The retail landscape in India is rapidly evolving with quick commerce emerging as a disruptor. DMart, a major player in the brick-and-mortar retail space is facing the challenge of adapting to this new reality. This article is about DMart’s position in the market, its recent performance, and its potential to compete with quick commerce platforms.
We’ll look into customer expectations, DMart’s online initiative DMart Ready, and brokerage opinion on the company’s future. As the competitive retail segment increases, we’ll look at whether DMart can leverage its strengths to stay competitive in this fast-changing environment.
Recent Q2 Results
Avenue Supermarts, the parent company of DMart, has reported its Q2FY25 results, reported decent results despite increasing competition from quick commerce platforms. Avenue’s consolidated revenue was Rs. 14,444.50 crore, reflecting a 14.4% year-over-year increase from Rs. 12,624.37 crore in Q2FY24.
The consolidated net profit for this quarter stood at Rs. 659.44 crore, which is a 6.85% increase compared to Rs. 617.13 crore in the same quarter last year. This profit growth was improved due to an EBITDA of Rs. 1,093.77 crore, up from Rs. 1,004.97 crore year-on-year, although the EBITDA margin slightly decreased to 7.57% from 7.96% YoY.
In terms of store expansion, DMart has included six new stores in this quarter which adds to the total count to 377 stores as of September 30, 2024. The company’s like-for-like sales growth for Q2FY25 was reported at 5.5%, which indicates a slowdown in growth compared to previous quarters.
The company plans to increase its store count by 45 in FY25. Management has noted that to increase in quick commerce players has impacted their sales. The revenue from sales per sqft in Q2FY25 stood at Rs. 8,582 which witnessed a flat growth from Q2FY24 of Rs. 8,542.
Overall, DMart continues to show an increase in revenue but the impact of quick commerce remains a critical factor for growth.
Are People Willing to Pay for Convenience Over Value?
Consumer behavior has seen a shift towards convenience recently. More people now value time-saving options. Quick commerce has changed the landscape by offering faster deliveries, especially in 10-30 minutes. This is in urban consumer interests and the young generation. They’re willing to pay more as they value time. However, price sensitivity still matters especially during high inflation and economic downturns.
Many customers compare prices across platforms. They look for the best deal and make their decisions accordingly. The trend has varied across different product segments. For groceries and essentials, some prioritize convenience. For big-ticket items, value might matter. Income levels also play a huge role in this space.
Higher-income groups might favor convenience more. However, another segment of Indian consumers might still prefer value. The market shows a mix of convenience and value. But, there is a sign of people moving towards convenience as they value time over money.
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Can DMart Pivot Its Business Model Using DMart Ready?
DMart Ready can offer a potential business model pivot. It caters to online grocery delivery services. The platform could help DMart to compete in the quick commerce space. DMart Ready currently offers next-day delivery. To truly pivot, delivery times need to be reduced.
This requires investment in logistics and technology. DMart has a strong offline presence in its stores. They can use these as micro-fulfillment centres. This could enable faster deliveries. The company needs to expand its product range for online orders. It can focus on high-demand, quick-turnover items. DMart’s strength lies in bulk buying and low prices.
It can maintain an edge while offering convenience. This change also requires changes in better inventory management. DMart must balance in-store and online stock efficiently. Success depends on keeping costs low while improving speed. The market dynamics are challenging its business model but with a proper plan, it can leverage it to its benefit.
Brokerages on DMart’s Recent Results
Brokerage firms have expressed mixed sentiments regarding DMart’s recent performance. While some analysts remain optimistic about the company’s long-term prospects due to its efficient operations and cost management strategies, others are concerned about the immediate impact of quick commerce on its sales growth.
JPMorgan downgraded DMart’s stock to ‘neutral,’ with a price target of Rs. 4,700 from Rs. 5,400 citing concerns over declining operational metrics and competition from online grocery formats. Morgan Stanley has also reported in related to similar sentiments which suggest that the competition raises doubts about achieving a consistent top-line growth rate of 20% moving forward. They downgraded and issued a target price of Rs. 3,702 down from Rs. 5,769. As brokerages analyze these results, they expect to increase online presence is the need for DMart to adapt quickly or might risk losing market share in an ever-evolving retail landscape.
Conclusion
DMart faces both challenges and opportunities in challenging quick commerce. Their recent results show strengths in revenue growth and expansion. But profit growth and same-store sales have raised concerns. The shift towards convenience presents a challenge for DMart.
But it looks like there should be a balance between value and convenience. DMart Ready can offer a potential pivot into quick commerce. To succeed, DMart needs to speed up deliveries and expand its online offerings. It can leverage its store network for faster fulfillment. Brokerages remain cautious, citing competition and valuation concerns.
DMart’s success depends on adapting and executing plans to cater the changing consumer preferences. To remain competitive, it requires to maintain its low-cost advantage while improving on the convenience segment. The company has a strong foundation but faces a tough battle in the evolving retail landscape.
What do you think about the company’s plan? Can DMart leverage its business through its online store? What are your views on this? Let us know in the comments section below.
Written by Santhosh
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