Jamaican Teas may opt out of Western Union contract
Jamaican Teas is assessing whether to keep its Western Union contract, saying that commissions paid to agents had been reduced at the same time that money-services businesses were being sidelined by their bankers.
The tea manufacturer, which is invested in three grocery retail businesses, entered the money-transfer market just over a year ago, a service delivered from its Shoppers Delite Supermarket in Westmoreland. But diminishing income from the operation has forced a rethink, stated Chief Executive Officer John Mahfood, who said the service is just breaking even - neither making a loss or profit - even though the business sees steady traffic.
"The actual remittance from WU [Western Union] is stable, but the income has declined quite a bit because WU has reduced their commissions that they pay to the agents. So at this stage, it is really not performing to expectation and doesn't contribute any meaningful amount to the business," Mahfood said.
His company is contracted to GraceKennedy Money Services, the exclusive agent for Western Union in Jamaica.
Jamaican Teas will "evaluate whether we are going to stay in that business or not" a decision Mahfood said will be made by year end. "We are certainly not going to expand WU," he said.
He also cited fallout from the correspondent banker issue which has seen local banks opting out of handling foreign exchange, in order to maintain relations with their foreign banking partners.
"It is now questionable in terms of the future," said Mahfood. Requests for comment from GraceKennedy on whether the issue is affecting other agents in its network were unanswered up to press time.
Jamaican Teas operates three lines of businesses; the retail distribution of consumer goods through its supermarkets; real estate rentals and construction and the manufacture of teas for local and overseas sales. Two of its three supermarkets are located in Westmoreland and Kingston and operate under the brand Shoppers Delite. It has a 49 per cent stake in the third, Bay City Foods Limited, in Montego Bay.
The Shoppers Delite supermarkets experienced declining profits, closing the nine-month period at $7.6 million compared to $11.1 million for the comparative period of 2014. The company further racked up a $6.4-million loss from Bay City supermarket over nine months, which was worse than the $5.83-million hit the previous year.
Revenue for the Shoppers Delite subsidiary amounted to $387.1 million year-to-date, "but we don't show the revenue for the Montego Bay store because it's not a subsidiary," Mahfood explained.
"The supermarket that has really not been performing to expectation is our store in Montego Bay and we attribute this to a number of factors," Mahfood said, noting an influx of Chinese wholesalers as well as other supermarkets that have been established on the outskirts of the city.
"The economy of Montego Bay is struggling and the amount of new supermarkets being built on the outskirts has reduced the customer traffic. So that supermarket is really struggling to perform, but we are not abandoning it," he said.
Instead, the company is improving the store equipment at Bay City "although it is causing a drag on our income", in order to refresh the store.
"We are looking at ways of reducing our losses and getting more customers into the store," he said.
Jamaican Teas plans to maintain its current grocery holdings, and is optimistic about the future performance of both the Bay City and Shoppers Delite brands.
"At the end of the day, the performance of our two supermarkets will be better than it was last year for the full 12 months. We have spent a lot fixing up the place and that has affected the financial results, but we are expecting to have a much better fourth quarter this year than we had last year, when we incurred a loss," the CEO said.
In the nine-month period ending June, Jamaican Teas made net profit of $70 million, of which a third, or $27 million, was recorded in the third quarter. Sales across the group amounted to $935 million and $324 million, in the respective periods.