
Before us is the largest IPO in several years on the Warsaw Stock Exchange – Żabka. It generates enthusiasm among retail investors, while institutional investors are likely to buy shares due to the size of the offering and portfolio balancing under the WIG20 index, etc. I decided to read 470 pages of the prospectus and also review the annual report over the summer. [link]
Despite strong marketing efforts portraying this offering as an investment in a high-growth company, there are certain issues, and the offering somewhat resembles Allegro’s debut. [link]
Let’s start with the growth model, as it is where most controversies arise.
Żabka is a chain of franchise convenience stores, with over 10,000 locations in Polish cities. Approximately 17 million consumers live within a 0.5 km radius of a Żabka store. In 2023, the Żabka Group handled about 3.6 million transactions daily, averaging around 360 per store. They estimate their market segment at approximately PLN 430 billion and hold a 20% market share. Their competition is significantly smaller – similar chains like Carrefour Express have only about 300 stores.
The model relies on franchising, which is very beneficial for the chain, mainly from a tax perspective and in terms of product sales for franchisees, which is their main source of revenue. Franchisees appreciate Żabka for its low entry cost starting at PLN 5,000 and often begin with a prepared location and inventory (the chain prepares and frequently sends standardized deliveries to stores).
Rapid growth in the number of shops
However, there are also problems, which will be discussed later. Here lies the issue: Żabka is growing rapidly but at a significant cost on two fronts.
First, the rapid increase in the number of stores mainly occurs in large cities, leading to a high concentration of Żabka locations that cannibalize each other’s profitability, although the company strongly denies this.
Recent years have also seen a substantial increase in store numbers—1,000 new Żabkas were added each year for four years.
Additionally, the chain aims to continue aggressively opening stores, planning around 1,100 additional locations annually, with a target of 14,500 by 2028.
Ultimately, Żabka see their market potential as high as 19,500 stores. This growth is expected to be achieved by opening in newly constructed buildings and acquiring locations from other small stores.
The second problem involves rising financial costs along with capital expenditures and advertising/marketing expenses that have driven up company costs.
Żabka Store: What is it and what do they sell?
These are franchise stores, 70% of which are under 70 sqm, located in cities, with half of them in large cities (over 100,000 residents). One important thing – Żabka is only one big store brand in Poland which works as stores despite ban Sunday Shopping law. Its important component of their revenues and popularity.
What do they sell?
The average store offers 2,400 SKUs, of which:
- 11-16% are hot ready meals and coffee
- 11% are snacks
- 32% are beverages and beer
- 2-11% are services, primarily courier services; in the first half of 2024, this accounted for 22 million shipments.
- 16% are dairy products, bread, vegetables, and fruits
- 20% are alcohol and cigarettes
- 5% are other items
Services also contribute to 12.5% of shop entrance.
A customer’s visit to a Żabka store often takes less than two minutes, and the purchases are highly impulsive. The clientele mainly consists of young people from large cities, and Żabka has targeted them with the campaign „We value your time.”
These stores are supplied by a network of eight logistics centers (including one built this year in Radzymin which supplies 1/3 of group) and 19 cross-docking facilities. The deliveries of goods are quite similar across stores, allowing the company to negotiate prices effectively and extend payment terms. The chain has also created a discount app called Żappka, which has been used by over 10 million people at least once a year.
Entering into the food production sector
The company has acquired Mafczfit, the largest catering service in Poland, producing and selling 165,000 meals daily. In 2021, they also acquired Dietly, which operates the largest marketplace for meal boxes in Poland and provides ERP solutions for such companies. They also produce their own meal boxes.
Additionally, Żabka has several food brands that it sells in its stores, including its own bakery products and Foodini smoothies, among others. These acquisitions will increase the margins for the entire group and enable them to expand beyond traditional store franchising into the food delivery market, which has gained significant popularity in Poland in recent years. The market has grown year-on-year by 19%, surpassing PLN 3 billion. In my opinion, this is a very smart business move for the company that will enhance their margins.
The Issues of franchise holders
This is a complicated topic. First, it’s important to note that there is no uniform franchise law in Poland, and such agreements are essentially standard B2B contracts with significant legal asymmetry favoring the franchise seller, which has led to numerous scandals in the past in other Franchises. The question arises of how to measure the quality of the franchise, and a sensible metric would seem to be the churn rate. The problem is that there is considerable ambiguity here. On one hand, only 88 stores were closed last year, resulting in an impressive rate of 0.88%. On the other hand, Żabka often has agreements for these locations and owns over 1,000 stores, which, combined with easy recruitment of franchisees, allows for relatively straightforward acquisition of new operators for the same location. In this case, unofficial reports have indicated a churn rate of 8%.
The average turnover per Żabka is PLN 2.4 million, the franchisee’s margin is 16.5%, the average monthly revenue of the store is PLN 33,000 per month. This is not enough, even for a small store in Poland, which, in my opinion, makes a frustration in franchise holders, especially if theirs store income hasn’t growth and their see next new żabka 300meters from them. There are three important issues which former franchise holders states against Żabka: in blanco bills of excange (mainly as security for the goods in store and the shops). Problem occurs with their validity. The company had accidents that the date was early, even before the signing of the contract, and situations that someone from the family member is guantor. This issue has already disputed by the court and stated that some of them issued not on b2b customers are invalid.
Another legal problem with IOU in blancoes is described here [link]
There was also recently a court ruling that promissory notes for individuals are invalid. I will add a link, because I do not know the law enough to clearly state the conclusions here.
The second issue is the requirement to buy stock inventory in quantities required by Żabka, along with the necessity for franchisees to absorb any potential losses. While this is beneficial for the chain, it frustrates some franchisees because, in the end, they find that their earnings are low, whereas they had expected much more.
The third issue, though more speculative, revolves around a peculiar method of tax deductions, particularly regarding income tax. Franchisees often mention this, but I have not received any direct evidence. They complain that after terminating their partnership, they frequently face tens of thousands in PIT tax liabilities. However, data from Żabka suggests otherwise; the company pays significantly more CIT than it should—19% in Poland. This is quite strange and speculative.
You can find most of the arguments of the former Franciscans against Żabka in YT Video here. Host of this podcast is famous Polish left-wing influencer, so there’s also some ideological references to business regulation.
Finance
In 2023, the company had 16% higher revenues and 7% lower profits than 2022 (which led to a decrease in margins). In the first half of 2024, these trends continued. The decline in profit and the overall cost of growth was strongly influenced by the high financial cost, which is a direct result of the aggressive growth of the group.The problemis also, as I mentioned earlier, the high capex and marketing costs (one of the highest in Poland)
Like for like (LFL) in important indicator – retail sales growth refers to the growth in sales as recorded by the same number of stores a year ago. Let’s see what it looks like compared to a slightly different Dino store – it turns out that it is good, but not incredible

Other indicators are quite standard for store chains with exception of shorten receivables turnover, so I skipped them.
The other KPIs shown in the prospectus can be seen here:
Public Offering
The public offering is widely discussed in the media, with claims that it will be the largest IPO since Allegro in 2020 and the fourth largest IPO in the history of the Warsaw Stock Exchange (WSE) at PLN 6.4 billion. The sale will include:
- Retail Investors: Up to 15,000,000 ordinary shares (5% of the pool). PLN 285 million will be allocated for sale to funds and the financial institution market. Shares will be offered at a price between PLN 20 and PLN 21.5.
- Over-allotment Option: The sellers grant the Stabilizing Manager an option to borrow additional shares, up to 15% of the shares for sale.
- Shares in the Offering: The total offering, including Over-allotment Shares, consists of a maximum of 345,000,000 shares, representing 34.5% of all company shares.
- IPO Scope: The IPO includes only shares held by current CVC owners; the issuance will not benefit the company.
Key Dates
- By October 9: Collection of subscriptions from individual investors.
- October 10: Price determination, which will be between PLN 20.00 and PLN 21.50 per share.
- October 10-14: Subscriptions by institutional investors.
- October 15: Allocation of shares.
- Around October 17: First day of trading on the Warsaw Stock Exchange (WSE).
Lockup for major Shareholders and managers it will only last 180 days.
IPO (mostly marketing and legal advisors of IPO) costed 40 mln pln.
Valuation
– Let’s start with an important fact, the company this year did not pay dividends this year and do not plan to pay it next year.
The valuation itself is very high. The company will be valued at PLN 21.5 billion. In 2023, the company earned PLN 356 million, this gives:
- P / E of ~60 (more than 2 times as much as the average companies in the sector).
- Price / Revenues = 1,08
- Price /Cash flows from operating activities = 10
- EV / EBITDA is 11 – quite common in the industry, although this does not yet take into account the component related to stock valuation.
Chances of adding to wig20
If the company price does not fall, it has a chance to get right into the wig20 at the revision at the turn of the year. After the debut, it will have a capitalization of half of this index.
Summarize – Pros and cons of company and its public offer.
(+) Good quality of management – C-level executives and department heads have experience in digital marketing, investment banking, and major retail stores like Walmart.
(+) High flexibility of the network; initially, they were regular stores, but now there is a lot of takeout food, the ability to send courier packages, and they have entered the fast food production sector.
(+) A high probability to enter the WIG20 index.
(+) Strong interest in the offering; there will be a reduction for individual investors.
(-) Very high valuation, which is likely to lead to declines in stock price in the coming months.
(-) Very short lock-up period of only 180 days.
(-) Decrease in margins and profits over the past year.
(-) In the event of a less favorable government for the company, many factors could turn against it—especially the elimination of Sundays free from trading or certain tax interpretations that could become unfavorable for the company.
(-) Increasing costs of expansion for the group, mainly financial and marketing, with potential network cannibalization in the future. Additionally, the upcoming expansion of 4,500 stores seems challenging to achieve by 2028.
(-) Over ¼ pages of prospectus includes mostly marketing information for investors, not usable data, that’s where 40mln for IPO operation were spent ; )
(?) Difficult to predict future of Żabka nano – concept of autonomus stores which current number is 44
In my opinion
the offer will succeed and in the first days stck price should grow. The timing of this strongly depends on whether and when the company will get to wig20.
Within a months / year of the ipo rate in my opinion will fall due to too high valuation, sale of shares by managers and a decline in the dynamics of net profits.
In the very long term, the flexibility of the management board is important, which they have repeatedly proved. This chain started out as regular stores mainly with alcohol, and over the years they changed the offer to fit the market and if they keep it in a few years they have a chance to dominate their market segment, but it’s a matter of years and change the model of operation.
Contact to me krzabr@gmail.com / https://x.com/marketrev_eu
This analysis does not constitute an investment recommendation within the meaning of (art. 42 (1) and art. 76) of the act of 29 July 2005 on investment advice (Polish Journal of Laws of 2005 No. 183 item 1538 of późn.zm.).
Polecane książki o tematyce finansowej. Kupując wspierasz portal.
