Online shopping pie: DMart on the tortoise route to grab lion's share

In contrast to the rapid scale-up by JioMart and others in the online grocery business, DMart Ready remains measured with its e-commerce expansion

After offline retail, two of the country’s richest men, Mukesh Ambani and Radhakishan Damani, are fighting for a share of the online shopping pie. The approach the two are taking, however, is different. Ambani is bringing his speed, agility and scale to his online venture, JioMart. Damani has opted to be slow and steady in the race to grab market share.
 

The verdict is not out yet on whose strategy is better, but analysts believe that DMart will have to up the pace if it intends to become a substantive player in the online grocery space, a segment that is growing fast following the Covid-19 pandemic, which has restricted movement of people.
 

In the September quarter, Avenue Supermarts, which runs the DMart chain of stores, shut two outlets in Mumbai to convert them into online fulfillment centres. The move was significant since it was the first time that an offline champion such as DMart was shutting two of its stores to make way for e-commerce.
 

DMart has been running its app, DMart Ready, for over four years in Mumbai. The app works on a click-and-pick business model that allows a customer to buy online and pick up the products at multiple delivery centres in catchment areas.
 

While the lockdown in April-May did see DMart experiment with convenience by increasing home deliveries for those ordering online, operating some stores on a 24-hour basis and bringing DMart products to large housing societies via trucks, these initiatives have been curbed since the Unlock phase began in June.

 

Neville Noronha, managing director and chief executive officer, Avenue Supermarts, said there were stores within a four-km radius in the areas where the two Mumbai outlets were shut, implying there’d be no impact on offline business.
 

From an online perspective, analysts said that the move was required as traction from the e-commerce channel was increasing. “Revenue from DMart Ready has doubled from Rs 42 crore to over Rs 88 crore in the second quarter of FY21. The company increased footprint of DMart Ready to Pune and opened fulfillment centres in Mira Road and Kalyan to increase reach in those markets,” said Himanshu Nayyar, lead analyst, institutional equities at brokerage Yes Securities.
 

But some experts think it would be important for DMart Ready to expand into more places at a time when JioMart has pushed its presence to 200 cities in one go. At Reliance Industries’ annual general meeting in July, Chairman Mukesh Ambani had indicated that JioMart would be taken to more locations in the months ahead as digital shopping habits grow in the country.
 

A report by Avendus Capital last week shows that online retail would expand from around $40 billion (Rs 3 trillion) to $200 billion (Rs 15 trillion) in the next five years. This is a five-fold growth and will be led by people seeking convenience, safety and ease of shopping, said Neeraj Shrimali, executive director, digital and technology investment banking, Avendus Capital. The shift to online shopping also comes as people remain wary of spending time out of home for fear of catching the virus, a point that DMart conceded during its September quarter results.
 

Store visits were down, but basket values had increased, the grocery chain said, pointing to the trend of fewer shopping trips made by people.
 

Avendus estimates that the habit of online shopping is expected to sustain even after a vaccine for Covid-19 is found, making the online channel an important segment for retailers in the future. Most players including Reliance have anticipated this trend. Some such as Aditya Birla Fashion have tied up with online players such as Flipkart for an omnichannel presence, while Reliance has wooed global investors, who’ve pumped Rs 37,710 crore in eight rounds in the last one month in its bid to have a seamless offline-to-online retail play.
 

Amazon has already committed an additional $1 billion (Rs 7,500 crore) for India this year, while Flipkart raised $1.2 billion (Rs 9,000 crore) from Walmart in July.
 

“E-tail will increasingly become India’s organised retail. And those players who think digital-first will have a distinct advantage in this new world order,” Shrimali said.
 

While some experts argued that grocery shopping will still have a high proportion of offline sales, a recent report by Goldman Sachs debunks the myth. It says that online grocery will see the biggest incremental growth for e-commerce, touching $29 billion (Rs 2.17 trillion) in five years from around $2 billion (Rs 15,000 crore) now.
 

That puts the pressure on players such as DMart, said experts, who are taking a calculated approach to e-commerce.

However, Abneesh Roy, executive vice president, research (institutional equities), Edelweiss, said that DMart would take its time, rather than rush into e-commerce, which involves significant cash burn. “The grocery opportunity is huge in the country and there is scope for multiple players to operate both offline and online,” he reasoned.
 

Though DMart Ready more than doubled its FY20 revenue to Rs 354 crore versus Rs 144 crore reported the previous year, net loss widened to Rs 80 crore from Rs 51 crore a year earlier. Analysts estimate that DMart’s online revenues could cross the Rs 500-crore-mark in FY21, though losses will continue to grow as it takes its operations to more places.
 

The grocery chain clearly has its hands full.