DMart has more stores and no disruptions like it wanted – and investors are excited
DMartis a well-known name thanks to its big discounts and wide availability of products from names big and small.
- Despite its aggressive store expansion over the last few quarters, the company’s growth momentum has been impacted by high inflation and Covid disruptions.
- It is also staring at cutthroat competition from quick commerce players who prioritize 10-30 minute deliveries over discounts and have hundred million dollar fundraise to bank on.
DMart’s shares have been hammered on the stock exchanges, with a decline of over 17% in 2022 so far. However, it has seen a massive rebound in the last five days, with its shares surging over 12%.
DMart has seen a rapid expansion over the last few years – both in terms of brand recall and physical presence – going from just another retail chain to one of the best performing ones. It gained even more prominence thanks to the collapse of Big Bazaar.
However, high inflation and recession fears could play spoilsport in DMart’s efforts to stage a comeback after two years of Covid-related disruptions.
The retail chain also accelerated its offline presence this quarter by adding 10 new outlets, on track to reach its target of 40 new stores by the end of FY23.
Despite the rebound, DMart remains skeptical of its future projections
In its March earnings earlier this year, the retail chain said it would need at least two quarters of disruption-free operations to confidently say if there is a recovery in demand.
“We would be able to give that qualitative interpretation only if there are no more Covid-19 shutdowns or restrictions over at least two more quarters,” the company said in the March update.
While inflation has continued to be a thorn in the side of most companies over the last few months, DMart has somewhat managed to counter this by opening new stores.
Same-store sales growth, seasonal demand for stationery due to re-opening of schools and new stores were the reasons behind DMart’s revenue growth this quarter, according to a report by Kotak Institutional Equities.
Despite this, the report was bearish on DMart’s prospects, giving a ‘reduce’ recommendation to investors.
Revenue still not back to pre-Covid levels
Another interesting metric is the fact that DMart has still not managed to recover completely from the Covid pandemic. A report by ICICI Securities states that DMart’s revenue per square feet is expected to be around ₹8,100 – this is still only 90% of its pre-Covid levels.
In absolute terms, the retail chain has managed to report a growth in revenue, but adjusting it to the store space shows there is still some way to go for DMart.
Keeping up with the Dunzos and Instamarts
How could grocery shopping be left behind in an era of instant gratification? Covid not only changed work cultures and made WFH acceptable, it has also led to new-age startups like Dunzo, Swiggy, Zepto, Blinkit and others to offer 10–30-minute deliveries.
And retail chains like DMart and JioMart can’t keep up – not for the lack of trying, but because these are still old businesses with an offline-first approach.
Nonetheless, DMart has made an attempt at expanding its online presence, but analysts think this will eat into its margins.
“Growth momentum to be impacted by slowdown and high inflation while margins to be under pressure led by operating cost of
DMart Ready is the retail chain’s attempt at offering online buying options to its customers. DMart initially offered online buying only in Mumbai, but expanded it to cities like Hyderabad, Pune, Delhi and several others during the first Covid lockdown in 2020.
With quick commerce players like Swiggy, Zomato, Zepto and Dunzo pouring hundreds of millions of dollars into their instant delivery businesses – even Reliance has plowed in $200 million in Dunzo – DMart’s task is cut out.
Will DMart’s rivals do to it what it did to the small kirana stores, or if DMart is Ready enough to take them head on will be interesting to see.
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