Ladies and gentlemen, good day, and welcome to the Avenue Supermarts Limited investors conference call. As a reminder, all participants' lines will be in the listen-only mode, and anyone who wishes to ask a question may enter star and one on their touch-tone phone. To remove yourself from the queue, please enter star and two. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rushabh Ghiya. Thank you, and over to you, Mr. Ghiya.
Welcome to our annual investor and analyst conference call. I have on call with me Mr. Neville Noronha, our MD and CEO; Mr. Ramakant Baheti, Group CFO; Mr. Niladri Deb, CFO, Avenue Supermarts Limited; and Mr. Vikram Dasu, CEO, Avenue E-Commerce Limited. We hope that you had a chance to look at our presentation, which was shared on Friday, and the same is also available on our website in case you would like to refer to it. We will start the call with Neville briefly taking you through the presentation along with Niladri, and post that, we will open the Q&A session. Just before that, I would like to draw your attention to the safe harbor statement for good governance. With that, over to you, Neville.
Good morning, everybody. Like the format is every year, we will spend some time on the presentation and then, give most of the time for the Q&A. This time, splitting the presentation in two parts. I will be taking the business overview, followed by our CFO, Niladri Deb, who will then take you through the operating and financial summary. On the business overview, which is the key product categories page, i t is more or less the same. I think last year has been a period of consolidation and also, a lot of the anxieties that we had around general merchandise and apparel are more or less behind us. While the numbers do not indicate to that extent yet, we are seeing a smart recovery in the second half of last year and in the first quarter of this year.
GMA has moved from 23.04% to 22.37%. It is a drop, but more or less, it is coming back. But just to preempt some of the questions that may come on this, we are not going to be 28% or 27% like it used to be earlier. A broad trend line will be around the current run rates of around 23% is the sense we get. But otherwise, it has been a good year. I mean, most of the numbers have been shared, and I would take more specific questions in the Q&A and discuss more about this. We go to the next slide, cluster-based expansion strategy, c ontinues to be the same. It is, again, principle is more of the same, t ry and open as many stores in existing markets. We also keep trying to go to new states, new regions, new cities.
But otherwise, the broad principle is if there's an opportunity to deploy capital in existing markets, it's a better option. We opened 41 stores in the last year gone by, and a s usual, the numbers look good. We are doing fine in all the new stores opened also. It's a usual day at work, broadly, from that standpoint. We come to DMart Ready. Again, we had said in the last year analyst meet that this year would be a year of consolidation, and we'll try and test whatever we have done, and hence, we added just one city. Again, the strategy around the e-commerce business, the DMart Ready business is very consciously to be not very fast.
We can generate significantly higher revenue than we do currently, but it's a conscious decision to fix the model, make it right, and bring in high throughputs in the existing cities. That's the thinking that we have on this business. But obviously, we'll take more questions on our business as well as what's happening in the market from a larger context of competition and all of that. Year-wise store addition, already said that we opened 41 stores. We maintain to deliver basis of past performance. That's what we keep saying. So, the number of stores opening will be around these numbers going forward, but we, as usual, don't give out a statement in terms of what the exact number is, and regions also remain the same. But broadly, as a company, we are primed to open equal to or even more than this number of stores.
There are a lot of other factors that depend on our store opening numbers. With that, I end my part of the presentation, and I would request Niladri to take over the operating and financial summary part of the presentation. Thank you.
Thank you, Neville. I take you through the bill cuts. We delivered 30.3 crore bill cuts in the year just gone by. Like-for-like growth that we disclosed is about stores which are open more than at least 24 months. We delivered 9.9% like-for-like growth. The total retail business area at the end of the fiscal 2024 was about 15.1 million square feet . We opened 1.8 million square feet area in the current year, and the revenue from sales came at about INR 33,000/ sq ft in FY 2024, very close to the FY 2020 number of INR 32,879/sq ft. Moving on, the revenue from operations disclosed earlier INR 49,533 crore delivered in the standalone business. EBITDA margin of 8.3%, almost INR 4,100 crore of EBITDA. We delivered 5.4% PAT, about INR 2,695 crore, and the net cash flow from operations of INR 3,343 crore.
All of the indices grew over the same period last year. We move to the operating financial summary for the day inventory payables. Our payables came at about 7.1 days, and the inventory is over 29 days of inventory, m ore or less similar to what we were in the pre-COVID period. Debt and equity, we all know we don't have debt, but the debt that you see on the balance sheet is about the Ind AS 116 disclosures, and the equity of about INR 19,021 crore of equity. Fixed asset turnover ratio came at about 3.6x, very close to the number that we had been trailing even pre-COVID, and inventory turnover ratio about 14.6x. Finally, the return on net worth and ROCE. The return on ROCE came at about 19.1%, marginally lower than FY 2023, and return on net worth about 15.1%.
Slide 13 has the key financials for Avenue Supermarts and the standalone and consol. Sales grew by 18.4%, gross margin reduction of about 37 basis points, and PBT reduction of 43 basis points led by the gross margin slide and a bit of cost increases in other expenses that came up, and t he PAT delivery of INR 2,697 crore, which was a 5.4% growth. We must point out that last year, we had an exceptional tax gain. Ignoring the tax gain of the prior year, the PAT improved by close to 12%. At consol level, the sales improved by 18.6% of INR 50,789 crore and a PAT delivery of 6.6% growth. Without the one-time tax advantage of the prior year, the PAT grew by 13.5% to INR 2,536 crore. The key subsidiary financials.
Avenue E-Commerce delivered a 31.7% sales increase of close to INR 2,900 crore, and we had a loss of INR 185 crore, which was a 2.4% loss reduction over the prior year. Avenue Food Plaza, INR 177 crore of sales and a loss of about close to INR 6 crore. It's in the expansion phase. Align Retail Trades, a subsidiary which does grocery packing, about INR 2,800 crore of sales and a PAT of INR 33 crore, improved by 44%. That's the summary from the financials and operating section.
I think we can now open the floor for Q&A. Thank you, Niladri. Thank you, Neville. We'll just open the Q&A.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, please press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Yeah, thanks. My first question is on the product mix you have given. I see that foods is the only segment which has gained as a percentage of the mix while the rest of the two have seen a slight dip. Wanted to understand, is it purely because of the food inflation and FY 2025? Because FMCG companies in the HPC space will take a hike. The non-food FMCG should regain some of the lost share. What will be your comment on that? You are focusing more on general merchandise and apparel, so w anted to understand why it's not visible in terms of numbers. There was a dip of around 33 basis points. When do you see this reversing?
Abneesh, on the food contribution going higher is primarily driven around agri-food inflation. It is primarily driven on that. While staple, if I look at edible oils, went through a deflation period, but I think the minus oil basket, the agri side, that is the staple agri minus oil, went through unprecedented inflation during this period of time. That is the reason why the food contribution has gone up. In the GM & apparel side, I think we had a larger issue on the apparel side, but like I have commented last year, apparel is a smaller contributor in the GMA mix. Hence, the blended impact was only what you see on the slide, right? GMA is more or less back on track, trending equal to what we were prior to COVID. Apparel has done a very smart recovery.
We did very quick improvements there, primarily around leadership team, prices, all of that is in place. In fact, 70%-80% of the work is already done. If we look at the last two quarters' performance, one thing to know is apparel is the highest growing category amongst all our categories. Okay? So, w e are seeing, l ike I had commented last year, i t is more of an internal issue on the apparel side. We just needed to build a very good leadership pipeline. I think the, and i n fact, quite delighted with the early, I didn't expect it to be improving so quickly, but I think the team has done a brilliant job. But still a long way to go, but we're seeing brilliant green shoots on the apparel side of the business.
Sure. My second and last question will be on the DMart Ready. We have seen a year of consolidation and only one city getting added. What were the learnings from there? We have seen other quick commerce, for example, now, they are seeing more consolidation, more on service rather than discounting. So, rain fee, delivery fee, loyalty fee, a lot of fees are coming in, and that's good from an overall business sustainability perspective. I wanted to understand, are you also thinking, at some stage, quick commerce and start charging for some of these? Because ultimately, now, it's more of convenience rather than pure discounting. Plus, what is your take, i s the worst behind on discounting? Because Zepto has raised a huge funding very recently, when the other two players seem to be focusing more on service rather than just discounting.
Our whole perspective has always been obnoxious to have a divergence in terms of an approach to the business. We prefer not to do stuff like what most people try to do. We continue to chart our own course on the e-commerce side of the business, and we're pretty confident of expanding this business, albeit not as fast as people expect it to be. But we'll continue with the current model. We don't intend to do any quick commerce. I think our model is pretty robust, and the learnings has been, try and get more and more revenue in the large town cities. That's the low-hanging fruit, and that is where the convergence between our model, about our ability to deliver, and also, the expectation of the market. So, a Mumbai customer, or an Ahmedabad customer, or a Delhi customer, they like e-commerce.
They like materials coming to their home. Time is short supply. Timetables are tough to manage, things like that. They sometimes pursue going to, I mean, I'm not saying everyone, but mostly, the more affluent people, they would like to have a certain component of their grocery buying to come through e-commerce. I think serving that customer through our Ready channel sounds very interesting and promising. We will continue with our own methodology of running the Ready business.
Just one follow-up on this and then, I'll end. Could this be second year of consolidation and when can we see you have DMart Ready in few Tier 3 cities also? For example, Kolhapur, Belagavi, Bhilai, Raipur, and say, Anand. Could these be deprioritized and ultimately, may not make much of a sense given your kind of a business model?
Quite possible. I think brick-and-mortar retail is still very aspirational and still fun and enjoyable in small towns. We clearly see that from a psychological standpoint, that customers enjoy going to retail stores like ours in small towns.
Okay. Thanks. That's all from my side. Thank you.
Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
Yeah, hi. Thanks for the opportunity. Neville, my first question was on store expansion. I think last call, you had mentioned you have invested in the people in the expansion side and also, in some of the processes which will increase your capacity of adding stores. Do you see that happen in FY 2025 or it's going to take some more time before you can significantly step up from this approximately 40 stores that you've been adding for the last couple of years? What are the other bottlenecks that you're still seeing in that capacity?
I don't have a very clear, concise answer in numbers for you, but I'll just give you a feeling and flavor of what we intend to do here. We are primed and ready in terms of opening around 40 stores per year, 40, 50, whatever, anything between that is what we are ready and we will deliver broadly. Obviously, subject to regulation, permission, all of that. But we have that kind of inventory to at least commit saying 40, 45 every year. The way to look at our store opening trend is we'll do 40, 40- something, but in another two to three years, I think we are all working towards, in another two years, this 40 should go to a 60 or a 70 per year. We are working like that. Okay? We're thinking about it like that. But it'll be very lumpy. So, you will see a 40, 40, 40.
Suddenly, it may go up a little bit higher. Okay? Th at's the way we are thinking about it and working towards it. I've been saying this repeatedly, that typically, 10%-15% of my number count should be my new store opening. Broadly, that's the way we think about it. If that happens, then, we'll get a very decent CAGR run rate over a 10-, 15-, 20- year period. That's how it has been in the past too, right? For example, if I have 400 stores, then I should be opening 60 stores. If I have 800 stores, then, say, 15% of 800 stores. That's the North Star. That's the way we think about it.
Thanks for that, Neville. Yeah. The second question I actually had was a follow-up on the quick commerce thing. Clearly, one of the big changes last one year has been this big scale-up of quick commerce, especially in the top six, seven cities. Are you seeing any impact on your big city stores, like a Mumbai, Bangalore kind of locations? Does it in any way impact the future s tore potential in, let's say, the top 10 stores that you would have earlier envisaged? So, any thoughts on how you're seeing this evolve?
Yeah. Actually, we've been crunching data over the last two years on this, and how is this format impacting us. Surprisingly, it is not. If there is any one reason what impacts our metro revenues, it's actually our own ability to operate the stores. If any store is not run well for whatever reason, either it's an infrastructure issue or the store has already peaked out delivering very high revenue per square feet, or the quality of management is not up to the expectation, that's when these stores struggle, and n ot really because of the competitive context of, specifically, about quick commerce. That's our analysis of things. But okay, if you say a city that is not having any intense quick commerce versus a city that has quick commerce, there could be a 1%-2% SSSG CAGR impact. Could be.
I mean, I don't have a very clear point of view there. I can't pinpoint it exactly. But will I say no? Ab solutely not. I will also not agree to that, maybe 1%, 1.5% kind of an impact could be there. But is any of my store declining, negative? Do I see very large red flags? Absolutely not.
Understood. Thanks. Just one last question. Any rethink or you have historically not had a big focus on fresh as a part of your mix, and that's one of the categories which, at least, quick commerce companies say has had high growth and high margins. Anything that is changing which would change your approach towards that category versus what it is currently? That's it from my side.
Brick- and-m ortar, I don't think so. Brick-and-m ortar, there has to be some structural changes in the economy, which prevents the roadside seller to stop selling fruits and vegetables. Only then could be a case for modern trade to sell fresh in a profitable manner. That's our view, especially in a model like ours.
Okay. Thanks so much, Neville, and all the best.
Okay, thank you.
Thank you so much. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, Neville. Just wanted to get your thoughts on the apparel segment. I mean, what exactly did we change? You said 70%-80% on that journey, so what is left to be done? Would love to get your thoughts on that, please.
We have done whatever we've done for the current size of revenue, but we're imagining what we would be five years, 10 years from now. Apparel is very, very talent driven. The guy or the lady who's running that specific category, how he or she thinks about what should be done. From a team capability standpoint, the confluence of the synthesizing between what DMart stands for, what the ethos of DMart is, and what apparel should be, it's not very easy. A category like apparel for a grocery kind of a model is very complicated, right?
Yes.
A lot of people who come from outside, their understanding of value retail, their understanding of deep discount thing is, I would say, very limited. First, that buying itself is very challenging. This is a very talent, individual-driven kind of a business. Everybody brings in their own personality to the category. It's not very easy to get that synthesis.
You said that you wanted to focus on basics there. Is that thought no longer the case? You still want to have some fashion, but the type of fashion is probably what has to be realigned. I just want to better understand that portfolio change that you're trying to do here.
Philosophy remains the same. Basic, basic, basic. You can be fashionable, yet by being basic. When you say fashionable, it's about being in trend. But how do you ensure that your product line is not susceptible to the vagaries of change of trend at very short notice? That's the whole idea.
Okay. Fair enough. The second, Neville, was on your comment that you do not expect salience to move back to the 26%-28% levels for general merchandise and apparel. Why this thought? If that is the case, does that change how should we look at same-store sales growth from a new category- addition-based uptick that has traditionally or per year come?
I've commented on this earlier. I maintain that stand that whenever you open a new store, y ou get people from a larger radius coming to your store. When you get that kind of a customer into the store, they end up buying a lot of non-FMCG. As the store matures, the percentage of households who begin to buy from you from a smaller radius significantly increases. Hence, that basically drives the intensity of the food and FMCG and grocery sales. This has been a secular trend for the last 20 years. It is just simply because of that. It's a trend, it's a secular trend. As we mature and we become larger and larger, the food and grocery and the low-margin contribution will increase. We have to then figure out how should we run the model such that we deliver on your profits in line with the construct changing with time.
Okay. Sorry to interrupt you. Just to push back, I thought focus on adding larger stores would have probably helped us drive maintain that failings. That thought is not accurate?
That thought continues to be accurate because we continue to believe in the fact that having larger stores keeps you ready for the opportunities of the future. At the same time, I do not want to build in very high expectations that, yes, we will go back to 27%, 28%, and hence, there will be a bump in gross margins. Not really. I'm just giving a very realistic scenario of the future. They're getting ready for the opportunities that can emerge because of GDP going up and hence , people wanting to buy more and more horizontally in the high margin sector. We are priming ourselves for that. But will that definitely guarantee 28% or a 38% contribution of GMAs? No, I don't think so.
Okay. I understood. Lastly, if I may. Sorry, just on the quick commerce bit, you did point towards 1%, 1.5%- odd impact very rough in your view. Is this reflecting more discounting in your view, or just that the consumer is now keeping less pantry? How should we look at this from that point of view?
The way we are looking at it, Avi, and this is through real experiments, so real events that have happened, a ny store which has very high throughput, I mean, it's kind of overflowing at the brim. I just need to open more stores around that cluster. It's as simple as that. Assuming I'm doing INR 20 crore a month on a particular store and it's very high throughput turnover square feet, and I open another store close by, and this INR 20 crore store drops down to INR 15 crore. That additional store again gives me an additional INR 20 crore, right? That's the whole idea. Can I add in more stores? Is the solution to issues like this. We have done these kinds of activities or whatever. I mean, by design, during COVID time, we bought on many new locations even in Mumbai and this is the outcome.
That net of both the old and the new store is value accretive for us. That's the way to do it. Apart from standing the opportunities that are available in DMart Ready. We do that too. But it is not either/or. I keep saying brick-and-mortar and e-commerce is the way to go.
Sorry, Neville. I was referring to the 1%, 1.5% you said is possible from the quick commerce perspective. That's what I was trying to kind of understand, w hen you say there is a possible impact on quick commerce, you're simply saying because the consumer is reducing her inventory? How are you looking at this impact? That's what I was trying to understand. The impact from our own capacity, that I am clear on, but this one, I was trying to kind of better appreciate how do you look at this.
Like I said, stores which are exceeding higher revenue per square feet, its ability to grow at a rate of inflation gets a bit challenged. Okay? That's the point I wanted to make. Then, at the other end, you have from a commerce standpoint, quick commerce was delivering excellent convenience. Almost zero friction and delivery at home. Then, the top and discerning customer probably who's shopping at DMart may fall off. To that extent, there could be a 50-basis- point to 100- basis- point kind of change in growth rates for such stores. That is the point I was trying to make.
Okay. So, you were referring from that consumer probably going away and that is the possibility and that would be appropriate. Got it. That's all from my side. Thank you.
There is a disclaimer there. My observation and comments are only for this year. If something significantly changes during the year, I will talk about it next year. This is my understanding of what's happening right now.
Okay. So, you're saying as of date, if this scenario becomes either less favorable or more favorable for us, it might kind of reduce or increase.
Yes .
Got it, sir. Good. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Latika Chopra, JPMorgan Chase. Please go ahead.
Hi. Thank you for the opportunity. My question is on your expectations on gross margin profile over the medium term. You clearly mentioned the mix is going to probably be stable with general merchandise and apparel. I was trying to understand couple of enablers of gross margins and your thoughts on that on the FMCG and food side. One was your terms of trade with leading suppliers in order to leverage the scale benefits, how does that play out? Do you see premiumization of the FMCG and food portfolio within your mix? And the last enabler could be the private label contribution. If you could share some thoughts on how these three things could behave and would they, in any way, imply potential for gross margin improvement over the medium term? That's the first question. Thank you.
Hi, Latika. Broadly, I'll take the terms of trade and the branded FMCG part of the question first. This is all work in progress. The whole idea is the more and more revenue we deliver, the more and more contribution you deliver from a business contribution to an FMCG company's business, obviously, your bargaining power improves. Now , you have two ways to deal with it. Your improvement of bargaining power means more gross margins or better value to consumers. That's the choice as a retailer you have to take. And we do that, right? We decide, okay, how much of this has to go back to consumers and how much of it has to be retained. That is one way of looking at it. On private labels, I have constantly made comments which have remained consistent, and it continues to be the same.
It's a very long journey. You have to give it a lot of time. India is still a $2,500, $3,000 per capita income country. Private labels play out beautifully when, at least a country that is $7,000, $8,000 kind of per capita. So, we have a long way to go from all these standpoints, and I continue to hold that position that branded companies are very, very competitive, and it's not very easy to deliver a private label at equal to a better quality at a significantly cheaper price. See, we want the product to be significantly cheaper than a branded company product at a significantly larger discount. Only then does it really play around with the ethos of what DMart stands for. We would like to put the DMart name on the product only if it stands for that.
That's why from that standpoint, we believe that this is going to take a lot of time. Now, coming to the overall scheme of things. See, whatever we do today, 14%, 15% gross margin, we're going to play around that, right? So, a nything beyond that, we are going to pass it on to the customer. We don't want to retain it because we are running this on the basis of value. Delivering great value through high-quality operational excellence and keeping costs low. That's the broad philosophy. For example, the feel I'm getting from this question is more about margin. My response to you is, we are more a top-line driven company, and we believe that if we continue to remain relevant to the customer from a value standpoint, margins, ROI, all of that will follow. It will come.
The philosophy is to be very, very relevant, distinctly relevant, differentially relevant to consumers. Consumers, when they think about DMart, they think different. That's the whole philosophy. Capture the imagination of the customer from delivering great products at great value. That's the philosophy of the business.
Thanks, Neville. The second bit was a follow-up on something you alluded to while answering the question on apparel, on talent. Just wanted to hear from you any particular changes or incremental talent that you've hired at category head levels on the technology side, on your e-commerce operations, anything you want to talk about or share with us on capability building side. Thank you.
See, actually, it's a good question. I think we are grappling with two things. One is that we are running an enterprise which, in absolute terms, is very large. Even when you talk about a 15% or a 20% CAGR, if you add that and look at that from a value term, it's a very large value. This value is being delivered again from distributed points of sale. It's at different stores, locations, culture, people, all of that. There's an enormous, what should I say, management bandwidth requirement to just get this entire ship running in the right trajectory, right direction, and with the right relevant speed. We are thinking about what this company will be 10 years from now. We're not talking about the next year.
Hence, if you want to reach there in a nice way without too much of damage or bruises, then what is the kind of talent we need to have today, in the next two years, in the next three years, next five years? That's the way we're thinking about it. If you ask me, my team and I, the top leadership is thinking about how we should imagine the quality of talent we should have that can take us to where we want to be 10 years from now. The moment you start questioning, put the right questions on the table, then you have a very clear view about what you need to do from a talent standpoint. That's broadly the ethos I wanted to share with you.
Sure. Thank you and all the best.
Yeah, thanks.
Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi, Neville and team. A few questions. First, on the store addition, you did mention about lumpy additions at some point. When you look at additions internally, do you also think about it as percentage, or you typically look at it more like 40- 60 stores? How do you think about the additions on an annual basis?
Like I said, for this year also, we have projected 40, 45 stores. Again, I'm saying that I don't want you to project something very large in the immediate future. But yeah, so, but in the longer term, yes, we have to go at a higher run rate. If you remember, in my last analyst call also, I said that we are ready to even open 60 stores. Capability as of last year was we can even open 60 stores per annum. So, you can take a range of 40- 60 over the next three years.
A follow-up to that, Neville, and pardon me if it's a naive question, but let's say, in an economy where real estate is doing so well and there is a formalization, what is the bottleneck when you are thinking about adding the stores? I know you buy out the land and it is substantial investment, but in a cycle where real estate is doing so well, can you just highlight why it is lumpy, why it is not as predictable? Is it the team issue? Is it the site issue? Can you just elaborate?
I cannot predict which, so w e decide all the stores, whatever we decide the store open, right? We think, okay, all of them will open in this many timelines. But India is a lot of things don't happen on time, and sometimes, some locations surprise you. They also happen ahead of time, but that's more of a rare phenomenon. Yeah. That's how it is. It is unpredictable, and I have commented on this multiple times over the last three to four years.
Sure. I recall that. The other question is on DMart Ready. At a system level, Neville, what would be the average delivery time in case of, let's say, DMart Ready, wherever the customer opts for delivery?
On home delivery, we fleshed out some data. By the way, we ignore the time between 11:00 P.M. and 6:00 A.M. in the morning. We ignore this time. We don't count that as time. But I think around 40%, 45% of our deliveries happen within 12 hours.
Within 12 hours. Okay.
Yeah. Around 86% of our deliveries happen within 24 hours.
Okay.
The balance 14%, why it doesn't happen to us, customers plan the date of delivery. It's not that we can't do it, but when we give them visibility on when do they want their slots, they purposefully pick up a date which is later, because of which, the balance 14% is after 24 hours.
Got it. Okay. And on the, you know, one of the points again, Neville, you mentioned about, there is maybe 1%, 1.5% impact because of QC, et cetera. But do you find yourself in a bit of, although that's a conscious choice you have made, but in a bit of a disadvantageous position simply because you don't have a customer data? Let's say, if I'm a shopper at DMart and I move to QC, you will never come to know, given that you don't have the intelligence in terms of how many times I'm coming to your store, d o you think you may need to rethink on the data strategy sheerly because the competition is coming from unknown quarters also now? Or do you think that you are happy working with the aggregates as has been your strategy for such a long time?
It's a good question, Vivek. My counterpoint of view is always, even internally, when some of the same questions are asked by my team to me, I say that, look, the only one single indicator that, probably, we are blindfolded or refuse to accept what is obvious is, if my sales or my profits is telling me something, right? Negative. If my sales are great, my customers are talking nice about me, my model is working perfectly fine, my margins are intact, my SSSG growths are intact, then why should I change? Number one. Number two, specifically to answer your question on the QC side. QC is convenience, QC is full price. It is completely opposite to what DMart stands for. DMart is value. DMart is, I would say, a little inconvenient, and p robably, say, a little is also probably not doing justice.
It's a bit inconvenient, right? But it delivers great value. That's it. We would like to rather play on the positioning of value and then create something in the digital space. I think when you think like that, DMart always believes in doing something which is very difficult for others to follow. You build DNA that everybody can see what you're doing, but they can't do it. That is our pursuit, the model that we try to build.
Got it. As a follow-up to that question, and that would be my last one, Neville. From a top-down, when you look at as the head of the organization or the CEO, for argument's sake, there are two verticals that you have, right? One which is DMart and the other is DMart Ready. I know there are a few more beyond that. One has a lot of data, right, DMart Ready, whereas the other one is working on aggregate. Do you find the DMart Ready data to be rich? Do you do a lot of analysis on that? Is that a precursor for you to, you know, if the data is rich, if you have a lot of insight, is that a precursor to also think about them or implement that in DMart? Can you just talk about what is your view on all the data that you collect at DMart Ready level?
I think I'll give this opportunity for Vikram, who heads Ready, for us to respond. Vikram, can you take this question?
Yeah, sure. That's Vivek, right?
Yeah.
Yeah. Hi, Vivek. So, the question is around how we are leveraging data, right? Is that right?
That is right. One part is, what all are you doing with that data? Number one, and number two, from a DMart Ready, is there a case, you know, if there is something good that we are doing with that data, is there a case to think about it in case of DMart base business itself?
Yeah, sure. The latter part, I'll let Neville address, but on the data part, you're right, there's a lot of data that we generate on an every- second basis within the business. And we use a lot of that data to sort of improve our own input metrics. There are tons of things that happen for us to be able to fulfill an order that a customer places. You may also have seen that we are not super big into aggressive marketing or advertising. All of that data that we are generating, we are using to improve our internal metrics. There is a lot of data that we generate, not just on customers, but also on how we are operating. Will that be useful for DMart? By all means. But as Neville mentioned, there are tons of things that they're already doing.
We are working on making sure that the value proposition is right for the customer. What else do you really work on? As long as we know that the stores are working at the most efficient levels and the input metrics are showing the right trajectory. There's not too much else that you can really do with data, and we use that data in a sensible manner. I'm not suggesting that data is useless or anything like that. It's just that we are not big into using data to manipulate customers' behavior with a short-term outlook. Does that make sense?
Okay, sure. I like the word that you've used. And Neville, any thoughts from this perspective to the offline stores?
Yeah. Integrating information of the online space for the offline store, I think I'll tell you only one very clear impact, Vivek, which I think I've alluded to, not last year, but I think last to last year. I think the digital space data just fascinates you in terms of what all they can do, which we cannot. I think there are some very powerful elements of what online space can do, which we cannot, which is the cost of experimentation and the long-tail item selling capability. I think that is something that brick-and-mortar, at least the DMart brick-and-mortar, are trying to do. I think that's where the complement is also there, that it's fascinating. I mean, there are so many things where actually, they are the bigger brothers and not us.
It's very humbling, very humbling what digital can tell you, teach you at a very short notice. I think from that standpoint, we're leveraging the information and the learning. That's it. That's my point of view on the digital side, the Ready business.
Got it. Thank you, and wishing you and your team all the very best, Neville.
Thanks. Thank you, Vivek.
Thank you very much. The next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Yeah, thanks for taking my question. Hi, Neville. My first question was to do with your opening remarks, Neville, that since the second half of last year, we are seeing a smart recovery in the GMA portfolio. You also said that we will maintain the current levels of 23% and not going back to 27%, 28%. Now, how should we understand this from going forward perspective that where will these improvements get reflected in terms of the company's P&L going ahead?
That is what I keep saying. Hi, Sheela, by the way. Sorry. So, I keep saying this. I do not know what is the aspiration level in the analyst community on gross margin, but we have been towering between 14% and 15% or 14.5%, and t hat is where it is going to be. Whether it is GMAs, whatever it is or whatever it could be, the way we look at it is what is the blended average gross margin going to be? This is business. I really cannot predict beyond a point. There is a range within which we can say, "Okay, fine, this is where we are going to be." I cannot give you a finite number. Most importantly, business is dynamic. Competition should be factored in multiple other things.
I really cannot give you a straight answer. But I think 14.5%, 15%, 15.5%, those are the kind of ranges we play in from a gross margin standpoint. You have to look at the blended gross margin.
My question was not to do with the margins, actually. My question was, if GMA is coming back, the shares are maintained at 23% level, will it get reflected in the top-line growth then? I mean, how should we capture it apart from your commentary that GMA is coming back? Will there be a way to capture it? Because like you are saying, margins will be maintained. It will get more and more challenging for us to analyze that in terms of share.
I cannot give you any projections on what our growth rates are going to be, number of stores that we are going to add, gross margin is going to be. I cannot give you that.
Understood.
It is difficult. I can't tell you that. It's not that I have information I'm not sharing with you, but I can't crystal ball and give you a finite number there. I'll give you color. I'll give you qualitative understanding of where we are trending.
Fair point. Second point, again, is that you mentioned for e-commerce that consciously, we are making a decision not to grow very fast. But are there any areas within the last few years where we think that we should speed up in terms of growth going ahead? Obviously, store expansion is something you have already called out. But when you think about formats like Minimax, is there an opportunity for us to take that up? We added six stores this year. How does that fit into our growth strategy?
I think from the e-commerce standpoint, and this is again, a very divergent call I'm making from what I actually thought would be the way e-commerce would be, w e are seeing that the home delivery model is the better model. It's exactly opposite of what we used to, or at least I used to say earlier, because the numbers prove it. So, home delivery in large town is the way to go. Yeah. That's the broad point of view I'm trying to make, and hence, whatever it takes to build fulfillment centers in large towns quickly, as quickly as possible, so that we are able to deliver in at least 12 hours. I mean, that's the aspiration. So, primarily growing faster than what we are doing right now in large towns in DMart Ready is the way to go.
And on Minimax?
It's still experimentation. I think we feel that not yet ready. Market is not yet ready for that model.
In the past, you had mentioned the share of home delivery used to be 50%. How has that number tended now?
Had I said 50%? Sorry.
More or less similar. That is what you had mentioned in the past, couple of years ago.
Now, it's better. Whatever was in the past, it's getting better. See, what is happening is there is a sharper segmentation in the consumer's mind. The consumer says, "Look, if you want me to take all the effort and come to a store, then I want great value." That's what DMart stands for. Another customer will say, "Great, DMart is giving great value, but it's also charging me for home delivery. If you're giving me convenience, I might as well take the convenience wholeheartedly and get the product delivered at home." There's a clear segmentation happening in the consumer's mind, and the pickup point is sitting somewhere in between. So, it's a bit fuddy-duddy, right? It's neither here nor there. Hence, the gravitational force is tilting either to the store or to home delivery.
We will have to relook at our DMart Ready stores. Is that what you are coming to, Neville?
No. If you've seen the data, we have recalibrated, consolidated. We've shut a lot of pickup points. It's primarily to kind of rework on the whole operating model on the Ready side.
Just one final question. We saw some advertising on first three orders free on DMart Ready. Was that a tactical call in terms of getting more customers, and what was the kind of success we saw around it?
I'll ask Vikram to respond to that.
We are seeing some good traction there on that promotion. The idea here is to let customers sample our service. Our data has suggested that people who use our service for two or three times tend to stick with us because they've really grasped the value that we are providing. That's something that we've started doing a few months ago, and it's starting to show some really good results.
Thank you.
Thank you very much. The next question is from the line of Aditya Soman from CLSA. Please go ahead.
Hi. Good afternoon. Two questions. One, I mean, just mathematically, as your cash from operations increases, and especially as you're opening more stores in smaller towns, would the number of stores mathematically go up because you have more cash available to open stores, given that you typically would match store as CapEx and cash from operations?
Yes. Opportunity to open more will increase, definitely.
Correct. The other thing is, I mean, just to add to this, right , the area of the cluster also keeps widening. When you open within a cluster, even that cluster itself is widening. In theory, there is no reason why, I mean, I know you've said 40-60 stores over two to three years, but in theory, that number should keep going up, one, as your revenues and cash flow improve, and second, as your cluster size increases.
Absolutely, Aditya. I was reflecting back on all my comments over the last seven, eight years, just reading through all of them. If you remember post-IPO, I used to talk about 10-15 stores. We've moved from there to 40-60 stores. Obviously, it goes up, right? It will. It has to. Our entire effort is in that direction.
Very clear. Secondly, just on private brand. I just want to break this question up a little bit. One, you have these DMart Premia products, which I can probably deduce from trends of Align Retail , which would be somewhere between 5%-6% of sales. Then, you have all these branded products that you're now launching. At last count, I found about 130, then, perhaps a little more. Then, there is general merchandise which you pack. Can you give us a rough sense of what the contribution of each of these would be overall?
We don't disclose those numbers.
Fair. The DMart Premia stuff, that would be fair, right? That the Align Retail numbers would be a good way to deduce that.
Yes. Partly. Yes.
Okay. The other part of the business, would it be at least similar size, larger size? Any sense on that?
No, I'll prefer not to comment on that.
Okay, maybe just, I mean, even if not numerically, I see that the number of products has been increasing and maybe accelerating in the last year or so. Would that be a fair assumption?
I'll give you a direction about how to look at this. You will get a sense of how well we are doing in private labels simply basis of PKD. That's it. That's the way to look at it. If the product is lying on shelf for too long, that means the category is not doing well. It's as simple as that. Make a call basis that.
Fair enough. That's very cool. Thank you.
Yeah.
Thank you. The next question is from the line of Garima Mishra from Kotak. Please go ahead.
Yeah. Thank you so much for the opportunity. Neville, first question. You know, previous call, you had mentioned that the proportion of overall store count, located in cities with population of more than 1 million had declined to 60% in FY 2023 from a larger number earlier. Was this a trend you witnessed in FY 2024 as well, and maybe, this is a trend to be witnessed in the future also?
Yeah. I remember last analyst call, I kind of jumbled up a lot of numbers. We ensured the homework was better this time. We've got 1% better in less than 5 lakh town population. We were at 28% of the store cohort, in FY 2023. It's become 29%. We have 29% of our store cohort in less than 5 lakh towns. In financial year 2020, that number was 21%. Okay? So, i n five years, we have got an 8% increase in store count in this pop strata . I hope you're getting it, Garima. From 21% of the store cohort in financial year 2020, we were at 28% last year. This year, we are at 29%. So, 29% of our stores are in 5 lakh or lower pop strata t owns.
Understood. That is clear. Second, if we just look at that slide on store addition, and while of course, a lot of stores do go back into clusters where you're already present, you do keep adding stores in your areas as well, let's say Rajasthan, NCR, et cetera. So, for specifically some of these stores, are these stores tracking metrics that are similar to those in your core geographies, let's say, of Maharashtra, Gujarat, et cetera?
Yeah, Garima. Broadly, yes. Broadly, everything is in line. There is no major divergence. The younger the vintage, the financial metrics will be relatively lesser than the balance cohort. But the newer store cohort trend line has been the same for the last 10- 15 years. So, everything under control.
Okay. Understood.
Irrespective of regions. Yeah. That's the beauty about our model. One of the beautiful thing about our model is whether it's North India, South India, West India, East, we're still not there. From a metric standpoint, financial standpoint, we are doing fine. That's why the model cuts across all SEC, ethnicity, culture, everything, and that's the beauty.
Understood. That's good to know. One question, Neville. In the 1Q FY 2025 results release, you did mention that some of your OpEx had gone up due to efforts on improving service levels and building capabilities for the future. Could you explain what exactly, which line items are you referring to here?
Broadly, two things are happening. I think we've been all talking about product inflation, but I think at a lower level, wage inflation is also going up rapidly. Okay? That's one thing is very clearly being observed. The second thing is we are also working on building our capabilities, talent, all of that from a perspective of a little bit more longer thinking in terms of, like I just answered in the previous question, that what will this company be 10 years from now? Or what should it be like? And hence, what is the kind of talent ecosystem we need to build and start thinking about from today. And I think this thought had emerged a year and a half, two years back, and we were in the journey of building those capabilities over the last one year. Yeah, so it's a combination of both of these.
Got it. If I hear you right, this essentially refers mostly to people and talent within the organization.
Absolutely.
Got it. Last question from me. This is on DMart Ready. Mumbai is, I think, your oldest city in terms of numbers of years present. Do you think, at least, in Mumbai or, let's say, MMR to be specific, you're present in pretty much all PIN codes that you would want to be present in?
This is Vikram. Yes, we are present in all but a couple of PIN codes, which are actually not very serviceable. But yeah, MMR, Mumbai Metropolitan Region, we are fully covered.
Got it. Thanks, Neville. Th anks, Vikram, for answering my questions.
You're welcome.
Thank you. Welcome.
Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi. Thank you so much for taking my question. Hi, Neville. I have two questions, one on DMart Ready. This is a very basic question. Is DMart Ready consumer seeking convenience at the margin or more value? Basically, where I'm getting at is because there is a clear, you also mentioned that the convenience buy, which is consumer is trying to sort of get a service and willing to pay for it. What my question is, in the last four, five years, you've built DMart Ready, which is clearly showing that EBITDA margin is still -2% to -3%. So, operating model, even if some scale-up has happened, profitability is still elusive. Is there an opportunity for price discrimination here between physical store to online? If it is profitable and stands on its own merit, then, your ambition to grow faster may change as well.
I mean, what I'm trying to ask is that, is it the limitation because you want to give value, but convenience is a conflict? How do we think about this? Why not pursue that as a convenience opportunity which can price discriminate, and you get more profits out of it, and hence, can grow faster and can service more customers who want that convenience? I just want your thought on that.
The thought is very clear, Amit. Just because it's digital, w e are not saying it will be convenience. Our positioning will be on value.
Sure.
We're very clear because in the consumer's mind, DMart stands for value. We want to maintain that. We don't want to create dissonance in the customer's mind. It's not good. DMart stands for value. The idea is, how do we build an operating model that in spite of delivering at home, can you bring that value proposition saliency in the consumer's mind? That's the whole idea. Whatever it takes to do that, I think that's what we'll focus on.
So, what needs to change that this EBITDA margin starts to move in a positive direction?
I don't have a point of view there. We simply feel very delighted and excited that we've reached here.
Okay.
In such a short period of time, and with the kind of EBITDA losses that you just mentioned. I think it's promising. You have to give these things time. See, the best part is you have a brick-and-mortar business who's delivering great profits, is able to fund. With such low losses, I think the larger business can afford to give it more time to make it profitable and to stand on its own feet over a period of time.
Got it. No, fair enough. Thanks so much. Just a last bit on this is, on DMart Ready. What's the ticket size of DMart Ready order, if I may ask?
We don't disclose those numbers.
Okay. Fair enough. No worries. On DMart, I completely understand. My second question, you know, on the general merchandise. I don't know whether this estimate is correct but correct me if I'm wrong. I think for the full year, the revenue mix was 22.37%, and in the first half of FY 2024, this mix was 23.21%, which would imply that this mix actually deteriorated to 21.6% in the second half of general merchandise, which seems like a bit of a deterioration rather than an improvement. While you say Q1 has become better, how do we reconcile that? Has the numbers in Q1 is substantially better than 21.6%, which was in the second half? Or is this assessment wrong? Correct me if I'm reading this incorrectly.
How are you comparing it? How are you comparing Q1?
I'm just saying that for the full year, that number was 22.37%.
Okay.
If I take that number, 22.37%, you get a certain number in the revenue mix, taking the four quarters, right? When you take first half, first half was 23.21%.
Where did you get, o kay, s orry, yeah.
So, implicitly, the second half become 21.6%.
Correct.
Which seems like a marked deterioration rather than improvement, while you say the second half was quite good and Q1 seems quite better as well. It seems to me that there was still deterioration happening in the second half of the revenue mix.
Okay. I've not done the numbers the way you've done, but I've got the sense of what you're trying to say. My retort or response to that is that first half, first quarter, is actually from a revenue mix standpoint, the best.
Okay.
And then is the Diwali quarter. Okay? Then is Q2. Okay? And the worst is Q4. The March quarter.
Sure.
The blending of that, with a reasonable confidence, I can say that this financial year will be equal to us, better than FY 2024 GMA contribution.
Got it. Got it. And it is because the apparel is sort of bottomed out and looking like a little bit better and other things. Is there an opportunity to shape the general merchandise mix, non-apparel basis as well? Or it's still stable and nothing really much can change here?
The way to look at it, Amit, is apparel, we believe we can go back to the older days of contribution, which was maybe pre-COVID. That's one part. The other part is we see an opportunity in GM, general merchandise, to be a larger opportunity in the long term. For us, the general merchandise opportunity is a larger opportunity, and apparel is more defensive. We can get back to where we should be. But are we very optimistic about apparel as much as we are about GM? No. GM salience to our model is better than apparel salience to our model.
Got it. Without seeking any guidance, I think one of the things that was earlier asked as well, that if, say, GMA, general merchandise, starts to do at least better, one would expect that revenue growth should accelerate in the remaining half of the year. Without seeking guidance, do you feel a little confident that we are on that trajectory, that revenue growth should accelerate as well over FY 2024, given the network rollout and given the other problems are getting fixed? Because we saw something like 18% of numbers in the first four quarters on an average. Do you see that number should be better as well in FY 2025, that growth trajectory? Without seeking any guidance, but the way things are moving, what's your sense?
I would say the other way around. I would be a little conservative on the guidance from that standpoint. Rather than being optimistic, I would say that it is getting more and more challenging to maintain a 15%-20% CAGR growth rate if I continue to grow at only 40 stores per annum. The real driver of CAGR growth rate is accelerated store additions.
Sure.
Yeah. That's the way to look at it. We don't look at, oh, because my GMA contribution went up, and that should be the driver of revenue growth. Absolutely not. The driver of revenue growth is store addition.
Understood. That's very clear, Neville. On the store addition, that since we are at it, last two quarters, the average area that we roughly calculate is still around 40,000 now, which was way high in 2022 or something like that. Is it now the right template of 40,000 kind of store? Is that a reasonable way to sort of see the store sizes, or is it quite variable still?
Very variable, Amit. We don't look at it like that. I've repeatedly said that. When you're in the model that we have, I mean, whatever land is available, what sizing we can start, all of that, right? It is a broad range we play in.
Sure.
Like you said, historically, we were at 30,000, 35,000. Obviously, we see a positivity in the store size being larger, for sure. It's always a range. Don't go by just 5%, 10% vagaries of average store size every year.
Got it. Fair enough. Thank you so much, Neville, and thank you so much for answering my question.
Very pleasant talking to you, Amit. Thank you.
Thank you very much. The next question is from the line of Harish Bihani from Kotak Mutual Fund. Please go ahead.
Good afternoon, Neville and team.
Hello. Hi Harish. Go ahead.
Hi. Again, my question is on the store addition. If I look at your last few years' conversation, even in the last conference call, you clearly mentioned that you test your team, yourselves on a 15% number. When we look at this number for last few years, it is trending below the 15% number. We were presuming that the 15% number should at least start coming through from fiscal 2025, given that there would be backlog of some delays, et cetera, in fiscal 2024, that should come through. But basis the initial conversation that we had so far, it seems like we will be, again, be closer to 40, 45. So, this is a little perplexing to me. You mentioned that there will be delays, India factor delays happen, but at least there should be a point of breakout.
It's not happening, Neville, for last few years, especially last year, there was issues last year, but at least this year, we should have seen some signs of things improving on that store count number. And we should be doing a, say, a 55 this year, 65 next year, and 75 next year ballpark to be able to do a 15% CAGR number that you're talking about.
I take that feedback, Harish, and the only thing I'll tell you is we're trying our best. I completely feel and sense the point you're trying to make. Yes, we try our best to do what's needed for the health of the business and the growth of the business. But point taken, I have no defense on that standpoint that you have. That is also our aspiration. Yeah. We try to do our best on that front.
Sure. Like in the apparel business, where you clearly mentioned that there were internal issues and we are working on that and things should improve. In this case, how much of this is internal and how much of this is external?
I've answered repeatedly on this question. I understand the mood that your community has on inorganic growth, top-line revenue growth, and the drivers of it, which is primarily store openings. The story is the same. It's both internal, external, everything.
No, I meant the store opening. Is it there are internal bottlenecks, which again, we'd presume that you would have made the changes in the last few years, and you'd have seen a ramp-up over there? At least to do 200 stores in the next three years, you need to have visibility today to do 200 stores, right?
Yeah, absolutely right. I think I spoke a lot about it in the last analyst meet, and maybe not this year, but the year after that, I hope that we will have a better rate of store openings additions.
This is an internal bottleneck, Neville, or there are some external challenges, land prices have shot up, you're not getting the right store location because you're still buying 90% of the stores that you need to build up?
It is multiple things, internal, external, everything, but we're working on it. External is also a factor. Let me put it this way. Who else does what we do in the country? A country of 140 crore people in a business like retail at this scale, who else does what we do? Nobody. Some people do in parts. It's tough. It's extremely, extremely tough. I've been saying this, but not as an excuse, just to give a color to what this model is. We like to do things which are difficult. Especially when it's difficult for others to do. I'm yet okay. Even if I'm adding 40 or 50 stores per year, it's great. It's good. Can it be better? Of course, it can be better. Is it testing our capability? Of course not. We can do significantly better than this. Okay?
But you'll see, I keep saying this, judge us basis our past. You have data for the last seven years, probably even three to four years prior to IPO. You see the trajectory of store additions, and then you judge us. But I will not give you very precise numbers on what it will be in the future. But point taken, we are all working hard on that.
Sure. Thanks so much. Take care.
Yeah, thanks.
Thank you. The next question is from the line of Akshen from Fidelity. Please go ahead.
Hi, sir. Two questions from my side. One was just around the business model. When we see value retailing landscape globally, we've seen global peers try different experiments. I don't know if you have thoughts on whether something like Costco can be done in India by somebody like you. That's one. Second is, as you alluded that in smaller towns and cities, DMart is still a destination people go and shop. You get a lot of footfall, and you own the land around it. I don't know if there is thought to monetize that footfall through different means. At the top of my head, good food or some entertainment, something to that effect can be done, or you see yourself largely sticking to value retailing? That's the first question. I'll let you answer and then ask my second one.
It's two questions in one, so I'll answer it as two questions. One is you said Costco, can we do something like Costco in India? I've replied to this in multiple forums that retail is very intrinsic to the culture, history, many other soft aspects of a particular country, and you cannot usually parachute your model that has worked somewhere else in another country very easily. Okay? Specifically, when it comes to value retail or grocery retail. I have no comment on the other types of retail. For example, let's look at luxury retail, right? The playbook is exactly the same, f ormat, assortment, all of that. So, I'm not commenting on those kinds of formats . When I talk about food, basic items, all of that, a lot of other nuances that matter, and hence, local retailers automatically get an advantage over an MNC kind of a retailer.
That's one thing I'd like to respond to about the relevance of a Costco model in India. That is the way we think about it. Second thing is you said about monetizing other aspects because of the strength of a footfall.
Yeah.
Our very clear view on that is very clear, in fact, it's also very clearly my personal view that the moment you start diverting your focus from your core business, it's not a good sign. I think just the DMart model has got such a humongous multi-decadal opportunity just by doing this. You succeed in this only when you have that razor-sharp focus because it's a low margin, high efficiency, high employee connect kind of a business. If you try to distract yourselves from focusing on these aspects into other things, it will diminish value for the entire business, especially when the opportunity is so large. I think focusing just on doing DMart is the way to go.
Okay. Secondly, you've made your views clear on private label, and you feel that existing brands do a better job at it, so until unless you can't do it at the right price, there's no point doing it. Just as an extension to that question, when we go visit the stores now, we see a lot of new brands, D2C brands on the shelves. Just wanted to get your philosophy that is this something that you experiment or do to maximize your gross margins of square feet, or is this something that you typically see pull for and hence, that finds itself on the shelf of DMart?
It's only pull, pull, pull. It's just customer preference. We only focus on that as a number one priority. D2C brands who become reasonably large and now want to have the next level of growth, they come to us, and that's the right approach. People should come to DMart only when a INR 10 crore company wants to become INR 100 crore company. A company who's at zero or INR 1 crore, if he comes to DMart, the chances of success are going to be very limited.
Okay. Thank you so much.
Sure.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, sir. Firstly, a couple of questions from the annual report. I see that capital commitments have gone up to about INR 3,600 crore versus INR 2,100 crore earlier. That's a very large increase. Does this have any bearing on the number of stores that will come up in the next few quarter? If not, what does this number really signify? That's one part of the question. The other part is, if I look at your annual report and look at the amount you have paid for the land per square feet of stores added in this year, that is about INR 7,300/sq ft of land cost for the 40 stores added this year versus INR 4,600/ sq ft for the 40 stores added last year. So, there is a significant inflation in land cost.
Is this on account of a change in the city mix where you have opened up more in metros or something like that, or this is just a pure inflation in the land? These are the two relating to the annual report, and then I'll probably have one on something else. Yeah, thank you.
Firstly, that's not the way to look at it. I'm not a finance guy, but the limited understanding I have, and Niladri is also with me, h e'll add on to any points that I have missed, t he way I understand the balance sheet is that whenever you buy land, even if though it's not operational for the store, it goes into your fixed asset. It doesn't go into CWIP. The entire land aggregation addition that happens year-on-year could be for stores which are not only opening in that year, but also in the next few years.
Got it. Got it.
It's the wrong way to look at it, what you're saying.
Got it.
That's one. That's only one part of the answer. The second part of the answer is, yes, if I take a three-year, five-year period, then land prices have definitely gone up. Whatever we paid for land, say, in Mumbai or Bangalore, Mumbai's story is an exception, I'll come to Mumbai separately, but i f I take up Bangalore or Hyderabad or many of the small towns also, the price at which we see buy land maybe five, seven years back vis-à-vis what I buy today, or the price at which I bought 10 years back to what I'm buying today, of course, there is a huge level of inflation in land. You have to look at it from that standpoint.
So, maybe, if I have a 10-year balance sheet data and I lump three years together and then add it by three years of number of store count, and then, derive some mathematical Excel working, that will be more accurate than doing an annual number.
Sure.
Some blending will happen there.
Understood, understood. And th e capital commitment?
Sorry?
Capital commitments, INR 2,100 crore versus INR 3,600 crore, YoY.
Capital commitments, Percy, is an outcome of the open purchase orders at the end of the year. It depends on how many purchase orders are in various stages of progress. There could be a building we just started constructing in the month of, say, March, right? So, the entire cost of the purchase order opened is backloaded, and hence, you will see it as a balance sheet figure. It's a position at a point in time and not representative of the actual number. It depends on when you take the slice. If I have a store which is large and there's a capital commitment of, say, INR 20 crore in that store, so that will inflate the number. But it's a fair indication of the likely construction cost that we are budgeting to incur over the next two, three years.
Okay. Does this, in any way, sort of, I mean, the fact that it is inflated so much on a YoY basis, is it a right conclusion to say that the number of store openings will also sort of inflate accordingly over the next one, one and a half years, or no?
It's a mix, I would say. It's yes and no. It's a question of the cost of construction in a particular city, the size of the store we are planning to open, the number of lifts we have in a particular store, and stuff like that.
Understood.
It's not very linear.
Understood, understood. My next question is on your e-commerce venture. Just first of all, as a hygiene sort of just wanted to see if you could share a couple of numbers, t hat is the number of DMart stores end of FY 2023 as well as end of FY 2024. Is it possible to share that?
You're talking about DMart Ready or DMart?
Yeah, DMart Ready. Sorry, not DMart. DMart Ready is what I'm talking about.
I guess you're talking about the pickup points, is it?
Yeah. The number of stores, yeah, that is the smaller sort of stores that you have of DMart Ready, which we see in the road sometimes. That would be the pickup as well as the delivery points, right?
Approximately, we've shut down around 200 locations.
232.
Percy, we had 573 last year. There are 341 this year. We shut down 230.
232.
232.
So, has the area of operations that you can service also come down accordingly?
No. This was to improve operating leverage. Earlier, suppose if the other three, say, maybe a 1-km or 1.5-km r adius kind of thing, probably, it reduced. So, maybe, we reduced it to increase the range. Maybe, now, you'll find one pickup point, maybe at a 3-km kind of a range or a 4-km range. It was to kick off or improve the operating leverage of the pickup point.
Understood, understood. Lastly, on your brick-and-mortar business, I got it in the previous discussions that basically, you want to maintain a particular margin and any kind of efficiencies you have, you will pass it on to the consumer to become more competitive. I just wanted to understand if you have any more drivers lined up, which can increase your discount versus MRP versus what it stands today. I think one or two years ago, you had done this direct delivery and stuff like that, which had given you 100 basis points. Are there any other drivers you see which can increase your discount to MRP versus what it stands today?
Yeah, it is the same playbook. It is about private label, it is about GMA contribution, things like that. It's about your overall top-line growth rate and hence, how important you become for your suppliers in the branded space. It's all three.
Any kind of rough guesstimate you can give that over the next two to three years, how much more you can sort of increase the discount versus what it is today, 200 basis points, 100 basis points? Any rough estimate on this?
Cannot, cannot.
Okay, sir. That's all from me. Thanks and all the best.
Thanks.
Thank you. The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher Private Limited. Please go ahead.
Hello, am I audible?
Yes.
Yeah. Hi, Neville. My questions are essentially on DMart Ready. You see, now, as you said, we have shut the number of pickup points. First of all, what is now the ratio of your home delivery versus pickup? If I look at, say, in the slightly longer term, as you also said that there are consumers who want convenience and there are consumers who want, you can say, your pricing. Now, if I look at it as quick commerce players, as they gain scale and they grow in size, maybe, their terms of trade with buyers also improve over a period of time. On this count, where does DMart Ready stand vis-a-vis other players in the online space?
It's a good question. Obviously, when any supplier's contribution increases or sales increase, their bargaining power will also increase. We are cognizant of that. At the same time, what we believe in a business like retail, which is very process, you don't have any IP, it's all about who does it better. When we crunch some numbers at an operating principle level, from a cost level, I think we have a huge, huge advantage compared to quick commerce from a cost of operation standpoint. I think where they have an edge over us is the gross margin. Their ability to earn gross margin is significantly better than us because they operate on the principle of convenience. That's the way to look at it. To that point, I think eventually, who is going to win in the market is the question to ask.
Our view is both will coexist. There is a set of customers who want delivery in 15 minutes, 20 minutes. They don't mind paying the premium. It's a lovely model from that standpoint, and very relevant for a country like India, especially large towns. Infra is a bit tricky. For people to reach from point A to point B is a bit challenging. From that standpoint, people who value time and convenience and comfort, this quick commerce business is fantastic. It will do well. At the same time, there is a set of customers who deeply appreciate value. For example, if they have an INR 10,000 or an INR 15,000 budget on grocery, if there's an opportunity to say, "Hey, you know what?
50% or 60% of that, I don't need to have it quickly, but saving INR 1,000 on that makes a lot of sense to me." We believe that she will come to us for that. What we also believe is considering all things equal, if competition also tries to play the value game, I think in the long run, we will do better at that job. That's the whole thinking. We'll also try to take a decent share of that, even that discerning customer's wallet share. That's the way to look at it. For example, you'll have different customers and different SEC classes. The very premium SEC class will probably buy less from DMart. But the idea is, I mean, people will buy through multiple formats, and DMart will try to be one of those for every customer of a city. That's the whole idea.
The digital strategy is also that we decide to get into this to play in that wallet share, and not say that, "I will only do this, I will only address this customer segment." The idea is that is there an opportunity to service even the discerning customer and take a part of that wallet share from the customer. Over time, we believe the customers will gravitate towards DMart also. That's the thought.
Okay. That's very helpful. Neville, now with 341 of our pickup points, and I believe each one of them would be, say, maybe, 200- odd sq ft. Have you ever thought of that, can you convert those pickup points into something like your dark stores or mini dark stores and also try to participate in the quick commerce a bit?
No. 200 sq ft is not good enough to run a dark store. A dark store, I think, needs at least 5,000 sq ft- 7,000 sq ft to even do decent justice to the customer basket. It can't work. 200 sq ft can't work.
Okay. Understood. Like last year, we just added one more city in DMart Ready. Are we done with the near term, or you will see again this expansion in the number of cities?
I don't want to comment on that because the next we are going to meet is one year later, and 12 months is a long time in digital commerce. So, we'll play by the ear. We'll see how things go over the next 12 months and then decide what we need to do.
Okay. Thanks a lot.
Thank you. The next question is from the line of Mihir Shah from Nomura. Please go ahead.
Hi, Neville. Thank you for taking my question. Firstly, on the bill cuts , they have been going up. Just wanted to check on the trend of the shopping basket size. Do you see it reducing, and what is the impact of this on you? Does it increase your SKU mix? That's one. Sub-part two is, do you see consumers experimenting more with brands, and does that also require you to increase your SKU and variety more?
I think basket value has gone really up in the last year. One thing, what we saw during COVID was that there's actually a significant shopping habit change, because suddenly, basket values went up during COVID, which basically meant that the trips to the store reduced. I think that really helped us from all aspects of the business, and that has maintained. Basket values have been maintained. On your other parts of the question, I think it's a continuous work in progress. The whole pursuit of the buying team is to catch the trend, right? Catch what people are buying, what are the new things that are happening in the market, and continue to be relevant to the shopper. That's part of the job on a going concern basis. Yeah. From that standpoint, it's the way they think about it.
Understood. Okay. Secondly, Neville, on revenue per square feet, it has come back to FY 2020 levels. Can you throw some light on the average revenue per store in metros versus Tier 2, Tier 3? Assuming you're driving more traffic because of the big cards being higher, what else is driving the revenue per square feet higher?
It's multiple things. It's not like it's going leaps and bounds. It's a blended average of multiple things. The way we look at this is we look at SSSGs at a store-by-store level, basis store age vintage. That's the way we look at it. Is footfalls going up? Is sales going up for each of these stores? The mindset is store by store. Everything is reviewed store by store. We don't really believe in blended averages, per se. So, I don't know how to answer your question, but if revenue per square feet is going up by INR 1,000 or thereabout, INR 1,000 or INR 2,000, there are multiple levers because of which it's happening that way. Yeah. Broadly, the way we look at it is that what we are seeing is younger the store, higher the growth rate.
That is one clear trend. At a company level, we are at INR 32,941/ square feet, but each cohort of stores are in very different ranges. The range is very wide. Like our very old stores are at like a multiplier of this. It's not like 20%. Like the top-end store is not 50% higher revenue per square feet. It's a multiple of INR 32,000.
Yeah.
And the challenge on growth comes once they peak out. If the top-end stores are at the highest multiple of INR 32,000, they sometimes don't even grow at inflation rate. And it's not because there's anything wrong with that business. That store has peaked out. So then, the smartest thing to do is to open another store nearby and distribute the revenue, such that the net gain, pre, that is one store versus the old store plus new store opened combined, is value accretive. That's the way to look at it. But turnover per square feet will collapse, so i t's not the right metric to look at.
I was basically trying to understand, you know, if the newer stores will have essentially significantly lower revenue per square feet and the blend should idly, b ut I hear you, I mean, on what you're indicating.
Yeah.
Lastly, on DMart Ready, s ee, usually, Neville, FMCG brands, they indicate that any of the products that sell online have a higher gross margin profile, surely because of the kind of product that the consumers buy is of better value. When we look at DMart Ready gross margins, what levers do you see to improve the gross margin profile for DMart Ready? Will that be one of the key drivers for you to become profitable in the shorter period of time?
I think assortment is the key. You have to have a reasonable divergence, reasonable, not very large, a reasonable divergence from the brick-and-mortar assortment to improve the margin profile of the DMart Ready.
Okay, so you are indicating that that is one key area of work that, you know, versus DMart brick-and-mortar, which has that higher gross margin profile, DMart Ready can get better than that?
Yeah. Like I said, right, all the hard work that is done is done on the OpEx side. I think from an OpEx side, we're doing pretty well. I think now to make Ready profitable is more of a margin challenge. I'm not saying there is no further operating leverage on the cost side. There is, but that is kick in. We're pretty confident it'll further kick in over time. But to make money in this business, it's a game of improving the margin profile.
Got it. Can you share, out of the 22, 23 cities that you are in now, how many of them would be break-even at EBITDA level? I mean, I recollect you indicated metros have kind of maybe broken even earlier or something.
No, I have not indicated that.
Sorry.
I said that Mumbai is better. I commented Mumbai is better, and I'm maintaining that stand even this year. If from 8.3% or something negative, we are at 6- point- something at negative. So, at 6.3% of negative, Mumbai is better than that. I can definitely confirm that. But t oo early to comment on all this right now. It's too early to comment on all these numbers right now. I think even getting these numbers in place is pretty good. I think your trajectory line on cost optimization is in place. We do see a further opportunity to improve cost. But like I said, right, this business is all about how we manage the gross margin profile.
Got it. Thank you very much, Neville. Wishing you all the best.
Thank you. Thank you so much, Mihir.
Thank you. The next question is from the line of Varun Pratap Singh from ICICI Securities. Please go ahead.
Yeah. Thanks for the opportunity. My first question is on the pharmacy category that you were trying to build. What is the update over there, sir?
The update is it's still work in progress. We're quite happy with the outcomes. But it will take us a reasonable amount of time to scale this up and have them in as many stores as possible. Like I said, last year also, when we just about started, that we are pretty confident about this business. We've done this business before.
Okay.
We understand this business, and I have nothing new to say this year. It has played out the way we had imagined it will play out. The challenges there is all about the team build-out, the structure, people, getting the infra in place, the stock, the technology, the usual stuff, and it's on track. And it's a great complement to the customer. Customers are also enjoying this fact that, "Oh, I even now can buy my regular medicines at great value." It's a great complement to the main DMart business.
Okay. So, currently, in how many stores you would be having this category available?
Seven stores.
Seven stores. Okay. Right. Then, my second question is on the apparel segment. I picked up your thought in the FMCG that private label is a very long runway, given where India stands in terms of per capita and our ability in terms of how much value or quality, et cetera, we are able to add. But in the apparel segment, private label is becoming a sunrise sector, so h ow are you thinking about private label solution in this category divergent to your line of thinking in the FMCG business?
Yes, with the new team, new thoughts, new thinking, we're sharpening that, and you will see a lot of consistency on branding, on color themes, a lot of that on the apparel side in DMart. I think there's merit in bringing some discipline, if I may say, in terms of basic color coordinations, branding, all of that. So, work in progress.
Okay. Right. And currently, sir, how much, I mean, if you want to call out, how much would be private label contribution in the apparel segment itself?
We don't disclose. It doesn't matter. You don't have to look at it like that. See, from our business standpoint, the way we operate the business, and I've commented about this earlier also, almost entire thing, 90%, 95% of it is private label. See, the brand, when do you call it a brand? When you're charging a premium for the brand name, right? There's no such premium. You negotiate the cost of the product at fundamental factory cost operating levels with a small margin for the supplier who's making that garment, and he supplies to us, and then we put in a markup, and we sell. So, it's not a brand.
Okay. Got it. Sir, in DMart Ready, you called out that our rate of expansion may not be high, it will be moderate, but still, like, how are you thinking about, I mean, what is your definition of t he growth rate in this business, which appears to be, I mean, as you rightly pointed out, bit better and our ability to do long tail selling of SKUs? I mean, h ow would you define maybe the right kind of growth rate from a three- to five-year time horizon? Sir, any comment you wish to offer?
We don't have a very clear number to give to the e-commerce team. Let me put it this way. The e-commerce team has probably, in the last two years, has been told very clearly, "Grow as much as you can." Okay? Because we know what the operating model is. It's up to them and their ability about how fast they can grow. It is no more a point of view of saying, "Oh, we cannot lose so much money." That conversation is over since the last two, two and a half years. Okay? Because we know how much this business will lose now. So, there is no restriction from that standpoint. The larger point is how quickly can you grow? How many additional fulfillment centers can you add in a city like Mumbai, in a city like Bangalore, in a city like Hyderabad, in a city like Gurgaon or NCR?
Those are the questions, those are the conversations we are having. If you want to get a color of how we are thinking about the e-commerce business.
So, having done all the hard work on the OpEx side of controlling the costs, s ir, what are the hard work that we are doing to drive the revenue growth, with regards to customer awareness, et cetera? Anything on that side, if you want to highlight.
I've spoken about this in last year's meeting also, probably the year before that. The e-commerce business is nothing to do with making people aware. What's the point in making people aware if I don't have capacity? I have to first build capacity. One of the key reasons why we are not making customers too aware is because we don't have capacity, and we are working hard on building capacity. At the same time, like some of you commented, we had all these bus hoardings where w e plastered a few buses on DMart Ready in Mumbai because we built capacity. We created capacity in Mumbai, and then we went around talking to town saying, "Hey, you know what? Why don't you try DMart Ready?" So, first is building capacity, then comes, I mean, spending money on telling people to come and shop is very easy.
You just need a lot of money to throw. That's the easy part. The difficult part is building capacity.
Understood, sir. Sir, just one last question that any other new categories similar to pharmacy that you would have entered in FY 2024?
Other than pharmacy?
Yeah.
No. Anything that makes the DMart brick-and-mortar business strong is what we will do. Anything that will make the digital, that is the DMart Ready, business strong is what we'll do. Anything beyond that, we should not do.
Sure. Yeah. Okay, sir. Thank you very much. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Hi, Neville and team. Thanks for giving the opportunity. Neville, you, again, re-emphasized today the strategic importance of deepening penetration, in existing markets or existing regions. Now, correct me if I'm wrong, but you've not entered a state for a very long period now.
Which state? New state.
He dropped. He dropped.
He dropped. Oh, but the call, h e dropped or we dropped? We can respond to the question, right?
No, one second, I think.
He dropped.
He is trying back.
He dropped.
No. He dropped.
But we are.
I believe. Hello, Deepika?
Yes.
Okay. We are on the bridge. Right? I think Tejas dropped, Tejas seems to have dropped. We can take the next question, and then we can take a question from Tejas again.
Sure. The next question is from the line of Nihal Mahesh Jham from Ambit. Please go ahead.
Yes. Good afternoon, Neville and team. I had three questions. The first, Neville, is in your reference to looking at DMart from a longer term 10-year perspective. The comment you made of DMart obviously wanting to be value first. Just taking your discussion on GDP per capita even in terms of private labels, do we have comfort that say, over the next decade, there won't be a larger cohort, say, which moves to convenience as the GDP per capita improves, and then maybe you want to plan about the business model now and look at convenience more going forward?
For the same category of products or segments, if you see on any, this is not about retail, about any product, the value or the mid-segment is always the largest pie of the market. That's the way we look at it. I think now, how much bigger will it be? What is the proportion? We don't know. But I think value, we believe, will be a larger segment compared to convenience, even in the grocery segment. And we'd like to play in that segment. That's simple as that. And that has got no relevance to per capita income, how developed the economy is. You look at Western Europe, you look at U.S.A. Value is where the biggest retailers are, right? We'd like to play in that space. Now, whether it's digital or it's a brick-and-mortar, doesn't matter now. I would like to clarify that, too.
We would like to play in the space of value.
Sure. Point taken on that. The second was on your comments on Minimax. Just wanted to understand how you're looking at that format. Is it that you're looking at an independent offline model, or there is a thought of this becoming, say, a part of the delivery of network and maybe then the unit economics differs, and you can look at larger openings going forward in terms of this format?
I think because earlier somebody asked on this Minimax format, I think you don't need to overthink. Even we are not overthinking on this model. It's just a trial, but we aren't seeing much progress there. It's just there to kind of check if something is happening there. Nothing exciting yet, to be honest.
Got that. Final question is, say of the 40, 45 stores that you're targeting for this year, any sense of what will be the so-called split stores that you, share of the split stores that had to open because of, say, certain stores getting maxed out? Just for reference.
No, I probably didn't get your question. What do you mean by split stores?
What I meant is, you referred that some stores were opened because certain existing stores got maxed out. So, when you opened a certain store there to ease the capacity from those. Just to understand if those stores will be a larger share of the 40, 45 that you're planning to open.
No, no, nothing like that. In fact, they'll be a very small component. We have these maxed-out situations in cities like Bangalore, Hyderabad, Mumbai, these kinds of locations . But our store openings are in a significantly larger number of cities. Right? I think last year we opened in 12 cities. We opened in 12 cities.
12 new?
12 new cities. So, no, it's a mix. We can't put a number or you can't model anything around this.
Sure. Point taken. That was it and thank you so much.
Thanks.
Tejas is back. Tejas is still here.
Thank you.
Yeah, Tejas?
No, he's just joined. Sorry.
Hello, am I audible?
Yeah, Tejas, you are. I think we didn't hear your question, so maybe, let us just repeat the entire thing again.
Yeah, sorry for that. Neville, you, again, kind of highlighted or reemphasized today the importance of kind of going deeper into the market, and if our numbers are correct, then perhaps, we have not added any new state in last many years. Just wanted to understand from two perspectives, does it, like, when you enter a new state, does it make it easier to kind of ramp up the pace of expansion because it’s a virgin market and it becomes easier to kind of identify good location? A, and B, we also noticed that distribution centers have increased from 49 to 62, so k ind of wanted to understand, is it a kind of precursor that you have to invest before you kind of ramp up your store expansion run rate?
Yeah. If you are looking at distribution center addition as a precursor to new state entry, no, not really. In fact, it's the other way around. Whenever we go to a new state, we necessarily don't plonk or don't preempt investment through distribution centers in that state first. We, in fact, supply them from the existing distribution centers, which we feel is more prudent. Only once we get critical mass we build distribution centers. That's one point. Second point is going to new states, I think it's just more bang for the buck because we know the older state is better, and second, it gives us better operating leverage that we built or favor to opening or having more stores in existing cities and existing states.
That apart, we do see opportunities of going to Orissa, going to UP, and y ou will see some stores coming up in UP. We already tied up a few firm deals in these states. So, any state that shares a border with the existing state is a natural progression for our business.
Very clear. Just expanding this point to your GMA mix logic that you have given us in past also that when you enter a new territory, the GMA mix by design has to be higher and it goes down as you open more store in the same market. Should we expect this cyclicality in GMA, let's say, when you enter a new state or virgin territory, initially, it will bring much more disproportionate GMA mix versus your current expansion that you're doing in your existing territories?
Yeah, absolutely. For example, let's say hypothetically, suppose I have 400 stores, and h ypothetically, I add another 400 stores next year, my GMA contribution will go above 30%.
Okay. If, let's say, out of those 400 stores, 300 are totally new market and not in the existing markets, would it be again disproportionately higher?
Could be, could be. But that's not necessarily a good thing. That's what I keep telling you guys, that I think there's over-obsession on this GMA contribution just because optically it gives you better margin. Always remember that absolute revenue is a key driver of profitability. I could be a INR 30 crore, INR 40 crore store with a 35% GMA contribution, but a INR 150 crore store with a 20% GMA contribution would be giving you better ROI.
Got it. The last one, and I'm not sure if I understood it correctly, but you mentioned that fashion apparel is personality or team-driven business, or more personality or team-driven business. We have observed that in both Indian and international fashion retail, that business fortunes can be volatile depending upon how the merchandising team actually moves in, moves out. When you are building a business for three, five, or in fact 10 years, how are we trying to institutionalize some of those things? Because it can't be, let's say, a team of personality-driven if you are building a business for 10, 15 years.
Yeah. You reduce the impact of personality. It's as simple as that.
Is it that easy in fashion as it was in, let's say, our other divisions?
Not easy. Relatively not easy. That's why you need to be significantly exceedingly more stubborn when you're dealing with categories like apparel. In terms of evangelizing the ethos of what DMart stands for, not everybody believes in it.
Got it. That's all from my side. Thanks, and all the best.
Thanks.
Thank you so much. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Neville, Niladri. Good afternoon. Thanks for the opportunity. I was just referencing the slide number 13, where you have given the gross margin is around 14.5% . If I look at the DMart Ready gross margin, there is a difference of about 200 basis points. I do understand there is a mix change and other thing we do there, but w ould you be able to share, if I look at the brick-and-mortar business would have about close to 57% contribution from food, t his portion or proportion of this would be much higher in the DMart Ready?
Shirish. Yeah, Shirish, that's not the way to look at it. If I remember, maybe it was last analyst meet or the year before that, I commented on this, that you have to look at the e-commerce business as similar to, say, the FMCG business of the brick-and-mortar, because the non-FMCG selling or the ability to sell non-FMCG in the e-commerce segment is not so easy. Okay? That's the way to look at it. Hence, how you play the assortment of a digital space is going to be exceedingly challenging. That's the way to look at it. How do I bump up that margin is not just by replicating what's happening in the brick-and-mortar business.
I would assume, Neville, we have the terms of trade with the top five brands in non-FMCG also, so wh y there should be, in the first place, margin difference?
Okay. That's a wrong assumption. There's no concept of terms of trade in the non-FMCG space. Non-FMCG space is very, very transactional, and all the margins are uploaded, front-ended on the product itself. The principle of operation there is very different.
And just harping a little more, y ou mentioned that the margin is one of the things, because in the internal things you have already done to improve the margin for DMart Ready, so i f the external thing which is there, if the margin expansion is happening, what are the top two, three drivers you think which will pan out over next two, three years?
Again, one thing, it's just the assortment play. The assortment which will drive more margin and what is the ability to sell that assortment just by someone seeing on the screen, and how do you make that profitable. The moment you shift towards saying that, "Look, I'm now going to bring an assortment which will give me 30% and 40% gross margin," your return rates will rapidly go up. Hence, what is the net margin you're going to make and is it value accretive? That is the question to ask.
Okay.
It's very challenging.
Okay.
That is being reflected in what you see in the world right now, just in India. It's very easy to bring in top line. Where is the profit? You don't see any profitability there, right?
Got it, got it. My second and last question, if I look at the steady state, when we used to have a GMA contribution about 28%, the best sense, what I have got that point of time, about 35% used to be contribution from the apparel. Now, when this has settled around 22%-23% in your aspiration, and it will remain stable, this apparel business will go back to that 1/3 contribution, or it will remain at where it is now?
I haven't ever disclosed what is the apparel contribution within that 22% or 28%, and I have no view on where it will be. I cannot comment on what it could be.
Directly, I mean, I'm not asking the number, but directly because you run the business, you know what was there when it was 28%. Is that number is primarily becoming positive or showing some momentum over last two, three quarters? That's what we are seeing.
Shirish, I really don't look at it that way. I think this whole GMA conversation began during COVID, we started disclosing these numbers or giving emphasis on these numbers just to give a sense of why gross margin at the blended company level is going down. If you ask me as a team who's running the business, are we too worried about this GMA going down? Of course not. We only focus on footfall, basket values, conversions, and overall like-to-like growth rates. It means that customers are continuing to patronize and visit our stores and buy from our stores. As long as the basket values keep on growing, the number of footfalls keep on growing, I mean, that's it. I mean, the mix can be whatever. Mix should never be forced. Mix tells you a story.
Mix tells you what people like you for and what are they rejecting you for. It's as simple as that. I think the essence of a mix is it is telling you something. The customer is telling you, "Hey, listen, this is what I'm telling you," and you act basis that. Just because something is giving me more margin, I will force fit or push the customer to a particular area forcefully. No. If information or whatever the customer is telling me gives me an opportunity to improve and say, "Okay, I'm not doing this right. Can I try other multiple things to make it right?" I mean, it's not a straight answer, if you get what I'm saying, right?
Okay. Got it. Just last quick question. On the bigger store what we have opened in last one year, what are the hits and misses? Maybe, if you can share the learning, which has surprised you positively or negatively.
I think the biggest issue is we have to up our game as the scale is going up. Everybody talks about scale giving leverage, scale helping, scale gives bargaining power. We all talk about positive things about scale. I've come to realize over the last three to four years, I think scale can become a monster which can bite you if you don't do it right. You end up losing more than gaining if you don't manage. Scale is creating a lot of challenges for us, and we have to be cognizant of this and build capability so that how a customer thinks about us or thought about us five years back, 10 years back, it is equal to that or better than that. The perception should not diminish in her mind, in her imagination.
Second, which is equally important, same for our employees and our vendors or even the larger ecosystem. I think how they think about us has to be equal to or better than what it was in the past. Because with scale, everything gets diluted. That, to my mind, is the biggest threat for the business in the long term.
Okay. Thank you, and all the best.
Thanks.
Thank you. The next question is from the line of Chanchal Kumar Khandelwal from Birla Mutual Funds. Please go ahead.
Hi, am I audible?
Yes. Yes, Chanchal.
Yeah, thanks. Thanks, Neville, for taking my question. Neville, just wanted to pick your brains on the quick commerce part of it. What do you think are they doing right? Why this question? Again, let me rephrase it and understand it from your perspective. If I say top seven cities, they put together $4 billion or $5 billion of sales today. And in top seven cities, if I take your sales, you would be similar or a tad lower. So, if they have been able to get an $5 billion sales in top seven cities and they are talking about aggressive growth, and they are working on a gross margin because their assortment and the mix will be different. So, according to you, what are they doing right, and how do you envision that five years from now?
I'll not be able to comment on them much, just that I have deep respect for what they have built. It's amazing what they have built. I had a lot of reservations. I meet some of their leaders, and the way their model was, the structure was earlier to what they have been able to do now, deep respect for what they have done. It's an amazing model. It is relevant for India. It's a smarter model than probably the marketplace. It's different. It's addressing a different need. We are addressing a different need, and that's the way I'll talk about it. I will not be able to comment further on their model up to whatever I said just now.
Neville, Sorry.
Let me finish, o ne more point. The larger point is to, I am just now specifically answering your question, is all this is happening because the market size is very large. The sheer size of opportunity for grocery retail in a country like ours of 140 crore population is humongously large. I am glad that there are many more businesses which are pursuing or reaching to the point of break-even profitability. It is needed. I mean, this country needs more success stories in retail, and there is no better success than reaching profitability or coming close to profitability. It is good for the industry. But it is serving a different customer need. DMart is serving a different customer need. That's the way to look at it.
I understand that, and to one of the replies, you said that value is the largest part of the pie, and you will address value, and you'll be the leader in the value. The point I'm coming from, say, five years from now, when this guy is trying, you capture the top 10 brand, this guy captures the bottom 20 brands, because there's one play on brand and one play on private label, and i f private label and the second 20 brands become bigger, which are willing to give a higher margin to quick commerce, somewhere that gross margin impact may help them scale that business to a different level altogether. So, that's the mix I'm trying to understand.
Like I said, I'll not be able to comment on what they could do, but it's challenging. It's exciting. We'll play it. We'll see how it goes. We'll also compete. And you could have more than one winner. You see globally, right? It's not winner takes it all. Multiple players will coexist. This size of market cannot be fulfilled just by one, two, three players. You need more players. And all can be profitable.
Sure. Just lastly, if I may. Given that quick commerce are going to scale up much faster in next two, three years, is it a right time for us also to speeden up the button?
We will not do things because somebody else is doing something. We'll do basis our capability and our competence. Let the best man win.
Sure. Let me leave it at that. Thank you.
Thank you very much. Ladies and gentlemen, due to time constraint, the next question will be the last question, which is from Shrenik Bachhawat, PGIM Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. Most of my questions have been answered. Just one, o n the private label strategy. Over the longer term, say, 10 years, 15 years from now, if our private label segment becomes a much bigger pie, do we plan to open private- label-only stores at a later stage in time?
Doesn't make sense at all. The value of private label is when something next to it is at 30% or 40% higher price, then people perceive the value of private label. Private label has no place to be standing alone and selling. Doesn't make any sense. What is the principle of private label? You leverage on your operating cost, right? The operating cost is almost zero because it's riding on that same rails, right? So, i t doesn't make sense to have anything independent. Now, that's our view. Somebody else may be doing something different, but that's our view.
Okay. Got it, sir. Thank you.
Thank you very much. Ladies and gentlemen, we can take one more question, and it will be the last one, which will be from Mr. Binoy, Sunidhi Securities & Finance Limited. Please go ahead.
Yeah, thank you for the opportunity. I hope I'm audible.
Yes, Binoy.
Okay. Yeah. Neville, bit on the store missions. In the last year's con call, you mentioned that the way you are thinking about store addition is that you'd like to typically add about 20% of the store count every year, and that's the framework in your mind. This year, that number you've spoken is 15% number. Why sudden change in that mental framework in a year's time? That's my first question.
Binoy, this is an aspiration. What do you mean by change? Come again, I didn't follow the question clearly.
Meaning, in terms of your mental framework that you're setting it up and you're building capabilities. Last year, you spoke that you'd like to see store additions growing at roughly about 20% CAGR. This year, you've spoken that you'd like to see store additions to grow at roughly about 15% CAGR. You've not spoken about the 20% number. Instead, you've spoken about a lower number, which is 15%. My question is pertaining to this, that why you are sudden drop in this number? Are you seeing something on the real estate, difficulties on the real estate front, or what is it?
No, it's same. The theme is the same, 15%, 20%. You replace everything that I said, 15% with 20% even for this year, right? That's the aspiration. We want to add more stores. The single-point agenda is store addition. The store addition will drive the CAGR. We totally [audio distortion]. So, no change from that standpoint if that is what you are alluding to.
Okay. Fair enough. That explains. Second is on the DMart Ready. You said that MMR operations are much better than the rest of India. Has MMR broken even at a PBT level?
No. It has not.
Okay. And on Reflect Healthcare, if I would just pick your brain on this, so w hat is the thought process behind how do we want to launch a Reflect Healthcare? How much space would we be carving out within the store and for a dedicated pharmacy, et cetera?
I think pharmacy takes around 600 sq ft, 800 sq ft, or sometimes even 300 sq ft. So, a very small space that it will take. From that standpoint, not a challenge, and w e are trying to now do the easier ones where we have more space, we have very high throughput footfalls where we’ll get operating leverage by having at least seven to eight stores in a city, those kinds of things . We’re trying to do that first as a stage one. That’s the way we’re thinking about it.
Okay. In terms of the OpEx, will it require any additional OpEx or?
No, it’s very inconsequential. Just the furniture, nothing much.
Nothing much. Okay, perfect. My last question is again on DMart Minimax, where you've said that there's not much to read into. I'm just wondering, 21 stores that you operate as on March, you had added six stores last year, so v ery unusual of the DMart ethos. You typically tend to perfect a model before expanding it, and w e are already seeing 21 stores of Minimax. This is not even like Minimax is a counter within DMart. It's like a proper separate store, a smaller DMart store. So, just wondering, what are you thinking here in terms of, c an you speak a little bit about this format and what are you trying to solve for the company as well as the customer here?
We have been contemplating, is there a way for the Minimax store to merge with the pickup point? That is the thought. It gives you a far better omni-channel play. That is the thought around it. There are two ways of looking at the omni-channel way. One is that you say convenience, relative convenience and omni-channel, or you say extreme deep discounting and omni-channel. We took down the path of extreme deep discounting with omni-channel. It's a kind of a work in progress and it's not that the financial metrics are bad. That's why we added a few more. Okay. In fact, the operating metrics, probably, I can take that stab and make this comment, t he profitability metrics are actually better than the pure-play digital or the pickup point metrics.
Yeah.
From that point, it is good. But is it good enough to say, can we have 500 or 1,000 locations? Not yet. To that extent, hence, we are still in the phase of perfecting the model. But to get more granularity and more reference, we have extended to a few more cities, just to get a feel at a multi-city level, does this really make sense? So, from that standpoint.
Is there any timelines that internally that you're thinking about in terms of by when you think you'll have an answer to this question?
I don't know. Maybe another year or two, we'll get a very clear picture. We have an EBITDA target, we have a PBT target. The moment we get those level of targets, it's worthwhile to put energy, build an independent team to run this independently and just scale it up, right? That's the thought. Unless we don't achieve that EBITDA target knowing very well what is the depreciation cost to it. Basically, PBT target. If we get a desired PBT target, then we'll expand. The best way to look at it is if you're seeing a rapid increase of Minimax stores, that means we've achieved our PBT target. That's the way to look at it.
These stores are on lease, right? Unlike the DMart stores, which are.
Oh, yes. They are on lease.
Okay. One last question to you, and then to Niladri one question. Will we, so to you is, you know, a few years back, we contemplated entering big box wholesale format, and then, we put it on the back burner. Any thoughts on that, or it's still on the back burner?
For me?
I don't think we should get into it. It's not even on the back burner. It's out. It's in the trash can.
One question to Niladri on accounting is that, just wanted to understand, so w hen we typically buy out a property with the land, how do you account it as CapEx? Do you split the land and account the land and the land part and the building in the building part? How does that work from an accounting point of view?
So, you are referring to a ready-built property, right?
Yes.
Yeah. A ready-built property, what we do is we do a valuation of the property when the store opens, and then we split the cost based on the valuation certificate into land and building.
Into land. So, it is not that if you've acquired a property, you put it entirely into building, n othing like that? You're splitting it between land and building?
You cannot do that because building enjoys depreciation, so tax authorities will object. The value we pay for the built-up property is inclusive of the land which comes with the property.
Okay. Thank you so much. That's all from my side. Thank you for taking my questions. Thank you so much.
Thank you.
Thank you very much, ladies and gentlemen. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.