Ladies and gentlemen, good day and welcome to the Avenue Supermarts Limited Annual Conference call. As a reminder, all participant clients will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Rushabh Ghiya. Thank you, and over to you, sir.
Thank you. Good morning, all. Welcome to our annual investor and analyst conference call. I have on call with me Mr. Neville Noronha, our MD and CEO; Mr. Anshul Asawa, CEO Designate; Mr. Ramakant Baheti, Group CFO; Mr. Niladri Deb, CFO, Avenue Supermarts Limited; and Mr. Vikram Dasu, Avenue E-commerce Limited. We hope that you had a chance to look at the presentation, which was uploaded on the exchanges as well as our website. We will start the call with Neville briefly taking us through the presentation. Post that, we will open the session for the Q&A. Before that, I would just like to draw your attention to the safe harbor statement for good governance. Then I will hand over the call to Neville. Thank you. Over to you, Neville.
Thank you, Rushabh. As has been the template every year, we will rush through the presentation which is already uploaded on the exchange. Then we'll open it for Q&A. I will take the first few pages to broadly give you a view of the business. The operating and financial summary will be then taken by Niladri, our CFO. If we go to page five. Just to give a broad sense and color about the business. I think the last years, you would say, in spite of the competitive context in the offline and the online space, our business has been resilient overall and delivering us the desired growth rates. As far as share of revenue is concerned between food, non-food, General Merchandise & Apparel, again, has remained reasonably consistent, and we are quite happy with the outcomes.
Obviously, there's opportunity to do better. We can talk more as we take questions. Broadly, the sense is that resilient, competing very well. We see a tremendous headroom to grow both on the offline and the online channel, obviously doing it our own methodical way of growing the business. Go to the next page. Gives you a good consistent view about how we grow. If you look at how we've added stores, it has been an even addition across all states like we've always spoken about because it gives us a better sense on the customer profiling and also operating leverage gets better and better if you have more and more stores opening in the same region. We've remained true to that concept.
No doubt, there is a huge opportunity to grow in the North of India, and that's where the white spaces are, and we'll talk more about that as we take questions. Go to page six, DMart Ready business. Again, like I mentioned in my Q4 comments, I think it has been a year of evaluation reflection. While some of you may think that that should have been the year for speed or accelerated expansion of e-commerce, we've looked at it in a different way because we pivoted from the pickup plus home delivery to a more focused home delivery business because that's how the market evolved. I think we have some interesting things to talk about on that topic, and we are more confident now about how we should approach the DMart Ready business in the near future.
That's why we've maintained. In fact, we are now actually in 24 cities. We've withdrawn from one city. Like I said, we'll talk more about that. We go to page eight. We've opened 50 stores last year, we hope to continue the acceleration and actually try and open as many more than we have opened in the past. Like we've always said that the right method of expansion in the offline space is to, on an average every year, at least open 10-15 or maybe 10%-20% of your base stores every year. That allows us to get a good CAGR growth rate on an overall revenue standpoint.
We continue to say that India is a huge opportunity from an overall retail space perspective for value retail for a format like DMart, we continue to remain very bullish on the offline space. Also we see a lot of opportunity in the online space. Since we're talking about store additions right now, we believe that we have an immense potential to grow in the country across pop strata. We remain consistent to that. Before we go to the operating and financial summary, since this is my last session or the analyst meet under this title that I hold, I just want to take a moment to say thank you to all of you for being a tremendous support and also to kindle that alternate thinking through the Q&A, which I thoroughly enjoyed with each one of you.
Thank you so much for pushing us harder and also patiently listening to our responses and appreciating what we've been doing for so many years. Thank you so much. With that, I hand over the next session to be done by Niladri, our CFO. Thank you.
Thank you, Neville. Good morning, everybody. I move to slide 10, which is the operating financial summary. We had about 35.3 crore bill cuts in the just gone by year. like-for-like growth for 24 months plus stores, about 8.4%. We added 2 million sq ft of operating space, and our revenue from sales per sq ft came at about close to INR 34,000 per sq ft. On slide 11, we have mentioned our revenue from operations disclosed earlier, INR 57,790 crores, EBITDA margin of 7.9%, a PAT margin of 5.1%, and we generated net cash from operations of INR 3,700 crores plus. Okay. On the days inventory, days payable. We continue to have inventory close to 31 days, and payables continue to be tight at about 7.2 days. We have historically maintained a seven to eight days payable terms across.
Debt-equity ratio is negligible because the debt that you see on the balance sheet is only due to reclassification of Ind AS 116 assets, the lease one. Fixed assets turnover came in at 3.4, inventory turnover ratio was 13.6 times, and the return on net worth, return on capital employed came in respectively at 14.1% and 17.8%. A slight moderation from the prior year numbers. Moving to slide 13, the standalone sales grew by 16.7%, EBITDA grew by 10.8%, and PAT excluding tax gain grew by 7.3%. We delivered PAT of INR 2,891 crores excluding the tax gain. Including tax was about INR 2,927 crores. On a controlled basis, the sales was about INR 59,358 crores and the PAT including tax was about INR 2,707 crores, 4.6%. We have also listed in slide 14 financials of the key subsidiaries for us.
Avenue E-commerce grew sales about 21%, and the PAT, the loss slightly widened to about 7%, was the loss at INR 247 crores. Align Retail, which is our subsidiary business, which does packaging of grocery items, grew over 19%. The PAT grew over 13%. Food Plaza, the food stalls that we have inside our stores, they grew by about 3.8%, though we registered a loss because of expansionary phase of the business. That's all on the operating and financial summary. We can open the session for Q&A now. Ray, you can continue now.
Sure. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from Abneesh Roy from Nuvama. Please go ahead.
Thanks. My first question is to CEO designate, Anshul. You spent 30 years in Unilever, the FMCG company. FMCG company versus retail, the overall landscape is very different. I wanted to understand how do you see these 4 to 5 months which you have already spent in DMart, and now you will be taking over as the CEO in some months. Wanted to understand from an experience perspective and overall landscape, what will be your thoughts? What made you join a retail sector? Last 10 years in Unilever, you spent in Europe and 10 months in Thailand. In last 10 years, India has changed dramatically, and we did see another FMCG company CEO changes happen.
Wanted to understand, given India has changed dramatically, how would you see? What will be your initial thoughts on the massive consumption change which has happened, and what will be your key thoughts and insights on that? The priority as a CEO moving forward, will the priority be more on doing the same but increase the speed given now you have entered the U.P. market? That is the first question.
Thank you. Thank you, Abneesh, and good morning, everyone. It is my first time here, I am looking forward to engaging with all of you in the years ahead. Abneesh, you made a lot of comments about me and my experience. I will focus a little bit on a couple of things which I picked up from your question. First and foremost, yes indeed, it has been 10 years that I have been away from India. I am coming back after 10 years, and India has changed quite dramatically. I personally have enjoyed the dynamism that this market, the people here have, and also the opportunities that exist in business, and especially in a business like retail, modern retail, that DMart is part of. 30 years in an FMCG company, a company like Unilever, have been highly enriching.
Lots of different experiences across geographies, one thing remains consistent between FMCG companies and now that I have moved to DMart. Organizations succeed only when they are customer-centric, and that is true in FMCG, and that is even more important in retail. In my last 4 months that I have spent in DMart, and I must say that we have had, between Neville and myself, a very structured and planned approach of this transition. The first 4 to 5 months I have really spent in trying to understand the organization, the operations, the people, and the culture of this business. I have spent a fair amount of time in stores, in the distribution centers.
I've traveled now into many of our key markets and met a lot of people. I think that has really helped me in these last four months to understand this organization and, of course, also understand the opportunity that lies ahead. I think that has been very well planned, and I think also during the course of the day, we'll also possibly talk about the transition timelines. So far, whatever we have planned between Neville, myself, and the board, we are on track as far as that plan is concerned. I think you also mentioned if there is anything different or anything that I'm planning to do as I transition into this role. At this point of time, very initial observations, I think the business is on very strong fundamentals.
It's been built over the last 20 years, of course, with the vision and leadership of Mr. Damani, but also a very strong management of Neville and his team. What I see at least is that these fundamentals and the culture of this organization doesn't really need to change. Yes, of course, there are opportunities to improve, there are opportunities to accelerate, and we can talk about them in the coming days. What I see is a strong business which now needs to be scaled up, a business where we need to have capabilities spread across more and more of our geographies. We need to have a talent pipeline which is able to tap this opportunity that lies ahead of us.
Thanks for the detailed answer. My last question will be to Neville. Neville, if I see slide number five, two of your categories have declined as a percentage of sales. Foods has gained. If you could elaborate the dip in the margins that you have seen in the last one year, how much of that is because of the mix change? Foods is, say, higher by 78 bps as a mix, and we are seeing, say, 40 bps drop in terms of the EBITDA margin. If you could explain that bit. Second related question is from FMCG large scale. I do see most FMCG companies now speaking more on a profitable growth rather than just promotion. Of course, toothpaste is one clear aberration.
In your stores, are you also seeing now that it's more of a innovation-led drive and less competition, say, from the local players from a FMCG perspective you could highlight, that is there more rational competition and are national players coming back in the core non-foods and core foods category, both the categories?
Abneesh, broadly on the gross margin, I think our gross margin has slightly been better this year than the last year. If there's been a slight deterioration from a perspective of what we aspired to what we delivered, I think there are two things that are happening, and it has remained consistent throughout, that there is a continuous competition in the FMCG space from a price-led, discounting-led perspective. FMCG continues to be very competitive on pricing. At the same time, on the non-FMCG piece, within the non-FMCG, the mix is shifting more towards lower-priced products. To that extent, there has been a margin mix impact. Overall, there hasn't been any major adverse impact which we need to worry about.
In general, like I said earlier also, alternate modern trade formats are emerging, and from within that, when you look at the General Merchandise & Apparel segment, obviously we see that in the apparel segment, there is more innovation and there is more competition. Apparel continues to be a little softer compared to General Merchandise. Like I mentioned even earlier, apparel is a smaller contributor to the GM&A business, it doesn't affect the P&L to that extent. I hope I've answered that question. On the overall scheme of things of innovation-led opportunities, I think the D2C brands are doing a significantly better job than the incumbent large FMCG companies. Wherever we see an opportunity to capture that to the offline and the online space, we try and do that.
Large FMCG companies are trying hard, but I think there are fundamental challenges there, and we all know about that. Yes, from an innovation standpoint, we see newer companies doing a better job there, number one. Number two, as a platform, DMart as a platform, I think we operate on the principle of pricing or the principle of value. The format automatically creates a level playing field for anybody who has good products and can deliver at great value. Because our philosophy is simple. We have a very clear-cut principle about how much margin we should retain. Everything else goes to the customer. Whichever company has a great product, has understood the segmentation clearly, DMart is the platform to be because we are fair to everyone. It doesn't matter who's big, who's small.
It's a great equalizing platform on which if the product is great, customers like it will sell. That's the broad philosophy. I hope I've answered the question.
Yeah. Thanks. One last follow-up, and I'll end there. When I see your foods, that has an interesting mix of commoditized categories and branded FMCG kind of categories. I wanted to understand the logic of putting both together, because both are so different, right? On the one hand, you have groceries, fruits, and vegetables, which are, I think, completely commoditized. And then dairy and staples also, which are almost commoditized. Putting that in the same bucket which has hardcore branded foods, what is the logic behind that? From a growth perspective, is there something which is different? Ideally, shouldn't you have the branded part of this bucket in the non-food? What is the logic behind separating those two? Thanks.
What do you mean by doing both? We've been doing both since our inception. I've not understood the question. We really don't look at it from a brand versus non-brand. We are not an FMCG company, we're a retailer. We will ensure that whatever customer wants is available. In fact, what does a value retailer really try to do? We love products which keep very, very small markups because of the branding strength, right? That's our job. How do you keep the pricing under control? Retailer does that job. A value retailer does that job. In fact, I would be very happy to sell everything commoditized, where it's cost of production plus a small margin and give it to the customers. I would think about it the other way around. Make sense?
No. Why I asked this was because, see, in the first category of foods, which is 57% of your category and which is growing also, we don't get a clear picture. Is the fruits and vegetables or the grocery or the staples part which is driving growth or say the branded? Because the margin profile is very different between both these two, within the same bucket.
Yeah, we don't disclose it, Abneesh. I now get what you are trying to ask. We are selling what the customer wants. Margin is secondary. First, what customer wants, what we deliver.
Thanks. Understood. That's all from my side. Thank you.
Thanks so much.
Thank you. The next question is from Aditya Soman from CLSA. Please go ahead.
Hi. Good morning. Neville, firstly, thanks for your very honest answers and always engaging conversation, so we'll miss you on these calls. In terms of questions to you, firstly, you talked about sort of the white spaces in North India, and we saw you open a store or two in U.P. Can you talk more about how this new cluster will evolve for you? Any differences that you are seeing compared with the earlier clusters that you opened as you expanded in other states in North India? What finally made you make that decision to enter a state like U.P? The second question is on private labels or exclusive brands as you call them. You have two types, obviously.
One are the ones that are distributed by Align Retail, which are mostly your DMart Ready products. Then there are these exclusive brands that I see you build. Any sense on the scale of the brands outside of Align Retail? Since the Align Retail ones we can calculate, but the ones outside of Align Retail, I see that in terms of shelf space, they are now very prominent across home and personal care categories. Those were my questions. Thanks.
Thanks, Aditya. I'll take two questions separately. Obviously, North India, and UP being a very large part of it, that's where large clusters of population is there, and you also have very, very large cities there, which we've totally, I would not say de-focused, but because we are a west-focused and a south-focused retailer, we came in here late. We see a huge opportunity. If you want to accelerate store expansion, which probably over the next six to eight months, I'm going to put disproportionate time personally also, because north of India is what I'm going to handle from a real estate acquisition standpoint. That's the whole thing. That's the logical reason why we are now doubling our bets on North India. On the follow-on question related to that, on what are we seeing different in North India.
Actually, the beauty about the model is that it works everywhere. The fact that a DMart now is equally successful in the Punjab as well as the Tamil Nadu, as well as the Rajasthan, Gujarat, or in AP, in fact simplifies a lot of things from an operating standpoint. I think that is very refreshing, that our model is acceptable everywhere. In fact, going to newer states is not complicating things except for supply chain, obviously, and we know how to figure that out. But from a customer standpoint or consumer standpoint, the more and more we are going and growing to newer places, it is building more and more confidence for us that this model works everywhere. Right? That's to answer the first question. The second question on private labels, I've been asked this question multiple times.
I respond in the same way all the time, and this time also I'll answer the same way, that private label optically seems to be a very, very interesting large opportunity as a margin maximizer. Yes, we too agree with that. It's a long game. It needs a lot of effort. You have to run this business like an FMCG business, but without the overheads of the FMCG business, if you know what I mean. It's not very easy. You are competing with the strongest of brands and the brightest of minds, which retail has a limitation. Yeah. The private labels has great opportunity if there is a decent ecosystem of high-quality manufacturers available there to deliver the products to us at the right cost. India, like I've always said, has very, very smart entrepreneurs.
We tend to look at the FMCG segment only from the MNCs or only from the top three or four FMCG companies who probably have decent margins. There are a lot of local entrepreneurs, yeah, who run the FMCG business with very strong brands at decent margins. We have to look at it from an overall perspective and then decide, does this sub-segment really have an opportunity to have a private label? Yeah. From that standpoint, it's not as simple or as easy as somebody else would imagine. We don't take it. We don't consider it to be that easy. It will be a slow and steady approach to private label. In general, if you want a broad color, I think we are reasonably pleased with how our private label team is running the business.
From that extent, I think we are pretty happy about our progress. I can't give you numbers until giving you a broad color.
Yeah, fair enough, Neville. Thanks for these replies. Just maybe on the private label point, just pushing on a little bit. If I look at a category like liquid detergents, fairly large category, growing very rapidly. I've seen that now you have two brands operating in that space, I think, and which is a space, again, multiple new entrants. As you mentioned before, some of these D2C brands also pushing in that space. With all these D2C brands, obviously a lot of these are using same manufacturing facilities that I see that you are using for your private brand.
Does that mean that there are already manufacturers that are coming up as we push away from, let's say, the two or three dominant brands in the past, and that gives you an opportunity, maybe not like a very short term, but over a five, seven-year period to grow that business meaningfully?
Actually, I think a lovely category you picked up. In fact, that makes my response that much more easier. If you look at the liquid detergent category, it was always being dominant by a premium, high selling price per liter kind of category, the two largest MNCs. Suddenly, what did you see? You saw huge disruption there. You had some other guys coming in and positioning it at the mid-tier segment, and the cost per liter just plummeted. When you have FMCG companies operating like that, with that kind of razor-sharp focus, looking at segmentation opportunities and all of that, and these are categories which are getting created. See, private label has a space where a category is already very well evolved. Okay? It has been there for a very long time.
Strong brands have got created. When brands become extremely strong, they keep fatter margins, and they're very consistent month on month, year on year, growing with a very good decent size base. It is in those cases that a private label has an opportunity. Creating categories is not our job. Creating categories is a brand company's job. Okay? We should be focused on being a very strong retail operator. First priority is running the retail business, not to create brands or not to create a private label portfolio. Yeah. I hope I've answered the question, especially on new categories. I always tell my team that beware, don't even go there. That is the job of the FMCG company, not us.
No, understand. Very clear. Lastly, all the best for whatever role you take up next.
Thank you so much.
Thank you. The next question is from Sheela Rathi from Morgan Stanley. Please go ahead.
Thanks for taking my question. Just a follow-up on your private labels, because you had a discussion on that. While I hear you on the FMCG side, when you think about General Merchandise & Apparel part of our portfolio, is there a case to take private label share higher at the earliest? That was my first question.
Yeah. Sheela, I've answered this over the last four to five years. There is no reason for you to see any of the products that are on shelf on General Merchandise & Apparel to not be a private label. They are actually all private labels or pseudo private labels. Some manufacturer putting his own label doesn't allow him to charge any major premiums. When we negotiate with them, we always negotiate cost of manufacturing, his margin, and the selling price to us. That is our margin and that's how it is. When you walk into a DMart store and you look at the apparel or you look at the general merchandise, a very small component of that is really a brand per se brand from the true sense of an FMCG branding standpoint. I've commented on that earlier also.
Largely it is close to being a private label for us.
Yes.
That's what you're trying to.
Yes.
Second question, you talked about new D2C brands doing better than FMCG. What are your thoughts on onboarding D2C brands on the platform and particularly premium D2C brands on the FMCG side? Because I see that is still missing, at least on the DMart Ready platform.
That's because they have their own perception, I'm not complaining. See, D2C brands, you see the premium guys, they are very clear about their positioning, right? For all elite residents or businessmen in India, they all think that DMart is meant for the middle class and the lower middle class, right? That's the perception. Can't help it. They decide not to come. In fact, we break our heads chasing them. "Why don't you launch?" They refuse to launch, by the way. Yeah. It's not as it's the other way around.
Is the reality different? That is, the DMart Ready customer is different from the DMart offline customer?
Yes, I'll answer that question more holistically. When you look at a DMart shopper, a DMart shopper attracts all pop strata of society within a three- to five-kilometer radius. It's a misconception that's only for middle class and lower middle class. Okay. In typical any pop strata structure or any structure, you have a pyramid, right? DMart shoppers reflect the social economic strata of society within that physical radius. Obviously, optically, when you see in a DMart store, what do you see? You'll see relatively lesser rich people shopping compared to the middle class and the lower middle class, right? That's one point I would like to make. On DMart Ready. DMart Ready obviously is a relatively higher order socioeconomic strata of society who would like the material to come to their store and are not as price sensitive as a DMart store shopper.
That's the difference.
Understood.
One more question, one more part of the question, which will kind of close the whole thing. We do not like to launch a very, very small revenue size D2C brand. Whenever a small revenue size D2C brand comes to us, we tell them, "Please build decent size." Decent revenue size indicates that it is acceptable to a larger ecosystem of consumers. Only those kind of products make sense to us in our store format as well as the e-commerce format. To that extent, we are different. We don't believe in the long tail, even on the e-commerce format.
Sorry, just one clarification. You're saying that if we launch a new D2C brand, it has to be launched both online and offline?
No.
It may not be.
Not necessary. They're mutually exclusive.
Right. Okay. Now just couple of questions on the recent quarter, Neville. First is, we talked about deflation in staples, which resulted in some impact to our P&L. Just want to understand that in the past, what kind of inflationary benefits we have seen? I mean, how should we think of this playing out, and how it has played out in the past?
I'll make an attempt to answer this, broadly, I'll tell you. In fact, I was just reviewing the quarterly movements yesterday. Fascinating when you see some of these data. I'll just give some color without giving you any specific numbers. In general, what happens is, whenever inflation is in the range of, say, 5-7%, consumption trends don't change so much at the product or category level. When inflation rates go double digit or higher, you will see a huge swing on consumption. Like I'll just give you one example that I was reading yesterday, coconuts. Coconuts inflation is 50%. When inflation went up by 50%, consumption dropped by some 20%, 20-25% in volume terms. India continues to be an extremely value conscious shopper buyer. This plays out, we see this even in fruits and vegetables.
Anybody who says that we use analytics to review and forecast how much of vegetables I need for the next year will go horribly wrong because it is totally dependent on the pricing. You'll always have a range of three or five vegetables which need to be sold at a particular rate per kg. If they don't fall within that, something else sells. Whoever substitutes that sells more. From that standpoint, Indian consumer is very price sensitive. Like for example, think about it, how much of coconut is consumed as a value to the overall grocery basket value. It is a small %, but still consumption drops. That's the broad color of
Neville, we have seen the contra benefit right now. Is that what you're saying, that there is deflation in staples, so probably there is a volume pickup, which you would have also noticed.
Exactly. Huge volume pickup. Whenever there is a deflation, you get huge volume pickup in those categories. People buy more of that and substitute something else.
Okay, my final question is, even in the last quarter, we talked about that we are making investments to build a superior tech-related investment for e-commerce. Just want to understand that, I believe it's going to be ongoing, but I mean, to what extent this is going to continue for us to achieve a certain scale and scale up the e-commerce business faster? I mean, how long we will be making these investments to accelerate the pedal there?
Our scale up on e-commerce has got nothing to do with our tech investment. Our tech ecosystem is very robust. It works really well. I don't think it's related to that. It is the choice that the organization has taken in terms of what should be the speed and scale at which the e-commerce business has to grow. It is more a decision-making thought process rather than the capability of build-up. All tech is already built up. The tech works well. Everything is fine. It's also scalable. I think I spoke about that even last year, that there is no limitation from the tech side. It's the choice that the organization has taken in terms of how it has to calibrate the growth for the e-commerce business.
Understood. Thank you. Thank you, Neville, for all the teachings and engagement. My best wishes to you for your future. Thank you.
Thank you so much, Sheela. Thank you.
Thank you. Next question is from Amit Sachdeva from UBS. Please go ahead. Amit, we can't really hear you. If you're on a headset, request you to use the handset.
Oh, handset. One second. Can you hear me now?
Much better, yes.
Okay. I'll speak louder. I would thank you so much, Neville, for the opportunity, and thank you for your leadership over the years.
Question. I find it very encouraging to hear that there's a greater focus on the network rollout. My first question is that given this impetus, given the whole ecosystem around retail is changing, does that change the ambition on structural growth that you're targeting for, say, next five years? I mean, we are in the 18%. You are saying up to 15% would be store growth. That's the kind of every year you want to target. Does that change anything?
I'm sorry, your voice is not very clear.
Sorry?
Amit, I'm sorry, your voice is not very clear. Just, can you repeat the question?
I think you're in a low network area.
Do you want to dial in back? We can carry on with some other questions and then let you join in as well.
Let's just dial again. Just one second, in case it's not very clear. Let me dial back, please.
Yes. Thanks for that.
Thank you. Yes.
Later we can move to the next, then we'll let Amit come in again.
We'll move to the next question. Next question is from Keshav Bahety from Jefferies. Please go ahead.
Hi, this is Vivek. Neville, firstly, thank you for a great letter. Really enjoyed reading it. One thing I was very curious to ask you, when you look back, are there any areas that you think you could have I mean, DMart has obviously done extremely well under your leadership. Are there any areas that you think you could have probably not done better, but done things differently when you look back?
I think better would be a better thing to say. Differently, no. Different, I think we've had, and this question I've asked myself multiple times over so many years, and I don't think I would have done anything differently. We are all very proud of what we've created. Better, I can definitely say this, that we could have accelerated store expansion better. I think that job is unfinished, so I'll continue to chase that for whatever period I'm here, and we'll accelerate store expansion. Vivek, we are very clear about this, that great respect for what has happened in the quick commerce space. I acknowledged this a couple of years back also, saying that this will become a very large business. Great stuff. They've done amazing work.
The country with its size of population, diversity, geographical space, all of that, creates also huge opportunity for a brick-and-mortar business, an efficient brick-and-mortar business like ours. We continue to remain very bullish on the brick-and-mortar business. That doesn't mean that we don't understand what are the opportunities of the online space. We will also play on the online space, but through our own model. I've spoken earlier, we will create an online model which suits us. Okay. We want to create something which is unique and hard to copy. That's our principle. That has always been our principle, right? Coming back, the only thing I could have done better is probably accelerate store expansion more. We should have been maybe 600 stores by now, or maybe 650 stores by now. To that extent, that could have been better.
Okay. Got it. In that context, and I'll come to quick commerce for sure, but in that context, do you think, you have, I would call it still an experiment, so you have experimented with long leases. Do you think that could have been an answer and that could be the answer going ahead?
No, Vivek. I answered that earlier also in the previous analyst meets also, that long lease doesn't solve the problem of availability of high quality or decent quality real estate. We just need to hunker down and put in more bodies and more minds, and more acceleration on property acquisition, which we continue to do. Like I've said earlier, see, real estate is a very micro-market business, right? People are trying, but you don't have a pan-India real estate operator. Developers, land acquisition, everybody try to focus on their micro markets. In fact, somebody recently told me it's not even cities. A lot of the developers are only operating in Kandivali, Goregaon, or some are only around in Chembur, so things like that. Think from that perspective, that here is a retailer. He's a retailer.
He's not even a real estate developer, and he's trying to acquire real estate all across the country. It's not easy. We like to do stuff that is difficult because then that's how you create moats. Yeah. That's the way we think about it.
Okay. The last follow-up on this, so Neville, the reason of owning the land is mainly because of the constraint in securing long leases. Is that the reason?
One of the reasons.
Sorry?
It's one of the reasons.
One of the reasons. Which is what, in case it's, let's say for whatever reason in micro, because I'm sure you will have tremendous amount of feet on the street in the areas that you operate in. Even if there are long leases, I'm not sure you will want to have those long leases, even if the real estate is good, which means that it is beyond just the availability, right?
Yeah. Obviously, availability and this has come from the promoter thinking, right? I mean, we are there for good. We want this business to survive beyond our lifespans or our children's lifespans. That's the thinking. That's all come from Mr. Damani and I mean, I was a kid when I joined DMart. I was just 28 years old. We imbibed that values. We saw that works. We think that we strongly believe in that principle. At the same time, that doesn't prevent us from being agile and everything else about how the business has to be run. The relationship strategy is very clear that we are there for good.
Perfect. This is useful. Second, on quick commerce, everyone's favorite subject. You mentioned that India is not one, there are different set of customers. When I just purely sitting in 2024, 2025, when I look at the products listed on your platform, DMart Ready versus quick commerce platform, and at least in terms of pricing, whether of individual products or as a basket, it's not very different. As a user, even if I'm in a relatively smaller town as compared to Mumbai, Delhi, what's the proposition that you offer if the competition offer around the same pricing, but the convenience of 10 minutes as against, in your case, it's still a bit elongated cycle. Do you expect this quick commerce competition to be very different in the next decade, which is why you are stuck to your guns?
Is there something else that you will say, which is a different proposition? Because pricing-wise, you are not the cheapest, I would say, or very close to where the quick commerce folks operate at.
We will answer this question a little differently because rather it'll be your word versus my word on the pricing. What is more important to look at is how am I doing as a business, okay. If you look at the last two years trend, in fact, the last year's trend, where there was so much of intensity of quick commerce. What has happened to our business? What has happened to the DMart Ready business? In fact, we have to see it in the context of the fact that we further shut down so many other pickup points. At a point in time, pickup points as a business was a reasonably large share of the overall business. Today, the dominant share of our business is home delivery. The moment we shut down the pickup points, almost all or more of the business migrated to home delivery.
We have delivered a 21% or 22% growth rate vis-a-vis last year, purely on the ready business. Okay, we are very objective, hopeless, objective analysis on our performance. Numbers say everything, right? If our e-commerce business has grown at this level, that is in spite of the limitation, we don't have enough fulfillment centers. The more fulfillment centers we open closer to the markets of delivery, more we will grow. I think we are okay. We are charting our own course, and we are fine. I don't see. Had our business declined or had our business been flat, then we would have said, "Look, our proposition is not working within the realm of how quick commerce is evolving." It's not.
Pardon me for just taking it a step further. If I say, Neville, that quick commerce, you reduce discounts and taxes and everything, GOV to NOV to net revenues, we get to a market size of about, give or take, but about INR 70,000 crores. Now, you can say that, yeah, you have grown 20%, but is that enough in an industry which is growing like 100%? Again, I know market shares have no meaning, but end of the day, you have underperformed and fairly meaningfully versus the peers, right, in a way. How would you
I have no comment on that. We will set up our own course. You are absolutely right based on your derivation of the numbers. We will run the business the way we think is most right from a long-term perspective. Totally agree with what you're saying from that standpoint. My answer, more specifically, is that one of the best ways to counter quick commerce is not actually really digital. One of the best ways to counter quick commerce is to have more and more DMart stores. Because from a value proposition, we have an amazing positioning. For a value customer who's spending INR 5,000 or INR 10,000 a month, she or he can really see that they will save significantly more when they come to the store.
At the same time, yes, there is a top 20%-25% of the population of a city who wouldn't mind paying a little bit extra to get the product delivered at home. We're trying to bridge that gap. Let's look at it from a standpoint that at one end you have high convenience, high price point, and the other end is DMart stores, which is deep value, but obviously it's not as convenient, right? It's deep value. We see a huge opportunity in between. Okay? Where we deliver the products at home, but at a decent value. That's what we're trying to achieve.
Got it. Very interesting as always, and wishing you all the very best. Anshul, I would also take the opportunity to welcome you and wish you all the very best. Thank you.
Thank you, Vivek. Thank you.
Thank you. Next question is from Amit Sachdeva from UBS. Please go ahead.
Hi. Thank you so much for the opportunity, Neville. Am I better and audible now?
Yes.
Neville, thank you so much, thank you for your leadership for all these years. My question first was that you made two very interesting comments that we should have been 600 stores by now, and second thing you said is that best way to respond to quick commerce is to open more stores. I think that's a very encouraging thing to hear. In that context, I also quote you that you want to open stores 10%-15% growth every year. This is more or less what you did in the past. In that sense, I want to check with you, given the new realities, has that growth ambition changed a bit? There is an opportunity to accelerate, and you yourself acknowledge that to counter that, you need to grow faster.
In that sense, that 10%-15% kind of network area is still a very, I would say, underwhelming ambition, if I may say, or in fact, the real ambition is larger and you just want to give us a number, that's 10%-15% is the number. Where I'm coming from is should we go back to 20% growth trajectory rather than staying at 17, 18? That's the question number one, and what it would take to get there.
Amit, you've always been consistent with your pushing, and I appreciate that. Probably, you could look at the management change from that perspective, that while Anshul will focus on running the business, probably I'll have more time to focus on adding more and more stores.
Sure.
I'm very confident that we'll have a significantly larger number of store openings in the time ahead. In fact, I'm very confident, very bullish that we will be able to accelerate.
Sure.
It will also have disproportionate time from my side to focus on this area.
Great. No, that's very good to hear. Just a related question, Neville, is that obviously the marginal expansion would come largely in Tier 2, Tier 3 towns. One of the key concerns that I've heard from many is that throughput in those stores would be probably lower than metro cities, and hence incremental revenue would be lower throughput, and hence although area expansion would grow, but at the same time, the net revenue growth would be slightly lower. Is this something that you resonate with, that the revenue growth should perhaps have a little bit of lowering down impact on the overall growth trajectory, if I assume some SSG as well? Is this a fair understanding of how it will play out or some other dynamic we need to understand as well?
Amit, I have mentioned this in previous analyst comments also that smaller the town, lesser the revenue per sq ft, but then lesser the investment. Because in a business, ROI is the key, right? We look at ROI level. That will continue to be the focus. Acceleration of store additions will mean a better CAGR on top-line growth rate, right?
Sure.
One point, Amit, we might go on discussing about this.
Fair enough
touches on our performance. QC, I mean.
Sure
I think I haven't been as open about our future growth on store additions. I'm just giving a color that. Okay, let me put it this way. Considering what's happening in the country from a competitive context perspective, including QC, I think we will double down on our investments on store additions because we don't see our store financial metrics deteriorating because of online. I hope that makes sense.
Got it. No, that's very encouraging to hear, Neville. Thank you so much for that. My second question is for Anshul and you both. The leadership change happens, my sense is that there is an opportunity to rethink about how organization was structured in the past and how organization will be structured in future. In that sense, has the people angle will be different or the way lead category leadership assortment was designed from a people point of view? Is there a change there in the thinking? If it is, then what key changes Anshul would see which would be a stark departure from the past and how we should think about the people leadership in managing that growth and transition? Have you made any leadership changes already? How are you thinking about that?
Amit, this is the way I think about this. I'm still Managing Director till end January 2026. I think you all are better suited to ask this question to Anshul next year. There are a lot of discussions that we are having internally about what it should be. Anshul will have a free hand to run the business once he takes over. Obviously, he'll come on the table with his own ideas. Let him have that conversation with the board and get a sense of what needs to be done. I think this question is fair to be asked in the next analyst meet.
Fair enough. No, thanks so much, Neville. Just last bit, if I may. Given that quick commerce world is around with us, if you ask any quick commerce people, they would tell you that assortment is evolving every month and things are changing very rapidly, there's an exponential growth even in smaller towns as well. While they are picking up grocery business, have you picked up some learnings that you need to change assortments and you could do little bit different than what you've done in the past? Is there assortment thinking changing because the environment is changing around you? We are still sticking to our principles of what the assortment could look like? Is there a change in General Merchandise thought process? Whether this business could evolve differently even though fashion is part of the drive.
What I'm thinking is, are you making some real effort in changing the assortment mix? That's what my question is.
Amit, this has always been the case throughout our 20, 25 years of a business, that nothing remains static in this business. You are constantly observing what's happening around you online, offline, what products are selling, what are not selling well. I mean, it's a continuous process.
Sure.
Our merchandising team's job, their basic existence is to look at this. You have to be relevant to the shopper and the consumer all the time. It's nothing to do with just QC.
Sure
We keep a watch on everything. I just wanted to tell you that even for vendors, our job is to reduce friction for vendors. Anybody who wants to come to meet us to launch products, we try and make it as easy as possible. Like, for example, we have a Tuesday walk-in. You don't need to have an appointment. If you are not getting an appointment, you just walk in on a Tuesday unannounced. Obviously, your waiting time will be longer, but you just sit in the reception. Somebody will be there, and you will just tell us the story about why your product should be launched. Are you an INR 50 crore brand? Are you an INR 100 crore brand? You just tell us. We have some templates. If they qualify, they immediately get a meeting and the product is launched. That's our job.
If you don't do that, you won't exist.
Got it. That's very good to hear, Neville. Thank you so much. Wish you really all the best. I'll come back and meet you for more. Thank you so much.
Thank you, Amit. Thank you. Pleasure as always.
Thank you. Next question is from Avi from Macquarie. Please go ahead.
Yeah. Hi, Am I audible?
Yes, sir.
Hi, Neville. Neville, I wanted to first check with you on the DMart Ready business. At the start of the call, we said you had some updated thoughts now after two years of consolidation. How are you looking at DMart Ready? What next phase that you're looking at? If you could share some color over there. Also on margins. Last time you told us that there is a potential for improving gross margin here by looking at mix, maybe it's not fallen through this year. How should I look at that? If you could kind of share your thoughts there as well, please.
This is only for Ready, right, Avi?
Yeah. Only for Ready.
Yeah. Yes, I do remember saying something around on that, on those lines for Ready, also there is a competitive context that plays out, right? You have to compete from that standpoint. Broadly, what we feel is that the Ready business will not make you lose too much of money. That's one broad view that we have. From a cost of operations standpoint, also, we remain consistent with the view that there is an opportunity to reduce costs, if you are in the expansion phase, then that kind of gets postponed a bit. In general, we believe that there is an opportunity to accelerate the fulfillment centers and try and go closer and closer to the markets. There could be an opportunity, like I said, to enhance margins.
There could be an opportunity, it's all dependent on the competitive context and the positioning of value that we continue to seek. I can't give any forward points of view on when will it be profitable or breakeven or all that. Broadly, we feel that this is a business that can be broken even in a couple of years. That's broadly what we feel about this.
Got it. If I'm correct, the niche that you're targeting is not this value with the bit of convenience on it, right? That's what you're essentially looking to provide for DMart Ready?
No, broadly, our view is that over a period of time, customers will see the benefit of shopping or migrating from other platforms of e-commerce to us because they see value. We will be focusing on delivering that in the most efficient way so that we can compete in the market and still account a small margin. That's the view.
Got it. Okay. Thanks for that, Neville. The second bit is on the store addition. Now, clearly, your comments are encouraging, even with North India coming back and your focus now being in it. Do you have a number in mind or should we look at 10-15 now going to 15-20? Any numbers there you could share?
Yeah. Very difficult, Avi. We've always said that we'll not be able to give precise numbers. You'll see what we disclose on a quarterly basis or whatever is under the criteria of disclosures on store openings. You'll see the numbers coming. I can't give you a number.
Even for next year, Neville, any range for store addition? Sorry, I'm pushing a bit, in case.
It won't be less than 50, right? If you're talking-
Okay.
Okay. Last thing, Neville, on the quick commerce bit. You've been clear that quick commerce has been a great story, and there has been a potential that you had said at first it can be 1.5% impact on same-store sales. I wanted to kind of get from you that given the performance seen in the last year, you think a lot of it is already seen for us, and what we see in the numbers is a reflection of quick commerce plus a weak demand, or that 1.5%? I'm just trying to appreciate, is that behind us or how do you see that increasingly reducing?
I'll again give you color without giving you any forward-looking statement. We had a gut feel. This is a gut feel we said 1.5%, right? If you look at page 10, FY 2024 versus FY 2025 like-for-like, from 9.9 we went to 8.4. More or less that. Within that, if you look at city-wise, this is very interesting data. Depending on which city has what level of intensity on pricing or discounting, we see an impact in our stores, right? These discountings come in waves, and when they come in waves, we also compete, it does have a marginal impact to our like-for-like growth for those stores or those cities.
Also, please appreciate, and this is the response not just to you, but to the entire generalist community, that please remember that we also lose share to our own DMart Ready. Our DMart Ready is also very dominant. Like, for example, Don't ask me how much it is %-wise, but DMart Ready is a very dominant share of DMart stores in Bombay, because that's where we started from. Our philosophy is very clear. We go where the customer wants us to go. We will not try to restrict our growth in Ready just because it's going to make us lose our store if we increase DMart stores. DMart Stores will run on its own foundational principles and strengths, and Ready will run on its own.
Considering the legacy and the thinking that the promoters have about the business, they are very clear that the business has to make money or at least come close to breaking even. Okay. That's the broad philosophy, and that's why the staggered approach to e-commerce. That's why the management is so obsessed on trying to reach, or at least be close to break even, so that we have a point of view on saying that, "Yes, we have to compete on the e-commerce business, too." I hope, I've given you a clarity.
No, very clear. Very clear, Neville. Thanks a lot, and welcome Anshul to the team, and look forward to interacting with you. Thank you very much.
Thank you.
Thank you. Next question is from Arnab Mitra, from Goldman Sachs. Please go ahead.
Yeah. Hi, Neville. My first question actually on quick commerce is slightly different that, do you think there's anything differently you are doing in your offline business because of how big QC has become and it will become in the next two years in terms of service levels or anything of that sort? That's the first part. Secondly, on the DMart Ready, any work you have done on slotted versus immediate delivery? I know you earlier had a view of slotted delivery, but any refreshed thought from that, and not doing immediate delivery, is it largely a cost-related decision or are there other things that are going on there?
If you're saying that should we deliver in the next 30 minutes or 20 minutes or one hour? Obviously not. We don't do that. Can we do deliveries in the next three hours or the next six hours? Of course, yes. Our basket values are significantly larger. That, in fact, gives us a sense that customers like us. Customers who use us, like us. That's very clear. The stickiness is awesome. When you look at stickiness factor of DMart Ready vis-à-vis other online retailers, I think our stickiness is order of magnitude much larger than others. People who know us, love us. Not too many people shop with us because we don't spend that amount of money to acquire customers. Okay? That's one part. We don't believe in the jargons about slotted and non-slotted and all of that. We constantly are doing trials.
In fact, we already have around 11% or thereabouts of our orders being delivered in three hours. We have 65% of our orders being delivered in 12 hours already. Okay? We're making tremendous progress there. By the way, without impacting cost structures much. Our vision is to deliver almost all our orders in six hours. I think for that basket value. See, the DMart Ready shopper is not shopping for immediacy. Okay? Delivering in six hours is decent, it's good. That's what we are targeting. Now, practically, all orders are delivered within 24 hours. Obviously, people will say, "What are you talking about when everybody is delivering in 30 minutes, you're talking about 24 hours?" I'm just throwing numbers. What I'm saying, our philosophy is, you should deliver everything within six hours.
Within that, there will be some certain percentage of orders which could be delivered in two hours, one hour, three hours, whatever. Zero to six, we should be delivering everything. The current cost structure and the current model allows for that. I hope I've answered the question.
Just to follow up on this. I get your point that the need for immediacy may not be there, and it seems that the spread of QC is almost creating that need. The consumer is getting used to a service level, which is 30 minutes, 40 minutes, whatever that number is. In that context, my question was that, not going for that less than one hour, is it largely a cost decision that you feel you will not be able to run that business profitably if you do it there? Why not experiment with that and see if it is possible to be done? That's where I was coming from.
Okay. Let me answer it this way. My first priority is value, and then is immediacy. Within the construct of delivering value without losing your shirt, losing money, how much earlier can I deliver? That's the way I'm usually thinking about the business. Rather than thinking that immediacy is the first priority. Not really.
Sure. Understood. Sorry, you were saying something.
Yeah. What I'm saying is, we love competition, so we don't mind if the same shopper is buying from somebody else and also buying from us. We just want to take a larger pie of the pantry. It's as simple as that.
Got it. Neville, my second question was, if I look at the headline return on capital, it seems to have slightly moderated last two years. Should we not worry about this because you think of this as a transient phase, you are accelerating store expansion and ultimately the health of the business is good? Or is there a situation where you think fundamentally the business makes a little lower ROC because of the competitive situation or anything else that has changed in the environment?
I'll give a non-financial answer with the limited financial knowledge that I have. I think the reduction in ROCE is primarily because of accelerated property acquisitions and the capital employed because of that, which effectively should be seen in a positive light. That means that we are looking at a larger inventory of stores which are going to come in the future. Niladri, can you add some more?
Yeah. I think it's about ones that you mentioned about more properties being acquired and which are not giving results yet because they are in various stages of construction. Obviously they will give results in the longer duration is our thinking.
Also one thing, just to give you a conservative feel to this, that real estate prices are going up. That also should be factored a little bit. We don't want to create too much of excitement on this area, but reality is the real estate costs also are going up, which is being featured on the slide three on page 12. The fixed asset turnover is slightly deteriorated because a combination of both. The per location prices are going up and also we have some of those new stores which have opened which are of higher value.
Got it. One last question, you mentioned in the last couple of quarterly releases about costs related to improving consumer experience. Could you just elaborate, is this offline, online, and is large part of the investment to improve the experience to the levels you want already happened or it's work in progress?
It's primarily offline. More or less, I hope, and that's the direction I've given the team also, I think we've done decent investments. It should remain the same, but let's see. At the same time, see, don't take the number too seriously, but just as an indicator. Suppose I open 100 stores a year. Obviously, the financials are going to deteriorate, because then you'll have a large chunk of new stores whose operating costs will be higher than my existing base. You have to look at it from all aspects. Yes, in large metros where the intensity of Quick Commerce was higher, we said, "Look, even if it means losing a few basis points on profitability, but we have to double down on the experience in the store." Hence, there has been a slight deterioration on the margin profile of stores.
Got it. Thanks so much. That's it from my side. Neville, thanks a lot for the insights over the years, and welcome and best of luck to Anshul for his tenure ahead.
Thank you. Thank you so much.
Thanks, Arnab.
Thank you. Next question is from Ishani Swain from Kotak Institutional Equities. Please go ahead. Ishani Swain from Kotak, please go ahead with the question. There seems to be no response on the line of Ishani. We'll move to the next question. Next question is from Nihal Mahesh Jham from HSBC. Please go ahead.
Yes, thank you so much. Good afternoon, Neville and Anshul and everyone. Two questions from my side. Neville, you highlighted that obviously North India expansion right now is the pet project that you are currently focusing on. Speaking specifically of, say, the U.P. market, this market is different in a way that there are certain large retailers which have a very high share of private labels in which they operate. Where this may end up impacting is that at least from a basket value perspective, despite the value that we offer, there would be certain players who would be offering a much better deal for a certain basket that gets created. How would we then try addressing that kind of a hindrance in a market like U.P., which is unique, say, to the other states in India?
Too early to comment, we're really confident we'll be able to compete. Too early to comment. Maybe reserve this question for next year, Anshul will be able to respond to that. I basically don't see much of a challenge there from that standpoint. Like I said, we just opened Agra now, we'll see.
Sure, Neville.
Issue there.
We'll definitely follow up.
The second question is Yeah, sorry.
No, go ahead.
No, if you were commenting something, I'll wait for my second question.
No, you ask the second question, I'll add on to the previous question. I'll just ask for some data. I'll respond to that.
Absolutely
Comment. You go with the second question.
Sure. Thanks, Neville. Neville, the second question was, obviously a lot of discussion on this call and always on Quick Commerce. If I just think from a customer perspective, and this is not a question, maybe a comment from you that when I think from a customer proposition perspective, you take where there is a certain discount that DMart still offers on the offline format versus, say, what Quick Commerce does. There is a checkout time involved when you go to a store, travel time involved.
If that discount has been shrinking and maybe is not commensurate enough at this point in time for a customer to step out, are we, on our understanding, believing that the customer cohort who is obviously going to prefer moving to QC or online is small and that is based on your understanding of the market, or what incrementally does your DMart store offer that it makes a customer step out, assuming that the value difference is, in a way, lowering over the last few years?
If I understood your question, you're saying what is it that DMart stores offers that makes us confident about the model vis-à-vis Quick Commerce? Is that the question?
Absolutely. Assuming the fact that the incremental difference in the value that, say, we are offering has been shrinking over the years. At least if you look at the prices, so that we offer in store versus what is, say, available on the websites for these Quick Commerce companies.
Nihal, the broad view is that we keep tracking data. Not everything will have an explanation. There are certain things which we believe could be a reasonable explanation, but we would not prefer to talk about it. Let me put it in a very simplistic form. When you look at QC, e-commerce with brick-and-mortar retail across the globe, we believe that value brick-and-mortar retailers have a tremendous economic positioning. It is a moat. The brick-and-mortar value retailer has a huge, huge moat, right? Because of which you see global data on all these big retailers, nothing can happen to them. For all the discussion around QC. Look at the operating cost of the QC. Instead, we look at the operating cost of value delivered by DMart. That's the moat, and we believe it'll exist. That's broadly clear. The market is huge, right?
We just need to focus on our business.
Sure, Neville. That's helpful. Thank you so much. Been a pleasure interacting with you, and wish you all the best and congratulations, Anshul. Look forward to interacting with you again.
Thank you. Thank you so much.
Thank you. Next question is from Anand Shah, from Axis Capital. Please go ahead.
Yeah. Hi, Team Avenue. Thanks for the opportunity. Just one question there. If I look at the Arnab question that you have been looking to improve the service levels, then if I look at the manpower additions that you've been doing, it's sort of at the most about 20%, 25%. It seems that post-COVID, this number of people, let's say, per store on average, had gone down and now you're building back up, in line with this focus on improving customer service as well. Is that sort of now coming full circle? Let's say on average, if you need a certain number of manpower per store and it's come down, is it now back to the optimum level or you are still looking to sort of build up?
See, store headcount, I think, let's put it this way, probably we've, I would say, overdone it a little bit. I think there is opportunity for calibration. I think the stores can be run more efficiently with better focus on execution. If there's one thing which we have not spoken so far, I know we've been talking for like one hour now. We haven't spoken about it. I think there's an opportunity to improve execution at stores. We need to have more dedication, more focus on running the stores efficiently. There is an opportunity there. At the same time, will that impact in P&L next year? Maybe not. If I'm going to extend or add more number of stores per year, then P&L may get deteriorated. We are talking all in the basis points. I'm not giving any indication that there'll be deterioration beyond that.
Yeah, from a capability and all of that standpoint, I think we've done a decent job over the last few years from that standpoint.
Got it. From a margin viewpoint, of course, it seems that bulk of the drag on the margins has been largely because of this staff cost, whether you look at staff as well as the contractual employees that you club in other expenses. That drag, if I set aside the store expansion that you are looking to accelerate and hence you may see some more, but would that sort of now hit a sort of a bottom there and at about 8% margin? Internally, would you say these are the kind of threshold margins you would target or if it deteriorates and you want to accelerate business, you are okay with it?
Anand, actually, that's the direction internally. We will not be bothered so much about gross margins or expenses because these move a few basis points here and there and we really don't bother about that so much. What we really are bothering about or bothering, I would say, is paying attention to is how fast can we grow. I think that's the bigger question to ask. What's the CAGR rate at which we need to grow?
Got it.
Deterioration on gross margin a little bit or deterioration on operating costs is perfectly fine because those are always in basis points.
Got it. Just lastly on your focus to accelerate the store expansion. Of course, the balance sheet or the cash flow is also a constraint because you have this real estate acquisition model you only generate so much cash flow which you can then eventually use to build pipeline. Is it also coming from a fact that you've already built a lot of pipeline as you indicated that you are now looking to execute that and open and accelerate a lot more? Or you would be open to stretching sort of your balance sheet to look at avenues to sort of accelerate this further?
We've discussed this internally. Reasonable debt is fine. If we get great opportunities from a real estate acquisition standpoint, we are happy to raise debt, but limited, under control. That's not off the table.
Got it. Okay, perfect. Neville, thanks a lot for your insights over the years and congrats on Anshul. Thanks.
Yes. Thank you.
Thank you. Next question is from Percy Panthaki from IIFL Securities. Please go ahead.
Hi. I think this question has been answered in some form but just looking for a little more clarity on this comment you have made for the last two quarters that we are investing in increasing service levels. What exactly does this mean? Can you give a couple of examples of what you have changed in the store to improve the service quality?
It's just basically focusing on having better headcount, better supervision. Better headcount so that you have a better experience as a shopper in a store, especially on a weekend. For example, you should not get any out of stocks or the relative experiences of out of stocks significantly reduces. Second is that queues are not long. All checkouts are operational. Sometimes because of the over-obsession of cost control, managers decide not to hire appropriately. Trying to pay attention to all those things because the metro city shopper has been more discerning and has now got more choice. You need to get into a psychological contract that gets for this extra effort, which is traveling to the store. If everything else is fine and your checkout is quick, you're getting all the stuff that you want.
You're ensuring browsing is good, everything is neat and clean, things like that. We saw an opportunity to invest there. That is one area. Second is, in the non-store area, we found that there's been a rapid inflation on warehousing, whether it is warehousing rentals, warehousing employees, there has been unprecedented inflation in wages there. Hence we had to take a huge call on increasing wages beyond the usual, and that is also what has impacted the P&L.
Understood. Have all these initiatives which you have in mind that we should do so and so and so to improve the service quality, have those initiatives already been implemented or are they in process of getting implemented and therefore some sort of this cost increase will sort of continue? This is apart from the store acceleration leading to the cost increase. That point I'm keeping aside.
Yeah, more or less. Percy answered this question just before your question, by somebody else. Yes, more or less done.
Okay. As and when this initiative anniversarizes and comes in the base, it will stop impacting the margin, right?
I'm not guaranteeing that. See, margins could be a factor of multiple things, like I said, whatever we had to do for our metro towns, we have done. There are so many other levers, like I answered in the previous analyst questions, that there will be other levers which could impact-
Got it.
Gross margin as well as operating expenditure. Like I said to the previous person who asked the question that we are focusing on accelerated store expansion.
Got it. Secondly, on private labels, I know there has been some discussion on this as well, but slightly different question. When you are looking at private labels, I am not talking about staple categories like rice or atta or something, the proper FMCG branded private labels, so to say. In those categories, typically, what kind of % discount do you need the private labels to be at versus the other brands which sell the most popular selling brands in your shop? What % discount do they need to be at? If you give that kind of a % discount, is it materially margin accretive to you?
Okay. The answer is different for different categories. Let me tell you the broad principle on we operate. This has been a principle since the time private label started. Okay. The broad principle is we follow a 20-20-20 principle. Okay. The 20-20-20 principle is, first and foremost, do we have an opportunity to at least gain a 20% share? If we don't feel that we have an opportunity to gain 20% share of that subcategory, we prefer not to operate in that category, number 1. Number 2 is that the 20% share will only happen if we have minimum 20% lower price MRP to the buyer compared to a main brand. Does the product have the capability from a manufacturing quality product ecosystem to be delivered at a price that is 20% lower than the main brand?
The third principle of 20 is, can I make 20% more margin than the main brand?
Got it.
If the main brand is making 10% margin, am I making 12%? It's as simple as that.
Got it. Do you have any categories which are already hitting that 20% market share within that category that you operate in?
That is exactly the question we would not prefer to answer but yes.
Okay.
As long as you get the philosophy, Percy, I think obviously we'll. Yeah. We are fine. We are okay. Like I said, it's a long game. I think we will achieve what we have set out to achieve. It would probably take a decade.
Sure. Last question is, you are there as MD till Jan 2026, but you mentioned that you will concentrate on store additions, et cetera. Are you going to be associated with DMart after Jan 2026 as well, and if so, in what capacity?
That is for the promoter and the board to take a call. I can't comment on that post Jan 2026 in terms of what form and structure. Obviously my association with DMart is beyond just the position I hold, right? I also have a decent equity in the company.
Sure.
I am available in whatever form. I'm not particular about any title. Whenever, wherever the organization needs me, I'm available. The way we have discussed also about the transition is, see real estate or project development or the staples business, these are very entrepreneurial. These take time to understand, right? We want Anshul to focus on the core retail business first. Then you will hear if there's anything after January 2026, you will hear about it later. I don't think this is the right time or the right forum to comment on it.
Got it, Neville. Thanks so much.
Sure.
All the best.
Thank you. Thank you, Percy.
Thank you. The next question is from Fatema Pacha, from Mahindra Manulife. Fatema's line seems to be on hold. We move to the next question. Next question is from Mihir from Nomura
Please go ahead.
Go on.
Hi, Neville. Hi, Anshul. Thank you for taking my question. Quite a few of the questions are already answered despite coming early in the queue. Can you share qualitatively if the number of D2C brands or the new players that you spoke about that you stock in your stores now, versus what you used to stock earlier, have seen an increase, and has the sales contribution for them have gone up? More essentially, are these not margin accretive for you? That's my first question.
It's a sea of products. Are you saying that this is moving the needle much on our profitability? Of course not. They're very small. From that standpoint, no. It's good to have them because that creates. See, the more successful products you have at the store gives you now metrics of what is success. It means that you're making the format or the model of DMart more aspirational for people to come to the store and shop, right? We are always on the lookout of successful brand to give good throughput. When you see good outcomes, it also puts pressure on the incumbents. When they see a D2C brand being showcased in the store well, they know that DMart doesn't do face-offs just for the heck of it. We increase face-offs if the sale is good, right?
It automatically puts the competitive forces in motion. It is cumulatively beneficial for everyone. It helps the incumbent supplier to be more competitive. It helps the customer. It helps us. It's a win-win for all. That's the way we look at it.
Understood. Neville, one question on Quick Commerce, and I know you've answered it in some form, but some more insights if you can share. Now you have more data to analyze. You have more time to see how the Quick Commerce is shaping up. What is your reading of the shifting consumer preference towards convenience versus value? How do you see this over the medium term, when Gen Z population becomes a larger part of the population versus now, and they prefer more convenience versus value? Your thoughts on those.
Yes. See, if I zoom out and look for the next 15, 20 years, I think Quick Commerce has emerged not really because retail has not been doing a good job. I think the biggest headache for every retailer is real estate cost. If real estate cost for a physical operator is made more reasonable, I think you will see more physical retail coming. Why it is like that, right? Today, what is the arbitrage that Quick Commerce is really playing on? Because arbitrage they're playing on, the cost of rent to them is significantly lower compared to a retail or regular retail operator, right? That's the way we are looking at it. Did I answer your question?
Yeah. I was just thinking that you're right. I understand the convenience and the value part is very different. A larger part of the population will be turning towards convenience as time goes by, maybe three, five years, 10 years out, versus you're focused more on value. I was just asking from that point of view, how are you thinking of insulating your business going forward?
Yeah. Sorry. The flow of thought I missed earlier. One is this, one answer is real estate. The second I've said is that another reason why QC is doing better is because of the infrastructure, right? In India, especially in the metro towns, to move from point A to point B is very challenging. That also becomes a limitation factor for physical retail to expand. If those things get solved quite right, likely you will see a reversal. There are multiple levers to operate. At the same time, keeping all of that aside, if I say that, "Look, I have a model in the brick-and-mortar piece which allows me to compete." See, what is the moat for DMart? The moat for DMart is its gross margin. I think we are fine. We compete. Anybody else becoming whatever times larger than us is fine.
Point is, are we growing at 18%, 20%, 25% CAGR? That's the opportunity that the market is offering. Like I said when I answered this question a couple of minutes back, that we will worry if our like-for-likes are not growing. We will worry if our cavern routes are not happening. We will worry if it is new stores where we are going in, we are not getting the desired ROIs. Then it's the question of, is this model working considering the competitive contract that is emerging in the market, right? That's the way we'll think about it.
Understood. Lastly, just a continuation on the margin side from this lens. Apart from the mix, what are the other levers do you see? I heard you when you spoke about revenue per sq ft and so on, where do you see the levers more efficiency? I understand you spoke about efficiency as well. How should one think about margins? Tailwinds seem to be very limited. At the same time, another big retailer is increasing its private label contribution. Quick Commerce with large funds at their disposal are creating pressure on discounting. There are more tailwinds for margins to be downwards versus upwards. Essentially, how do you see this, and what is the threshold of margin that you think that you will settle at in the medium term?
I'll not answer medium term. I'll give you a more longer term perspective. Let's look at five years, seven years, 10 years. I think broadly there are two levers. One is the private label lever, okay, which has tremendous opportunity, and one is getting into horizontals, which we are not into right now, but which suits our format, which I've written in my annual letter too. When a country grows, and I've answered this in previous annual letters. When a country grows at 7%, 8% GDP, where you own DMart kind of store will automatically be our ideal platform to have so many other categories. For example, go to any developed country retailer, value retailer like DMart and see what all they sell and look at what we sell, right? Automatically, when prosperity improves, products and sub-products have more and more segmentation and sub-segmentation.
More and more of that happens, the opportunity to make more margins automatically emerge. If you take a long-term view, considering our format, considering the way we construct our stores, I think there's an infinite opportunity from that standpoint. Does that mean margins will go significantly up? No. We are very clear, we'll not earn more than 15% or thereabout. It's great value. Once a customer comes into the store, whatever she wants horizontally, more and more, if it suits the format, we will make it available. That's the way we are thinking about it.
Understood. Thank you very much, Neville. It has been a pleasure listening to you, and wishing you all the very best. Anshul, wishing you best for the new role as well. Big shoes to fill. Thank you so much, and all the best, guys.
Thank you.
Okay.
Thank you. The next question is from Parth Shah from Bernstein. Please go ahead.
Yeah, hi. Thanks for taking my questions. Am I audible?
Yeah, Parth.
Yeah. Hi. My first question is on the new stores that you have been opening up in the non-metro T1 cities. Wanted to understand how they are ramping up in terms of revenue. Is it faster or slower? Within that context, I think you spoke about this a little bit earlier as well, what do we try to optimize for, because we obviously have a lower revenue per sq ft. Do we open smaller stores and try to protect the margins, or is it just the same size of stores that we look at?
I guess. I think this is all derived numbers. You have to just derive it. I think our new store average has remained consistent, in fact, or more larger than our base in certain years. We don't really look at it from that standpoint. All our stores more or less hover around 40,000 sq ft, and we will continue to be around that space. Secondly, we have a broad-based template on store openings depending on Because we open in the same state, same cities, or vicinities of the same cities, the template of assortment remains more or less the same. We just focus on giving great experiences, consistent experiences on availability, checkout, pricing, all of that. See, in value retail, the lesser variables to operate on, depending on which city and which region you are, it is better to execute, right?
We try to keep our variables as few as possible, and wherever there is a local nuance that is in play, we would rather want that local nuance to be handled by the local teams because they get it better. It's a right mix of central command and control and local command and control. That's how we operate. New stores throughputs will always be significantly lower than the older stores, but which is okay. We have now data on how these trend, and the trending has been the same. As they age, the revenues just rapidly go up. Younger the stores, the category growth rates are significantly higher compared to the older stores.
Got it. Yeah, I got it. That's helpful. The second question I wanted to ask was on the cost side. Obviously, the employee cost has gone up quite a bit in the last 18 months or so. We've also seen a significant number of employee additions or so in the last two years, right? What exactly has led to this in terms of, have you seen higher attrition, or are we trying to build some new capabilities or anything like that? If you can comment on that.
DMart employee attrition actually has fallen last year, which we have published. I think it's fallen by almost 2 to 3 percentage points, 13.9 to 11.3. Attrition has gone down. Within that, our seniority of attrition is actually very low. That's something I've also personally paid attention to. That's okay. What has happened is, like I mentioned earlier, headcount has increased significantly in stores due to service levels, which we spoke about. Cost of employee increased significantly in warehousing space, which I told you about. There is a certain component of headquarter costs also which we have increased.
What I have personally spent time on over the last 2 years Considering my decision on not continuing is I've paid disproportionate time in building a solid team at corporate office, visualizing what this company would be in the next 10 years and building those blocks right now. Okay? Some part of the cost is also being, I mean, getting built because of that. That's a work in progress. It will take another couple of years to kind of put to the start again. That's the way to look at it from a cost center.
Got it. Thanks. All the best for the future.
Thank you.
Thank you. Next question is from Ashish Kanodia from Citigroup. Please go ahead.
Hey. Hi, Neville. Thank you for the opportunity. The first question is on the accelerated store expansion. You have been talking about that good real estate at the right price is always a challenge in India. If I look at all the comments you have made during today's call, is there also a reason why there is an acceleration? Maybe from a guardrails point of view, in terms of what is the per square feet rate you want to pay, depending on the micro markets, in terms of revenue, cost, gross margin, et cetera. You are maybe dropping the guardrail a bit on the cost, at least from the land acquisition side, given how the competition, both on the offline and online side, is shaping up. Is that also one of the reasons?
You're saying, why are we accelerating?
I'm saying I understand you're accelerating, but I'm just trying to understand the reason that is it purely because of better management timing experience is there, or is it also a factor of maybe looking at buying some of the expensive real estates as well?
Not really. Are you saying that because we are imagining the real estate price will go further up, so we are trying to build our land bank? Is that what you're trying to say?
No, Neville. What I'm saying is that real estate has been a challenge, right? Good quality real estate always has been a challenge. From a guardrails point of view, I'm just trying to ask, when you look at the guardrails. If you want to pay, just as an example, INR 10,000 per sq ft for the land, now you are maybe willing to pay INR 11,000 because maybe you think that the competitive intensity is increasing. Plus, if you add more store, it also helps you with the DMart Ready, right? Because it also helps you with that. Is that a third person where there's no change in the guardrails?
Okay, let me put it this way. I get your question now. DMart operates on the principles of DMart. Even the real estate strategy is, okay, how many more stores we need to have because it's a profitable business, and it just adds on, right? The CAGR on top line as well as the CAGR on bottom line just moves. We look at it from that standpoint. DMart Ready expansion will be seen from a different standpoint. We don't think about, "Oh, because I'll have more DMart stores, it'll become better for DMart Ready." Not really. We don't think about it like that. We just feel that now is the time for us to accelerate faster, and probably with the reorg, hopefully the acceleration Not hopefully. I'm reasonably confident that it will be faster.
Sure. When I look at your comment on the North or U.P., if I just look at last eight, 10 years track record, typically what we have seen is whenever you enter into a new state, the initial two, three years is more about four or five stores, seven stores, because there are always these micro nuances of one, the consumption in some categories within that state, and then, of course, the supply chain also comes into the picture. Is that how maybe the U.P. or North will also ramp up, or do you think given the scale and size which DMart has today, maybe the supply chain has become much more efficient and the ramp up would be much faster versus historically what has happened with the new state being added?
Okay. Ashish, good question. I'll reiterate, we remain steadfast in the positioning like you mentioned, that new states will always be more calibrated in growth compared to existing states. I always tell my team that one of the greatest gifts we have got is to be in the right industry and in a country like India, which is 130 crore, 40 crore, whatever, right? The size is on the plate for all of us to take. While we are overemphasizing on North, we should appreciate that this country has an opportunity in a lot of the other states where we are already operating. If you see even the number of stores that we added last year, it has been equally distributed reasonably across all our existing markets. We'll continue to do that, too.
My colleague, Ramakant Baheti who's sitting next to me, has been a stalwart in real estate acquisition. I'm just joining him and saying that, "Look, North India, I'll do. You do the rest." We consider this as a very complicated sector or department. We continue to be deeply involved and personally involved in acquisitions. The strategy remains the same, that new states, we will be more calibrated, but we just have confidence because of the historical knowledge about worst case scenario, what will happen? From that standpoint, we are a little, I mean, I'll not say a little bit, reasonably more optimistic and aggressive in terms of going to the market. You will-
Sure
In the future also see a lot of the stores coming in the rest of the states also.
Sure, Neville. That's useful. Then just DMart miniMAX, I think this is, if I'm not wrong, the third year of the format. Like, you now have 17 stores. What's the thought process and have you seen this becoming maybe an answer to opening a much more number of stores in cities like Bombay, where sometimes the real estate availability is a challenge. What's the thought process there on the DMart miniMAX side?
Yeah. It was an experiment. [Non-English content] I think now it's very simple. Two prong. DMart stores, current format, 40,000, 30,000, whatever that is. Second is DMart Ready home delivery. That's it. Two things. [Non-English content] We're very clear about it.
Got it. Last one is, I think when I just look at the discussions we had, if I just look at also the last two-year performance. Say in the last two years, there has been the EBITDA growth or the PBT growth has been below your revenue growth, partly because of competitive intensity, partly because of investment in improving the services, et cetera. When you look at the next two, three years, I think in one of the comments you said, "I'm not taking the 100 store count." You said if tomorrow if I open 100 stores, the cost would be much higher because the store takes time to reach the full maturity, et cetera.
When you look at all these things, the next two, three years, while I understand there will be acceleration in store expansion and acceleration in top line, is it a fair way to think that it will also come and maybe it would only be a few basis points, but at the cost of some margin. Maybe that growth, what we have seen last two years being slightly below your top line, that how it might do given the thought process of accelerated growth, improving services, et cetera?
Ashish, you don't overthink so much on all these things. Mota moti we know we're running a business as if we own the business. Actually, a lot of us own some parts of the business. We know in the long term that this is beneficial. In the short term, if there is a deterioration in P&L profitability, OPEX, like I said, this will all have an impact on basis points, then why not capture the market, right? If we have the ability and the management bandwidth, I hope Anshul does a better job than me in building that management bandwidth to run the stores well, we can accelerate, no?
That's fair. Just wanted your views on that. Thank you, Neville, and all the best to you.
Just an example. Please don't release analyst notes saying that DMart is over 100 stores.
That is why I gave my disclosure as well.
Yeah.
Thank you. Thank you, Neville. All the best to you and Anshul and the rest of the team.
Thank you. Next question is from Latika Chopra from JP Morgan. Please go ahead.
You're welcome.
Hi, Neville. Always fascinating to hear you. A quick question after hearing what you mentioned. First one is on Quick Commerce. I just wanted to get your thoughts on how do you view the Quick Commerce acceptance in smaller towns? Is there a credible opportunity in these smaller cities? Any on ground color you have, given some of the QC players are now expanding into Tier 2, 3 cities?
Latika, I've spoken enough. Like I said, I've a very high regard for what they have done. Amazing stuff. Such pointed questions on that business of which I have no experience or I'm not the right person to answer that question. You should ask this in their company's analyst call.
No. Okay. I was just looking more from. You talked about some impact on business.
Sorry.
You did talk about a little impact of the business in the large metro cities. I was just trying to get a sense check from a consumer perspective.
Let me tell you how it impacts us. I'll tell you how it impacts us. I've mentioned this earlier. If it's an impact on DMart, I can tell you there has been zero impact on non-metros. In fact, we're doing very well in the non-metros. Like in one of the earlier analyst meets also, I've spoken about, that while DMart stores in Bombay or Bangalore are very crowded and very busy because the size of the stores are relatively smaller, all of that. In a small town or a non-metro town, our stores are much larger and infra is much better, and the whole shopping experience of going to a DMart store is actually quite pleasurable. Yeah. When you have pleasure and value, and it's a solid moat, it's a awesome moat. Yeah.
Makes sense. Thank you. The second one was on the category of mix shifts, pre-pandemic to now, we've probably seen a major shift in General Merchandise & Apparel sales, which is kind of moderated from 27%-28% to now about 22%-23%. As you make plans over the next five years or 10 years, do you see a case where this sales could go back to the pre-COVID levels or this is pretty much likely to be in this range?
I have a different take on that. I have answered that also in many previous analyst meets. While I understand the concern of General Merchandise & Apparel margins going down, try that data with how my PATs have trended over the same period, number one. Number two, how is my gross margin trended over the same period? If having more and more shoppers coming and buying more and more FMCG and grocery and all of that, and hence driving footfalls and making the business more and more stronger, then why not? We are not really worried so much that my GM and apparel contributions have gone down. Obviously, it would be nice to have it better than what it is today.
You have to also consider the comments I've made again on this topic, that whenever we start a store new, the General Merchandise & Apparel contribution is significantly higher. As it ages, the FMCG business contribution increases because more and more people in a shorter radius start buying more and more, and more and more people come to the store. The basket shifts. That's why it's a secular trend where people or the stores, grocery and FMCG buying contribution keeps on increasing. It's a lot to do with that too.
Certainly, your gross margins have held steady, so that's commendable despite the category shift. The last bit was on DMart Ready. You have talked about more confidence in the model. I just wanted to check. You have clearly refrained from spending much on advertising this platform. Just wanted to understand any change in approach or thought process here to create more awareness beyond existing customer base of DMart about this platform. Definitely open for that.
Vikram Dasu, w ho's with me here, the CEO of DMart is r eady to respond to this as well.
Hi, Latika. We've spent the last few years out of finishing the model and making a few course corrections, as Neville alluded to earlier, last year and also this year. We've pivoted. Well, pivoted is a loaded word, but we've course-corrected a little bit and have started focusing more on home delivery. The whole idea of not going to town in a big way in terms of advertising was to make sure that we stand by the promise that we make to the customer. I think we are in a better position today than we were earlier. You may not have noticed it, but we've started ramping up our outreach efforts, and you'll start to see more of it in the coming months. That's what I would like to submit here.
Okay. With that, I'm coming to you now. Thank you so much. All the best, everyone.
Yeah, thank you.
Thank you. Next question is from Jiten Poojara from Janchor Partners. Please go ahead.
Hello. Hi, Neville. Can you guys hear me?
Yes, Jiten.
Thank you so much. I really appreciate all the discussion on the industry. I just have one broad question. We are long-term owners of businesses. If you think from a 10-15-year perspective, obviously DMart has always been positioned as a value company. I'm sure you've thought a lot about this. What about positioning DMart even further as a value company by reducing the gross margin and making the positioning even stronger versus what's happening in the industry? Would it be possible that?
I think where we are today is fairly okay, right? If the competitive context around you is at a level very different or, I say higher than you relatively, I think we are okay where we are. That would be my response to your-
The reason I ask this question is because there's a lot of data that shows that the difference in pricing has been decreasing. The biggest moat is obviously, as you said, the gross margin of the company, which in other words, I would say the value perception and the actual value promise that the end consumers feel when they walk into DMart. Are there other ways to sharpen this continued moat of DMart? One is actually providing even better pricing, are there other ways that you could do this?
Okay, let me put it this way. Yeah, I get the question now. Good. It makes us think harder. See, you can continue to remain at the same gross margin and still make the price lower for the customer, no? If the relationship with your supplier is such that the more the supplier is transparent with you and the more the mutual benefit is appreciated on both sides, over a period of time, there could be an opportunity to bring the price further down for the shopper, even without me further reducing my margin. Make sense?
Yeah. Makes sense. Just one follow-up on that is DMart Ready in terms of positioning and pricing, how should we think of it from a 10-15 year perspective? Because it will provide some convenience, not as much as QC probably, but still more convenience than a physical retailer. In terms of the price positioning of DMart Ready versus DMart physical large stores, how are you thinking of positioning this from a longer-term perspective?
The positioning is that we stand for value, we would want DMart Ready also to stand for value. Will it be as cheap as a store? Obviously not. You'll never make money, right?
Our philosophy in the longer term is at a small incremental cost because we are doing two things extra for the shopper. We're picking for the shopper, and we're delivering it at her home. Eventually, basic laws of economics will prevail, right? There has to be a cost associated with that. If we are able to recover that, I think we are okay.
Okay, got it. Thank you.
Yeah, thanks.
Thank you. Next question is from Gaurav Jogani from JM Financial. Please go ahead.
Thank you for taking my question. Neville, my question is with regards to the revenue per square feet. If you look at the revenue per square feet in FY 2020, that was around INR 35,000 odd and, INR 35,500 odd, and right now also we are plucking at the same mark. Despite five years hence and then inflation, et cetera, that has not increased, and the costs, though at the same time are increasing, which are keeping a drag on the margins. What is your thought on this? How much of this revenue per square feet do you think is impacted because of the quick-com guys operating in the metro towns and taking away some share from there?
Gaurav, again, on a lighter note, I've answered this earlier also that these are metrics we hardly look at. I think the only time I look at turnover square feet is just three or four days prior to analyst call. It's for a reason. The reason being that if 92% of my property is ownership. Okay. We take a call on what money this location will make versus what we are going to invest in that store. Turnover square feet is a vanity for us, okay, from that standpoint. For us, ROI at the store is what we look at. Yeah. From that standpoint, we're pretty okay.
I would put it other way around. If you look at your cost per square feet, those are increasing at a higher pace versus your sales per square feet, and which in fact is impacting your margins. How do you look at that point is the larger question.
If you're talking about gross margin, my gross margins are getting impacted because of competitive context.
No, the EBITDA margin only. The overall EBITDA margin that is.
My EBITDA margins are getting impacted because my OPEX. My OPEX is getting impacted primarily because of my employee cost. Like I mentioned earlier, that real estate costs are increasing. The amount of money that is required to buy new real estate per sq ft is definitely going up. Broadly, ROI is the key.
Sure. Neville, my second and last question is with regards to using your DMart stores as a fulfillment center. You did allude to that probably if you have more fulfillment centers, you can deliver faster and better. Is there a thought wherein you can do a three-hour, six-hour kind of a delivery, and that could help you to accelerate your DMart Ready or delivery business?
This was the question I've been asked earlier, answered also earlier, that our existing stores operate at very high efficiency. Having a DMart Ready store there is actually detrimental to the operations of the DMart store. There is no dearth of FC availability. Considering that our model now we think we can even operate at a smaller size FC. Earlier, we had our own issues on having confidence in running fulfillment center at smaller scale. We've done a few tests and trials, and now we can actually run fulfillment center at smaller scale, but we need it to be separate from the store. If you look at how competition also has done it, right? They've just gone ahead and opened FCs or dark stores, as they call it, at a very high pace. They were able to do that because availability is very easy.
We are very clear now that has to be separate from the store. Obviously, there will be some locations we can have together and we have, but otherwise, in general, it has to be away from the store.
Sure, Neville. Thank you for all your insights all these years, welcome also.
Thank you.
Thank you. Next question is from Jay Gandhi from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. My question is on distribution center. For the past couple of years, you've nearly doubled the distribution center count. I just wanted to understand how concentrated this expansion has been. I mean, if you could give me ballpark of how the top three states have or which are the top three states.
This is for the distribution centers, right?
Yeah.
Distribution centers is a function of how many stores we add and what is the concentration of the stores we add. This is an ongoing process. Don't go by the numbers, honestly, because distribution centers are a function of what size. If I get larger distribution centers, the number of distribution centers will be lower. If you don't get very large distribution centers, you have to make do with smaller ones, then the number of distribution centers will be larger. Don't go by that number. For us, a DC makes sense when we have a decent size cluster of stores such that the trade-off of getting them supplied from a longer distance versus supply from a shorter distance. That's broadly the math. DC number is not a great indicator according to me.
I think the concentration of expansion, maybe the numbers may not be important, even if it is concentrated in terms of its nature of expansion, maybe perhaps that could help me understand where the focus is in terms of expansion.
Broadly, the focus on expansion now is almost everywhere except Northeast and a few states east of the country. We will be looking at everywhere, broadly.
Right. No, fair point. Just another question on the overall expansion. See, Delhi NCR a couple of years back was about eight stores. It's still about there and thereabouts nine odd stores. Just want to understand, are there any operational bottlenecks there or regulatory bottlenecks that perhaps stops us from expanding there in a meaningful way?
NCR, some pockets, they're more limited. That's the problem. The number of options available are very few. We're trying our best. We still believe that NCR kind of location, even if the current situation, if I take a five-year horizon, can we have 100 stores in NCR? Of course, we can have.
Right. No, fair. Just shifting to DMart Ready. From a proposition perspective, I just wanted to understand. Right now, I presume you offer a standardized offering of free home delivery above INR 3,000, or there's a certain threshold, right? Is it possible at similar profitability as today, can you reduce this basket size to perhaps probably about 20%-25% odd from where it is? Would that be a lever for market share gains even in the metro markets? Especially if you combine this with your focus on trying to reduce the service level times to six hours at some point.
We keep evaluating. If there's any change, you'll hear. Yeah, these are all thoughts that we have on the table all the time about what are the gain loss versus, depending on the decision we take around this. Yeah, it's not something we don't think about.
Right. At current cost structure, obviously, a lower basket size may not be as profitable, right?
Yes. For us, the basket size is a holy grail.
Fair. Well, thank you. Thank you so much.
Thank you.
Thank you. Next question is from Fatema Pacha from Mahindra Manulife. Please go ahead. Hello, Fatema Pacha. Fatema Pacha, you may go ahead with the question. Yes.
Hello. Sir, I think DMart has been the poster boy of running retail in the country, I'm sure a lot of takeaways from the way you did the merchandise and the way the retail was run. There are some business models that are getting listed recently and maybe, we are also getting a look through of how things are being run by other companies. Just wanting to understand that there are companies who are practically running at a 14% EBITDA margin and in a way, having right from shampoo.
Obviously, I'm not doubting that you need to have a L'Oréal or a Pantene or a Dove, also having the option for the lower-end customer who cannot afford a Dove, but who's actually maybe using a soap today or a Shikakai or something like that we could migrate him to an unbranded shampoo or something like that, and basically just helps in that ladder of premiumization because a Lever or a P&G cannot do it. Maybe for you it makes sense because it adds a lot of gross margin to you as well. You think this business model will not make sense?
Fatema, are you right? You're saying that other retailers have L'Oréal, Pantene and Dove and we don't have it? Is that what you meant?
No, I'm saying that you definitely continue to have it, but also have an option for customers who cannot afford it in terms of your own private branded shampoos, which they can take and start using, in a way migrating them from a soap format to unbranded shampoo format, and then eventually maybe they will upgrade to the Levers or the P&G. In the process, you may go to gross margin as well, right?
Okay. This all we keep doing, it's all work in progress. For us, the first thing is, what does the shopper want, and what is the trust that we want to build with the shoppers? See, in a shopper, essentially three people are involved, shopper, the OEM, and the retailer. We are custodians of shopper interest, right? First is we must ensure that we have the confidence in what we're selling. Margin is not the driver or profitability is not the driver of decision-making on assortment. The first criteria is to ensure that we have products that we are confident are safe and has the utility and the performance capability at that price for the shopper. It's like a work in progress. I understand where you're coming from. Yeah.
So-
Yeah, go ahead.
The only broad question I have is that India has very high real estate cost, and you alluded to that, right? We have seen most of the multi-brand retailers, you could go to a Shoppers, or you see all these big brand retailers. All of them have had the same issue as you in terms of high real estate costs and low margins because eventually when you sell a branded product, your margin can be only this much. Hence everybody in a way has tried to increase that private label from 20% - 30% to 50% - 70%. That is how the real estate in a way as a cost is so prohibitive in India is getting combative because the customer at the margin can only afford this much. You cannot charge the customer more. That is a given.
The only thing is that if you can have your own private label at 20%-30% lower than a Lever's and than a P&G brand, just in case, if that guy cannot afford the Lever or a P&G product, he can take your product and you make good margin either way. Your flow through is good.
Correct. We're doing that. Should we push it beyond a point? No. Let the customer decide.
Sure.
We are very particular about which segments and sub-segments we have private label. If I don't have confidence in having a private label in the shampoo category or the toothpaste category, then I will not bring the private label on the shelf because it's a question of DMart's reputation.
Any target for this 25%-30%, maybe, say, in 10 years can grow 40% or something like that, or you wouldn't?
No. We don't work like that. It's an everyday thing. Targets are great up to a point. After that, targets are detrimental to everybody's interests.
Sure. As of pre-COVID, apparel used to do well, but obviously post-COVID, things haven't worked out well. Any breakthrough there? We are yet seeing some of these diversified retailers being able to get their add-ons or apparel retail, because that is also a good gross margin business, and that people at the margin are okay with the private brands.
Fatema, I've answered on the apparel business earlier also. We are primarily a food grocer, being a food grocer has limitations on doing apparel up to an extent. The market allowed us to do a very long, broad range apparel business because competitive intensity was not so much. As and when you had more and more specialists coming into the apparel business, we pivoted to focusing more on the basics, more and more and more, because you have to align your format to what works for you. It is the basic apparel only that makes sense for a business like ours. We pivoted to that because for us, stock turns is very important, and sales to the format is very important.
Just last question. Do you theoretically think that your plan is more than 1,000 stores or at least 1,000 stores?
We spoke about it, I think, again, some time back. I think basis of back of the envelope calculation, we have broadly for the country around 1,800, 1,900 stores as a gap across the country.
That is your plan now?
Broadly, yes. It's a very conservative outlook. Yeah, as on today, yes.
Fair enough.
1,200 approximately is the store out of which 400 something is what we operate. 1,800 approximately is the opportunity.
Thank you. Thank you so much.
Welcome.
Thank you. The next question is from Amnish Aggarwal from PL Capital. Please go ahead.
Hi, Neville. Just a couple of questions. First being that DMart had raised a QIP. I think we raised around INR 4,000 crores pre-COVID. Over the years, we have seen that the cash balances are coming down as we have been, you can say, doing a lot of CapEx. You stated that you will be doubling down on the store openings and so investment in real estate and all, and reasonable amount of debt is good. Till now, on a net basis, we don't have any debt if we don't assume the lease liabilities. What is the management thought process on, you can say, you're having reasonable amount of debt. What sort of debt equity in this kind of a business would be comfortable? That is first part of the question.
The second is, over the last five years, we have seen our ROEs also coming off from 18% to 14%. What's the target ROE which DMart is looking at?
Seven.
18% to 14%.
Net worth. Return on net worth, I think it was, it was a spike for just one year. Yeah, fine. Debt, we'll prefer not to give a number. We have given color on that in terms of we are okay with raising reasonable debt to ensure that the expansion is not slowed down. From that standpoint, we have already given color. Beyond that, I don't think we would like to comment. In general, even on ROEs or return on net worth, I think we are okay. Like I said, we broadly a few basis points here and there, deterioration on P&L, we're perfectly okay. We're playing this for the long game. We are very conscious about how we acquire real estate, at what price we acquire real estate.
There's now reasonable understanding on all of these aspects because of being in the firm for so many years. We will continue to ensure that we buy with very conservative lens. Beyond that, Amnish, we can't comment.
Yeah. Am I audible?
Yes.
Yeah. My second question is regarding DMart Ready, where after being, you can say, having losses within a certain band, we have seen increase in particularly our transportation cost and our labor cost. Given the fact that I think during our quarterly results also we highlighted that labor cost has been going up. Do you see that the margins of DMart Ready, they remain under pressure for slightly prolonged period, and do we have any, you can say, target for achieving the break-even at the EBITDA level in this format?
It depends on EBITDA. As for Ind AS, I think it'll be faster. Obviously rent comes below EBITDA. Anyway, that apart, transportation costs have increased because home delivery has significantly increased. Look at it like that. What happens also is that more home delivery business we get, the opportunity to earn better gross margin improves. Also, like I said, wages went up. We all know that this industry has gone through fire as far as hiring new delivery boys and girls are concerned. The wages there have significantly increased. That's a market phenomenon, demand, supply. That is the reason why those numbers look like that. In general, our view is that at the P&L level, PBT or PAT, whatever, we have to break even at that level, not EBITDA.
All attempts are being made to, A, grow at a reasonable level and at the same time try and be as close to break-even as possible. We can't give a clear number, but we're working on it.
Okay. Sir, finally, just one bit more. Any dividend policy which you have framed or which you are targeting?
Board actually decides that, Amnish, it's not me, and this is not a forum to comment on that.
Okay. Thanks a lot.
Thank you. The next question is from Tejas Shah from Avendus Spark. Please go ahead.
Hi. Good afternoon, and thanks for the opportunity. Neville, first of all, thanks for a truly fruitful and engaging association over the years. It's been really enriching for us as well. Neville, you have been today candid about, you have been in past also candid about your dissatisfaction with the pace of store expansion. Given that external constraints like format availability and execution challenges remain the same, I'm just wondering what levers you can actually pull to accelerate from here on, or was it always just a matter of focus, which you are now saying there'll be more increased focus from your side to accelerate the same?
Yeah. Very simply, we'll make it happen. What else can I say? We'll make it happen. That's all I can say. That focus is needed. We'll get it done.
Perfect. Last call you had highlighted U.P. and Odisha as well. Usually we have not seen we adding two states in the same year. Is it like Odisha will be first to populate U.P. or you have bandwidth to populate two states at the same time?
Possible to do both states, but we'll see more stores in U.P. Obviously, we have inventory there. We acquired some locations there, so you'll see that coming. Obviously, U.P has a larger opportunity compared to Odisha from the city and all of that standpoint.
Referring to the last year's call, among the two new initiatives that we had, miniMAX and Which you spoke about today. The other one was actually the Reflect Healthcare on pharma side. Any thoughts there whether we have reached to a point where we can scale it up?
Pharma also has a great opportunity. It's work in progress. We have started. We have seven pharmacies stores now operational, and encouraging results. Like I said, all these subsidiary businesses should not be seen as a revenue by itself. These all complement and make the main DMart store format stronger. The reason why they have been built as a separate business is because the nature of those businesses are different. It needs a different lens of running those businesses, and that's why they're separate. Encouraging results, all these businesses or all these companies are created to complement the main business. No matter how successful we get in the pharma business, or no matter how successful we get in the pizza business, I think my advice to the incoming management team is don't go outside DMart store. Do this for DMart to make DMart stronger.
Sometimes there are these aspirations to say, "Hey, you know what? The P&L is looking good. Let's open some pharma stores independently, or let's open some pizza restaurants separately." We shouldn't be doing that. We do whatever we do to make the DMart store stronger and stronger and stronger. That's the principle.
Perfect. Then last one for Anshul. Anshul, as you prepare to take on the CEO role, what aspect of the company strategy do you see non-negotiable, and where do you see room to challenge the status quo? Perhaps a bit early but at this point, how do you assess this?
Yeah. I think it is a bit early, possibly next year I'll be able to give a more concrete sense about it. As I said in the beginning as well, and Neville has also alluded during the course of this meeting, that there are some very clear strong fundamentals of a value retailer that DMart has actually pioneered here in India, and those don't need to change. It's a simple organization. I see a sense of ownership in terms of the culture that DMart has across levels, and the principles around assortment, principles around low cost operations, principles around customer focus. We put assortment based on customer interest rather than what we would want to push. All of these things I don't think need to change in the model. Of course, there will be areas for improvement.
Neville already has spoken about the acceleration that we need to make. That acceleration will also require that the capabilities, the execution capabilities that we have now need to be translated into much larger number of stores. We need to have talent which will be able to manage this much larger business going forward across geographies. Therefore, all of those things will be areas that one would like to focus on. The way I look at it, there would be more of the same with, of course, improvements that we would need to make to be able to manage a stronger and a bigger business going forward.
Very clear. Thanks and all the best to the team for future.
Thank you.
Thank you.
Thank you very much. We'll take that as the last question. On behalf of Avenue Supermarts Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect.