DMart looks to step up store launches in FY20 as rivals get aggressive

The country’s most profitable retailer Avenue Supermarts, which runs the DMart chain, may shed its conservative attitude as competitive intensity in the food and grocery segment grows. In an investor meet on Wednesday, DMart’s management, led by its Managing Director and Chief Executive Officer Neville Noronha said it was looking to accelerate store launches in the future, as rivals such as Reliance Retail, Walmart-Flipkart and Amazon increasingly get aggressive in the category.

While Noronha did not specify a number, analysts expect DMart to launch around 30 stores in FY20, against an average of 21-24 stores which had been rolled out in the past four years. Store acceleration also comes as DMart focuses hard on revenue growth rather than earnings growth as it fights to retain its tag as the best discount retailer in food and grocery.

Noronha reiterated at the investor meet that the company, which closed FY19 with sales of Rs 19,916 crore, would continue to keep prices down as online and offline players lured consumers with deep discounts.

A recent survey by analysts at Edelweiss had found that DMart continued to offer the lowest price in most food and grocery categories, implying it wasn’t prepared to cede ground to Reliance Smart and bigbasket that have been pushing discounts aggressively in this segment.

The pressure to price low has resulted in the company reporting its lowest earnings before interest tax depreciation and amortisation (Ebitda) margins in three quarters for the January-March period even as revenue and profit growth surged in Q4. Analysts expect margin pressure to continue in FY20 as the firm retains its everyday low price strategy. This model works on the principle of passing on efficiencies derived in the system to consumers in the form of price cuts.

"On an aggregate basis, a typical consumer basket at DMart comes at a 10 per cent discount to the most expensive seller,” Edelweiss said.

Noronha also said the retailer was looking at larger stores with a size of 50,000 sq.ft versus 30,000 sq.ft set up earlier as it sought to improve the shopping experience within outlets. Same-store sales growth (SSG) uptick, Noronha said, was led by newer stores, building a strong case for it to continue adding outlets quickly. In FY19, DMart reported an SSG of 17.8 per cent, higher than the 14.2 per cent SSG seen in FY18.

Sales per sq.ft was also higher in FY19 at Rs 35,647 versus Rs 32,719 in FY18, with metros driving sales throughput. The company also has 196 DMart Ready stores within two years of launch in Mumbai, which is part of its online venture Avenue E-Commerce. The online business reported nearly Rs 144 crore in FY19 sales, which is over three times the FY18 sales number of Rs 44 crore. It remains a loss-making business though, with Noronha saying that it will scale up largely in metros.