What this chart doesn't tell us, though, is the importance of general merchandise and apparel to DMart's bottomline. According to an analyst with a domestic brokerage, they are responsible for roughly 50% of DMart's gross profits, which are nothing but sales minus the cost of goods sold.
And that's because the category offers far higher gross margins (25-28%) than foods (10-12%) and FMCG (5-6%).
DMart, which owns most of its stores, is even open to establishing 20,000 sq ft outlets if getting a bigger space is a problem, Navil Noronha, chief executive of Avenue Supermarts, said on an annual analyst call in July. Avenue owns and operates the DMart chain.
But a larger outlet definitely has its merits. "It allows you to display your general merchandise and apparel relatively better than a small store," Noronha pointed out.
DMart still cannot match the range offered by American retail behemoth Walmart, which sells everything from medicines to TVs to fitness bikes. But then, the average Walmart store can accommodate five DMart supermarkets. (Other American chains such as Costco and Walmart-owned Sam's Club also have considerably bigger stores than DMart and offer an array of products. But they are membership-based.)
DMart, which has nearly 250 stores, doesn't have to sell everything under the sun. If it can just convince you to add a couple of bedsheets to your cart on your monthly visit to one of its outlets, it has done its job. (If you'd rather buy your bed linen at Good Earth or Fabindia, then you are not likely to be a DMart customer anyway.)
Large stores also have scope for higher growth over a longer period. So if DMart has to continue its dream run, which has taken it to a market capitalisation of Rs 2,75,000 crore ($37 billion), supersizing is very much a necessity.
DMart could also use a portion of its bigger stores to fulfil online orders, says the analyst quoted earlier. The pandemic has forced the supermarket chain to focus more on its e-commerce venture, DMart Ready, than it used to. But, as we wrote in an August story, DMart encourages pickups by customers from its 325 kiosks over delivery.
When experience doesn't match size
Also, do bigger stores mean DMart is looking to offer a better experience for customers used to serpentine queues and narrow aisles?
Not really. "DMart is going to make use of whatever space it has," says the analyst.
They have a point. This is what Noronha had said on the aforementioned analyst call: "I am delivering very, very functional service. I am not giving you a top class experience when you walk into my store. I'm just giving you great products at good value. Everything else is very transactional."
This is not at all surprising given that Radhakishan Damani, the billionaire investor who founded DMart, did not even want DMart stores to be air-conditioned. Thank God, he changed his mind!
For the Indian customer, good value trumps the discomfort of shopping in a crowded store. And few retailers consistently match DMart on prices. But the choice is no longer between DMart and another supermarket. It's between DMart or buying online. And JioMart, Reliance Retail's e-commerce venture, offers better deals than DMart Ready, which has similar prices to DMart stores.
DMart will certainly not keep upping the size of its stores indefinitely. There's a point beyond which the store economics may not align with DMart's penny-pinching ways. But that's still some time away.
No comments:
Post a Comment