Good Pharm: Store-rollout growth versus margin quality
Good Pharm is now large enough to affect the group mix, but 2025 shows the chain added volume faster than it improved margin quality. Existing stores kept selling, yet accelerated openings pushed operating margin lower, especially in the fourth quarter.
What The Main Article Already Settled, And What This Follow-up Is Isolating
The main article already established that Rami Levy still has a strong retail core, but also a tighter all-in cash picture. This follow-up isolates one narrower question: is Good Pharm already creating value at the same pace at which it is creating volume. It is no longer a side story. In 2025 the chain reached NIS 510.2 million of revenue, NIS 49.6 million of operating profit, 72 stores at year-end, 79 stores already by the report-sign date, and a plan to open about 15 more during 2026.
The answer from the report is mixed, but fairly sharp. Demand did not break. Same-store sales rose 6.17%, and sales per square meter increased to NIS 47,182 from NIS 45,775. In other words, the existing estate is still selling more. And yet margin quality weakened: operating profit rose only 6.1%, and the operating margin fell to 9.72% from 10.63%. In the fourth quarter the gap became much clearer: revenue rose 18.13%, but operating profit fell 19.59%.
That is the core point. Good Pharm does not look like a chain struggling to bring customers in. It looks like a chain whose rollout pace is running ahead of its ability to translate new stores into stable margin. That is why the right 2026 debate is no longer whether the chain can grow. It already proved that. The debate is whether the footprint-building phase is now followed by an actual value-harvesting phase.
Three points matter immediately:
- The existing box still works. Same-store sales rose, and sales per square meter kept improving.
- Margin did not keep up. Revenue grew much faster than operating profit.
- The opening cadence has become more aggressive. 11 stores opened in 2025, two closed, and about 15 more are planned for 2026.
What Still Works: Demand At The Existing Box Level
The lazy way to read Good Pharm is to say the chain is growing only because it keeps adding stores. The numbers tell a better story. In 2025 revenue rose to NIS 510.2 million from NIS 439.9 million, while same-store sales rose 6.17%. At the same time, sales per square meter increased to NIS 47,182 from NIS 45,775. That means the chain is not relying only on fresh square meters. The existing store base also continued to do more work.
That matters because it removes the easiest explanation. If same-store sales are positive and revenue per square meter is improving, then the 2025 problem is not brand weakness and not customer fatigue. On the contrary, the chain is still bringing shoppers in and still using its selling space more productively. That is exactly why the margin slippage matters more. It suggests the weakness currently sits in the economics of expansion, not in the economics of demand.
There is another quiet but important point here. Good Pharm's strategy relies on steady geographic rollout, deeper group synergies, and use of Rami Levy's Modiin logistics center to improve inventory availability and supply efficiency. If that framework is working, demand health in the existing store base is what should appear first, and margin improvement should follow later. The first step is already visible. The second one is still missing.
In plain terms, anyone looking for proof that the chain can still sell already has it. The open question is not selling power. The open question is what remains after wages, rent, opening costs, and the heavier cost structure of a fast-expanding chain.
Where Margin Quality Is Slipping
At the annual level, Good Pharm still looks positive. Revenue rose 16.0%, gross profit rose 14.54% to NIS 165.8 million, and operating profit rose 6.1% to NIS 49.6 million. But this is exactly where the gap between volume and quality begins. Gross margin fell to 32.5% from 32.91%, and operating margin fell to 9.72% from 10.63%.
The company attributes the annual operating-margin decline mainly to a lower gross-margin rate, higher operating expenses due to accelerated store openings, higher wage expense, and higher indexed costs. That point is critical. Good Pharm did not lose the customer. It lost part of its operating leverage.
The fourth quarter makes the issue much sharper. Revenue rose to NIS 132.68 million from NIS 112.32 million, up 18.13%, but operating profit fell to NIS 12.54 million from NIS 15.59 million. Operating margin dropped to 9.45% from 13.88%. Gross margin also fell, to 32.91% from 34.15%.
It is important to stay precise here. The company ties the fourth-quarter gross-margin decline mainly to the closure of Good Pharm's fitness activity. So not every bit of late-year margin pressure came directly from new-store rollout. But even after giving that point full weight, the operating-profit line still tells a clear story: accelerated openings and higher wage costs pushed the cost base faster than profit could keep up.
| Period | Revenue | Gross Margin | Operating Profit | Operating Margin | What The Numbers Say |
|---|---|---|---|---|---|
| 2024 | NIS 439.9 million | 32.91% | NIS 46.7 million | 10.63% | A cleaner margin base year |
| 2025 | NIS 510.2 million | 32.50% | NIS 49.6 million | 9.72% | More sales, lower quality |
| Q4 2024 | NIS 112.32 million | 34.15% | NIS 15.59 million | 13.88% | A very strong margin quarter |
| Q4 2025 | NIS 132.68 million | 32.91% | NIS 12.54 million | 9.45% | Much more volume, less margin quality |
That does not automatically mean the expansion program is wrong. It does mean that in 2025 the chain bought scale faster than it bought quality. If that is the starting point for 2026, then a plan for about 15 more openings raises the proof bar rather than lowers it.
The Rollout Machine Is Getting Heavier Faster Than Synergy
To understand why margin weakened, it helps to look at the rollout structure itself. At the end of 2025 Good Pharm had 72 stores, up from 63 at the end of 2024 and 58 at the end of 2023. But the story is not just the count. Self-operated stores rose to 28 from 23. Stores operated through a subsidiary with a managing partner rose to 40 from 33. Franchised stores fell to 4 from 7.
So the chain is not just getting bigger. It is also shifting toward a model with more direct exposure to operations, labor, rent, and day-to-day store costs. That may eventually create better control, more consistent execution, and stronger synergy capture. In the near term, though, it also means less growth is coming through a lighter franchise layer and more growth is coming through a heavier operating structure.
The same pattern appears in selling area and staffing. Gross selling area rose to 13,536 square meters from 11,575. Net selling area rose to 10,567 from 9,148. Store and warehouse staff rose to 988 from 789, while total headcount increased to 1,015 from 816, with "other" staff flat at 27. In other words, most of the 2025 cost load was not built at headquarters. It was built on the floor and in direct operations.
| Rollout Metric | 2024 | 2025 | Why It Matters |
|---|---|---|---|
| Total stores | 63 | 72 | Nine net stores added within one year |
| Self-operated | 23 | 28 | More control, but also more direct cost exposure |
| Subsidiary with managing partner | 33 | 40 | The chain is still scaling through a heavier operating model |
| Franchise | 7 | 4 | Less of the lighter layer remains |
| Gross selling area | 11,575 sqm | 13,536 sqm | Fast area growth that still needs to fill up profitably |
| Net selling area | 9,148 sqm | 10,567 sqm | The selling floor itself expanded materially |
| Store and warehouse staff | 789 | 988 | Most of the expansion burden sits in the field |
| Total employees | 816 | 1,015 | Headcount grew much faster than operating profit |
| Report-sign date | 79 stores | About 15 more openings planned for 2026 | The rollout pace is not slowing yet |
Management also frames that story explicitly. Good Pharm says its selling-area footprint grew by about 20% in 2025, on estimated total investment of around NIS 20 million, and that similar growth is expected in 2026. That matters because it confirms the chain is still in build-out mode, not in harvest mode. When the pace stays that high, the relevant question is no longer whether sales are rising. It is whether the stores are being opened at a pace that allows them to mature before the next wave arrives.
Against that stands the sensible counter-thesis: maybe 2025 was simply a loading year. New stores had not matured yet, wages rose, the fourth quarter also reflected the fitness closure, and the logistics, marketing, and club synergies will only show up later. That is a serious argument. The problem is that the report does not prove it yet. For now, the synergy story is described well in words, but it still looks weaker in the margin line.
What 2026 Has To Prove
The first number to watch in 2026 is not store count. It is operating margin. If the chain opens about 15 more stores but still shows sales growth without any margin recovery, the conclusion will be that it is still buying share faster than it is buying value.
The second number is the link between same-store sales and margin. If same-store sales remain positive and sales per square meter keep rising, but operating profit still stalls, then the problem is no longer only the cost of new openings. At that point the issue becomes the chain economics themselves. In that scenario, the logistics, club, and marketing synergies still are not converting into enough profitability.
The third number is the maturity curve of the new boxes. Management makes clear that it intends to keep the cadence high this year as well. So the market should not look only for more openings. It should look for evidence that the stores opened in 2025 and early 2026 move relatively quickly from physical presence into real operating contribution.
In that sense, Good Pharm enters 2026 as a focused proof year. Not a proof year for demand, but a proof year for growth quality. If the chain can stabilize margin while continuing to expand, it will start to look like a real value engine. If it cannot, it will remain an important volume engine, but one that still consumes more operating attention than it returns in margin quality.
Conclusion
Good Pharm is already beyond the stage where it can be treated as a nice side business. It is large enough to affect the group mix, the growth rate, and the way Rami Levy should be read as a broader consumer platform. That is exactly why 2025 matters: it shows the chain knows how to add stores and preserve healthy demand in the existing base, but it does not yet show that this expansion pace also creates better margin quality.
The current thesis in one line: Good Pharm is proving market fit, but it is not yet proving that every new store converts that market fit into clean margin.
What changed relative to the earlier understanding is that Good Pharm is no longer a small growth add-on. It is now a chain with more than half a billion shekels of sales and an opening plan that requires it to be judged like a real group engine. The strongest counter-thesis is that the 2025 slippage is temporary and reflects fast rollout, fitness-activity closure, and costs that arrived ahead of full revenue maturation. That is a real possibility. But until the margin stabilizes, the evidence in hand still says the chain is better at opening stores than at turning that growth into higher-quality profit.
That matters because once the group's second growth engine starts moving the consolidated numbers, the market can no longer stop at whether it is growing. It has to ask whether it is growing well.
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