and warehouse on the East-West Highway.
However, its $3 million purchase of the site has become bogged down in the ongoing litigation involving the property's owner, the City Markets employee pension fund, and Tribune Business understands that AML Foods is close to walking away from the deal unless it can close quickly.
Mr Watchorn declined to comment, citing the ongoing litigation, but a source familiar with developments, speaking on condition of anonymity, said: "AML is prepared to walk away from this if it is not resolved quickly. It cannot let its strategy be held up because of issues with the property."
The City Markets employee pension fund trustees are currently embroiled in a legal challenge over whether they have the right, and ability, to sell the former head office and warehouse building as revealed by Tribune Business earlier this year.
AML Foods has two years left on its existing lease at the Town Centre Mall, and is searching for a new location for its Cost Right brand as well as a new headquarters site.
Comments
OMG 5 years, 9 months ago
Don't mind paying the 12% as the country is in dire financial straights but what I really object to is paying VAT on Tax. Example with air freight imports you pay Customs handling $10, Brokerage fee, Import duty and freight. Then you pay 12% on the total-double taxation. Secondly if an individual is responsible for a substantial financial misdeed they are usually held accountable but we the public are paying all these extra taxes (and there are many more than VAT) to rectify the waste, corruption, and airy fairy spending on lousy expensive often never to be completed projects. Name the persons who put their names to sanctioning these projects etc and make them accountable.
DDK 5 years, 9 months ago
Wonder what the IMF, IADB, EU et al think of the double taxation system in this country? Probably could care less!
gbgal 5 years, 9 months ago
I too object to this double taxation! You forgot to mention how the Vat is added at Every point in the transaction when handled by another vendor. So, at the end, you pay on the higher value plus the seller's markup. We cannot afford to live like this!
joeblow 5 years, 9 months ago
This was a predictable consequence! Wait until tourist arrivals and spending starts to decrease because people are going to have to pay 15% gratuity and 12% VAT! Who wants to pay 27% for anything WITH mediocre service to boot!
bcitizen 5 years, 9 months ago
WTO and VAT are causing allot of uncertainty for Bahamian business and uncertainty in the private sector is a bigger job/economy killer than the taxes or policies themselves.
Millennial242 5 years, 9 months ago
Who’s in charge of the numbers at AML? For a publicly listed company, this article is reckless. It seems like a throw of blame. There are too many mitigating factors in play for AML to make this assessment so soon after VAT implementation has taken place. They may very well see a sales decline because of VAT, but it is too soon to validate that.
[1] what are you comparing the 10% decline to? If you’re comparing it to a rolling weekly trend, then of course you would see a decline since the last few weeks before VAT was implemented there was an increased spending by everyone (whether it was warranted or not). Obviously more folks would spend less the first few weeks after VAT is implemented. Because they’re still stocked up from their last spending rush. You have to consider consumer behavior. So again....10% decline compared to what specific period?
[2] It’s hasn’t even been a full 3 weeks since VAT has been implemented. At least wait until the end of July is complete and compare this month to the same July period of last year. Use the full month since some consumers are paid monthly (which impacts their spending habits)
VAT has had an impact for sure on consumer spending, but we shouldn’t be reckless in sensationalizing its impact. Come On! The reporter should have pressed more on how 10% came to be a reasonable assessment for them to announce.
My guess is there are other reasons why AML is halting expansion...but the VAT increase presents some cover.
Pffffffff.....
realfreethinker 5 years, 9 months ago
You are so correct in your assessment. This is nothing but the blame and should be condemned. July and August usually see declines because quite a bit of persons travel and wait until they go away to stock up. And to suggest that a decline in sales for 2 weeks will scuttle your expansion plans really is a slap in the face of right thinking people.
ThisIsOurs 5 years, 9 months ago
Actually that's exactly what they said. "It's too soon and it's only been three weeks". They also mention that the exact same thing happened before the 7.5% implementation. I'll put my money on the slump being permanent, prices are outrageous.
One nteresting thing they mention is the same number of transactions but volume is down. So it's not like people have stopped shopping, they're buying less.
This VAT increase is insidious. Food and fuel prices are at the bottom of your pyramid. If they go up, all prices up the chain go up exponentially.
tetelestai 5 years, 9 months ago
What is really funny is that expect the Tribune, particularly Neil Hartnell to "press more on how 10% came to be a reasonable assessment. Neil is a hack, always has been, and the Tribune is just a tiny notch above The Punch.
newcitizen 5 years, 9 months ago
Neil needs to take more responsibility in informing the public.
ThisIsOurs 5 years, 9 months ago
He took exactly the responsibility he needed to. If you decide to just look at the headline, that's on you. Writing headlines is an art, they're designed to be provocative and to make you stop and read the article. In newspapers with bigger budgets, writing headlines is actually someone's full time job.
If you had read the details of the article you would have found
"Watchorn said the sales peak immediately prior to the 12 percent VAT rate's implementation, as Bahamians stocked up on groceries and other products to beat the increase, MEANT IT WAS HARD TO DETERMINE when - and where - consumer spending will level off or 'bottom out'.
Well_mudda_take_sic 5 years, 9 months ago
Watchorn can pray all he likes for the situation to be normalized down the road, but that will not be happening. As the proverbial saying goes, 'blood can't be had from a stone', and the vast majority of Bahamians are tapped out. Bahamians are having to trim their weekly grocery costs and cut back on many other regular expenses previously considered necessary. And this is happening all because of the 60% increase in VAT on everything from groceries, gasoline, electricity (if BPL bill above $200, which is the case for many Bahamians), car insurance, doctors bills, and on and on and on.
John 5 years, 9 months ago
The key point here is AML saw. FIFTY PERCENT increase in sales from continuing operations in the weeks prior to the VAT increase. So this is in line with the government’s claim that there was some growth in the economy in recent months. Mostly due to Bah Mar opening and creating new jobs and the tourist sector as a whole showing strong numbers. And so a 10% decline in spending after the increase in VAT should be expected because a portion of consumers disposable income must now towards the VAT increase. And based on Vatchorn’s touting of a 50% growth in sales, this may have been sufficient to cover the government’s shortfall in revenue had they continued to stimulate growth rather than creating doubt, reductions in disposable income by increased taxes and doubt to investors. In the US, over 2 million persons have come off food stamps this year, so far and there are 500 thousand more jobs available than there are workers. This government cannot expect to grow the economy by tightening the purse strings too much And squeezing more tax dollars out of businesses and consumers. There is natural growth happening in the economy, even now, and government must be careful not to stunt that.
HonestTruth 5 years, 9 months ago
This is a prime example of wreckless reporting. If sales increased the weeks prior to VAT implementation, due to the fact that persons wanted to stock up on a large volume of items to offset the increased taxation, common sense would tell you that the weeks subsequent to VAT’s implementation sales would be down because those same persons are utilizing that large volume of items that was purchased prior to VAT increasing.
This is the type of Fake News reporting I expect from Candia Dames and the Guardian, I try to hold the tribune to a higher standard.
newcitizen 5 years, 9 months ago
Absolutely. Their number are from less than 18 days of sales and probably less if they took time to put them together. That is not representative of anything in business. Wait till they have had a full quarter and then report. This is irresponsible hand waving, only trying to stir up unrest without any actual facts.
ThisIsOurs 5 years, 9 months ago
Did you read the article? Everything you point out as irresponsible for Harnell not to point out, is right there
"Watchorn said the sales peak immediately prior to the 12 percent VAT rate's implementation, as Bahamians stocked up on groceries and other products to beat the increase, meant it was hard to determine when - and where - consumer spending will level off or 'bottom out'.
BahamaPundit 5 years, 9 months ago
I knew this would hapoen, that's why I slammed Minnis. 7.5% was actually the maximum level our fragile economy can withstand at current sallary levels. I expect Minnis will get less than under the previous 7.5% regime. There only is so much people are willing to pay before they change their spending habits. Now I don't go out to eat. Before the VAT changed I went out all the time. Less is sometimes more.
newcitizen 5 years, 9 months ago
Pundit, I expected that you would consider the numbers a little more closely and realize that this is some and mirrors. Wait till you can get actual number for a full quarter. This is a non story.
HonestTruth 5 years, 9 months ago
@BahamsPundit.... you’re clearly not thinking critically if you can’t see this is a non story and the tribune is just trying to sell papers. AML foods is operating in a surplus for this period to the fact that they experienced +50% increase in sales the week leading up to the VAT increase.
This is a slow news day and the tribune is trying to sell papers.
ThisIsOurs 5 years, 9 months ago
The week leading up to VAT was an anomaly and everyone knows it Rupert Roberts already tell y'all it was like a hurricane on June 30th, the people buy everything off the shelf trying to duck 12%
birdiestrachan 5 years, 9 months ago
Bahamians can find a way to buy only bread baskets items in the Bahamas and buy their groceries else where.
BahamaPundit 5 years, 9 months ago
Honest Truth My statements don't have much to with AML and more to do with what I see on the streets. AML is just the tip of the iceberg. I anticipate hundreds of companies to see revenue drop by 10% (at least) over the next couple years. Baha Mar occupency is down to 30% occupency apparently. Who's going to come here? In a country in which eating out is the only night entertainment, it's bad business sense to think patrons will pay 27% on top of their bill.
Porcupine 5 years, 9 months ago
I agree with you on this Pundit.
realfreethinker 5 years, 9 months ago
If you can afford to go out to eat i really doubt the additional 4.5% won't matter If you spend $100.00 before July 1st by your words the meal would have cost you $122.50 after July st $127.00. If that makes that much difference to you then you should not be eating out.
ThisIsOurs 5 years, 9 months ago
You're using the same Excel formula as Turnquest. Prices don't move linearly like that. For example a friend of mine told me they went out for dinner to a casual restaurant, nothing fancy, the bill for two the week before the VAT increase was $50, the week after the VAT increase it was $72, my calculator tells me that was a 44% increase in the price, not 4.5%. I suspect over time as more businesses realize how much prices have moved they will in turn move their prices higher. Water and sewerage is already asking for a rate increase , the gas dealers asked for permission to go above $5. All of this was predictable and predicted. You see they cover themselves, introduced a gas allowance so they don't feel it. My biweekly grocery bill is up from 180 to 240
realfreethinker 5 years, 9 months ago
Thisisours. That increase had nothing to do with vat. Your friend probably ate something different or he /she was scammed. The numbers don't add up.
ThisIsOurs 5 years, 9 months ago
NOPE. they went the week before and they ordered the exact same thing. In fact as they described to me they go to this restaurant specifically when they want that one meal. It had everything to do with VAT. I was watching fruit and vegetable prices like a hawk. My favorite apple went from 99c to 1.67 pre VAT. AND I completely agree with you the numbers don't add up, that's why it's called inflation. This is what Johnson and Turnquest forgot to factor in their excel model. "Economics" you do something with the money and the rates, there's an equal and sometimes exponential reaction.
One thing that was very clear in this article "retailer fear". We don't know what's going to happen. When people don't know what's going to happen they buy insurance. A retailers insurance is sometimes higher prices. I understand second home owners are expressing the same fear, "we don't know what's going to happen".
John 5 years, 9 months ago
If AML can see fit to declare an extraordinary dividend (as they did) then the increase in sales had to have been more than 'a few weeks. ANd for sure it had to be more than the few weeks between the announcement of the VAT increase and the time it was implemented.
John 5 years, 9 months ago
BTW did anyone else see the notices that banks are about to increase their fees again in August? RBC for sure!
ohdrap4 5 years, 9 months ago
no the price hike will not be linear.
Vat itself is not linear, it is a multiplication, so the increase will not be linear.
However, there is a chance that it will be linear for about three months, until new shipments come in, so you could engage in a second round of stocking until September.
I will be watching the base price of the breadbasket items, as i only stocked for one month.
ThisIsOurs 5 years, 9 months ago
Thanks for the semantic correction. But didn't you understand? The foodstores were hiking prices BEFORE VAT was implemented. I watched it. A box of cereal went up by one dollar, chicken went up 3 dollars. No that's not linear and no need to wait three months to figure that out. The total bill went up 50 dollars
ohdrap4 5 years, 9 months ago
the ground beef price went up even more that that. in nassau, we get some respite if we wait for the cycle of the so-called 'weekly specials", so one doe not buy chicken at 3.99 a pound, but rather wait until it is 1.99 or 2.19. Not in abaco, the local organic chicken is verry veyr expensive.
of the stuff i regularly buy, the bananas went up considerably.
there is competition in food stores.
where we really get jooked is in services, the plumber, the electrician, car mechanics and garages, doctors, all charge more to compensate their increased costs.
even in household goods the impact is not too bad, as the cost, inclusive of vat is spread out, a stove or refrigerator lasts years.
as for restaurants. i just cook my own food, cooking gas is oen of the cheapest energies , so i go to youtube and learn whatever recipe i want.
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