Good morning, all. Welcome to our Annual Investor and Analyst Conference call. We do hope that you're staying safe and keeping healthy in these uncertain times. I have on call with me today, the senior management team from Avenue Supermarts, Mr. Neville Noronha, MD and CEO, Mr. Ramakant Baheti, Whole-Time Director and Group CFO, and Mr. Niladri Deb, who is the CFO, Avenue Supermarts Limited.
I also hope that you've had a chance to look at our presentation, which was shared on the exchanges yesterday, and is also available on our website. We will start with Neville briefly taking us through the presentation, and we will leave ample time for the Q&A session. Just before I hand over, I would just like to draw your attention to the safe harbor statement for good governance, and I'll just then hand over the call to Neville. Over to you, Neville.
Good morning, everybody. This is Neville speaking. Hope all of you guys are staying safe, and hoping that this pandemic issue gets sorted over a period of time. As far as the presentation is concerned, I will follow a format of calling out the page number. I hope you guys have the presentation which you have noticed at the exchanges. I'll take you through last year's performance.
I'm at page three right now, which is the business overview, operating and financial summary. If we go to the business overview, which is on page four, which effectively then is page five, key product categories. The theme, as usual is, I'll go through the presentation quickly. Nothing much has changed, so I'll just breeze through the presentation, and that will allow us to have more time for Q&A, and happy to take as many questions as possible, time permitting.
We will make every attempt to answer every single query. As far as the share of business is concerned, it's business as usual, but food has been better, slightly better compared to the other categories. But this is again, a natural secular behavior, depending on which cities, which states we operate in. Also there is a factor of base effect. As and when the existing stores do better and better, more and more revenue, FMCG tends to do more than non-FMCG.
That's the broad message that I would like to give you. As a business matures, FMCG accelerates at a rate slightly faster than the non-FMCG side of the business. That's been our learning over the last 15, 20 years. Go to page six. Once again, the story continues. Given an option, we like to open stores in states that we already operate in. A lot of people who've heard me before would know this, but this is the benefit of people who are hearing it for the first time.
Our principle has been that, given the amount of money to be invested, we would like to invest it in states and cities that we already exist in, primarily because it gives you better leverage as far as operating leverage is concerned. Your cost structures are far better utilized if you are investing in the same cities. Obviously being in the same city, you know the consumer better. So your ability to earn top-line gross margins significantly is better than going to a newer market. That doesn't mean we don't go to new markets, but it's typically an 80-20 or a 70-30 principle every year. That risk capital will probably be 30%, but 70% will be in existing markets.
That's been the trend this third year stores also have been added to the same principle. We opened the highest number of stores ever in the history of the company. Part of that was because we had a relatively lower store opening for the previous year, so some of that kind of rolled over in this year. If you go to page seven, to give you a feel about how the store trending has been, store addition trending has been.
Just to give you a feel on what it could be in the future. Obviously, because of COVID, we had disruptions for the first three to four months where construction activity was totally stopped. To that extent, this year we'll have a muted store opening, relatively, but we'll make it up for the year after that, because we have a decent inventory of store acquisitions.
Go to page eight. This is actually page nine. Again, these are all the same format since the IPO days. We haven't changed anything. The trends continue. Our average basket values for last year grew by 6%. Like-for-like, I have commented before, it was lower, but 10.9% is still very encouraging, very good. It looks lower than the previous high, which was 17.8%, but that's primarily because in the 17.8%, we had a huge chunk of new stores, which grew very fast, and they reached a good peak, and hence that base effect has impacted the last year's like-for-like being 10.9%. If I take away the extremely new stores out of the evaluation, then FY 2019 and FY 2020 don't look very different. It's more or less there. We are quite glad with the double-digit like-for-like growth.
Here again, I would like to call out, again, for people who've been probably dialing in and listening to us for the first time. Unlike the industry, we do a like-for-like for 24 months and not 12 months, which means we wait for the store to at least finish 24 months since date of opening, and then we monitor them for like-for-like. That's primarily because we don't want the blended average data to get distorted because the newer stores grow at a very, very high rate, and we don't want the overall percentage growth to be distorted. That's why we prefer taking 24 months. As far as square footage is concerned, we not only added 48 stores, which is a new high, but we also had the highest square footage in terms of absolute value, 1.9 million, which effectively means we are opening larger stores.
That has been the direction which we have taken for the last two years, primarily because as when the brand has become more and more mature wherever we are growing, whichever cities we are going to, we are hitting larger absolute sales numbers much earlier. To allow the store to maintain a decent CAGR growth for a longer period of time, we decided that we will open larger stores because better infrastructure leads to better CAGR growth for a longer period of time.
Stores which are small and which have peaked out, when I say small and peaked out, it means that the revenue per square feet is significantly higher than 32,000 or 35,000 that we generated, 32,000 for last year. But once that happens, then the CAGR just flatten out. It's single digit almost flat. It just about grow at inflation rate or lower. To take care of that is the reason why we have been opening larger stores.
Also, another point is larger the store from a CapEx point of view it is not a proportionate increase in CapEx. The relative increase in CapEx because of incremental construction cost is lesser. It makes business sense to open larger stores. Simple underlying principle is, do I get top line? The principle is that if the top line is available, then opening larger stores makes a lot of sense. And revenue per square feet obviously have gone down because stores have been larger, but that is a metric which is not so important up to an extent only. But it has been lower than last year at 32,879. You can go to page 10. These are numbers for financial year 2020.
We did INR 24,675 crores of revenue, 8.6% of EBITDA which definitely all the operating leverage benefits that we are getting and we are running this business as before like a very tight ship, keeping a very, very close look on cost, and ensuring that the business is continuing to be run in the same way that we used to run when we had 10 stores or 20 stores. That is the principle on which we run the business.
And obviously because of the tax change effect and all of that these are the numbers that we have delivered for last year. Page 11. Again, more of the same except the top right part. But days of inventory has been stable. Payables have been stable. They have remained the same. Obviously, the equity has gone through a big change over the last four years. Like you would all know, we also did a successful fundraise.
All of that is self-explanatory. Our fixed asset turnover ratio is also very, very encouraging. This is something very, very important for us. We all look at this very, very carefully because we are in the CapEx ownership model. For us, fixed asset turnover is extremely important. And inventory turnover ratio is also something that we keep a watch on. But that has been this model is the same. So that is about it broadly on our operating metrics. Page 12 and 13 are basically a snapshot of our financials. These have been published before too. Any questions later, happy to take them. 12 and 13? 13. Then we go to page 14. I will spend some time on page 14 which is basically the Q1 update, and a lot about what happened or what is happening right now. Numbers, I am sure most of you have gone through.
This is a new normal for us. The company was always used to doing stellar positive growth numbers. This is something very different for us. But I think as a team, we have all got together and handled the situation very well. So revenues have gone down for the reasons we have explained earlier. Most of the stores were shut. Stores that were operating were operating with minimal hours, and apparel and general merchandise were not allowed to be sold.
In fact, in certain stores, within the FMCG section, authorities would say, "Why do you need a skin cream? It is not essential." Or, "Shampoo is not essential." So we have gone through that entire cycle. But in general, it was manageable. We cooperated with the authorities. We decided not to be combative. Knowledge was limited. Fear was at its peak. So we cooperated 100% with all authorities.
In fact, built very good bonds with all of them because we all knew that we are all in this together. I deeply appreciate the work the authorities did. Even the senior-most government officials, IAS level guys, they would all be on the ground and come and visit and check. It is commendable the way they took personal risk and ensured that everything was on track. For us, the broad six points is store closures and lower operating hours.
We also had certain unique situations in certain cities which are very forward-looking, which with due representation allowed us to operate 24/7. In fact, that was one reason why we gave it a lot of comfort that even during the peak of the pandemic, those stores were doing very well. That is one key point I would like to call out. Otherwise, across the city, country, in fact, the further you went away from a large town, the restrictions were most stringent.
Obviously, DMart has very high sales density. High sales density means high number of people in the store. Obviously, a business like this would get impacted the most. I think that is also a reason why we got impacted like this. We are not a neighborhood store. A lot of the business went back to neighborhood stores, whether it was a regular kirana shop or a modern trade shop, which was a neighborhood small 2,000, 3,000 sq ft store, they all did well. We are not a neighborhood store to that extent, hence we got impacted because people who were living far away couldn't come to the store to buy. If they had to come, they had to wait. At certain points in time, you would have queues of 2 km and 3 km just to buy groceries.
That was how the situation was. As far as margin dilution is concerned, bulk of the margin dilution happened because we weren't allowed to sell apparel and general merchandise. Those sections were totally shut. That is the key call-out. Obviously, we gave a very, should I say, liberal incentive in the beginning of the pandemic because people were afraid to come. We had to run the stores. We had crowds in the stores, but we didn't have enough employees. Anybody who was staying within a 1.5 km radius would come to work, but that was not enough. To incentivize and motivate our staff, we announced a very high incentive so that they come to work. That worked brilliantly because we preempted that this could happen. That brought in most of our people back to work.
Then, obviously, over a period of time, the data came in that it is relatively safer for youngsters, and we didn't have too many COVID cases within our premises. That also built a lot of confidence, and that was because of all the measures we took. Ahead of time, I would say, we were constantly watching what's happening globally on this, and COVID actually lagged in India compared to, say, Europe. We took all the preemptive measures, even if it meant spending a little bit more money, but we took that leap and took all the necessary precautions and also with very high octane communication internally.
Every day, every week, we would update people, remind them what they should be doing and not doing and stuff like that. That helped us a lot. Everybody was aware about what they're supposed to do. That's been the situation. The entire feel of what we think about the business has been communicated through multiple releases and also through our IR. We have communicated. That's where we are. I think I'll end it up here and open up for Q&A. That's it. Thank you so much for listening to me.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question first comes. To ask a question, please press star one. We have our first question from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, thanks. My first question is on the store size and store count. First on the store size. The larger stores, first two, three years, is there any benefit? I understand the later years' benefit, but in the first one or two years, are you getting benefit of more SKU? Is that something you're doing? Store size, store number essentially, you said FY 2020, obviously because of the COVID, there will be lower growth and next year you'll make it makeup.
Last year you opened 38. So FY 2020 you opened 38 stores, which was a marked increase versus 21, 25 earlier. How should we look at the FY 2022 number? Will it be the 38 or 40 kind of run rate for the two years combined? FY 2021 there will be less, but those will get compensated and the annual run rate it will hit 40 stores per year for the next two years.
In one question you have asked too many questions, but I will take it one at a time. First is on the size, and its assortment impact. I have answered this before, and I maintain the same stand that a larger store doesn't mean we have any change in strategy and assortment. Our assortment more or less remains the same. Our format assortment remains the same. But yes, there is an advantage in your ability to sell higher margin products. It allows you to display your general merchandise and apparel relatively better than a small store. To that extent, we see advantages. That is the point on large store. At the same time, I will not say that from day one you get the benefit of a large store.
In fact, day one, say the first few years, the benefit is actually lesser than had it been a smaller store. Because there is a lot of cost involved when you are opening a larger store from an operating perspective. You need to hire more employees, electricity cost is higher, all of that, right? In the shorter term, it may not be very exciting. ROIC may not be very exciting, but it gives you a far better run rate, ROIC and a CAGR. A profitable CAGR over a longer time kicks in an accelerated ROIC in the longer term. That is the reason why we are doing this. That is my answer on the first part. On what will happen this year, to be very honest, my message to all of you is, don't expect maintaining the run rate of last year.
We have lost four months. It is monsoons. Construction has got impacted severely because of this. We don't give forward-looking statements, but I will tell you this year store openings will be muted. All we can tell you is we will make it up in the next year. To that extent, you need to look at what we opened 21 stores last year, last to last year, and we opened 38, right? Last year. Probably 21 to 38. Something like that, 59.
In two years.
In two years is something we will probably be looking at, but we could be at lower stores, 21 stores next year. I do not know. Because we are still in the period of monsoon. So this year's store opening will be extremely muted. But at the same time, we are still confident about the model and the business. Why e-commerce? I am sure there has been a lot of questions on e-commerce. While we understand that e-commerce is going to become big and pandemic has kind of accelerated that opportunity, but not at the cost of brick and mortar. We are still very confident and positive about the brick and mortar business and our store additions and our focus on brick and mortar will continue. I hope I have answered your question, Abneesh.
That was quite helpful. My second question is on DMart Ready and e-commerce. You saw a sharp increase in revenue, but that has not flowed to the EBITDA. The operating leverage was not seen. So 143 stores revenue becoming 364 stores revenue. Why that was not visible at EBITDA? Second is, why did you withdraw e-commerce in rest of the city except Mumbai when still normalcy was not there? You could have continued till normalcy was there. DMart Ready you have been always very cautious. Now with every player entering into e-commerce at retail, what is the stance now? You are doing well on revenue, so any change to the expansion plan outside Mumbai?
Okay. First on the first part, as far as the e-commerce revenue versus leverage is concerned, I do not think we should be looking at leverage, operating leverage opportunities at such low revenues. So at such a small turnover, INR 150 to INR 350 or whatever that number is, expecting that you are getting an operating leverage at such low turnovers is not the way to look at it because at such small scale, too early. But we still have got some leverage, but I will still say that there is time. So that is on the e-commerce financials. As far as why did we shut it, simple. Is that the density of revenue we do, does not allow us to run both from the same premise.
See, one thing you must understand, when you see a Walmart or you see a Tesco or all these large retailers globally, their assets, there's an opportunity to utilize them better through e-commerce. Because of the whole, what should I say? Opportunity. DMart is doing very high intent sales per square footage. It is impossible for us once we start hitting the regular revenues or we open the store for regular business to also run e-commerce. Our infra is just not aligned for that. The moment the markets opened and the authorities allowed us to open our stores full-fledged, 10 hours, 12 hours, is when we decided that it's better to focus on brick-and-mortar and withdraw e-commerce. That is the reason why we withdrew it.
And new cities? Are you expanding into new cities?
New cities, we are contemplating. We are contemplating. You'll hear about it as you see it launch. There's work happening on that.
Maybe last.
Sorry. It's just a contemplation. We are also working on it.
Last question on the non-essential apparel and general merchandise. What is the status as we speak? In July, what is the status there?
Now, we've been allowed to sell all our stuff in 90% and above stores. We are allowed to sell. More than 90%, 95%. The powers are still with the local collector, right? He can override or overrule what the government notification at the state level is. But in general, 95% and above stores, general merchandise apparel is allowed to be sold. It is selling, but it is not selling at pre-COVID rates. There is still some hesitancy there.
Because of the working hours? Because Saturday, Sunday, and the working hours are lower?
We are not able to fathom what the reasons are. Is it fear of spending too much time in the store, or is it a pressure because of salary cuts in the industry or job losses? We are still unable to understand it. We are trying to find out more. All I can say is that the general merchandise apparel sales are back, but they are not back to the extent of pre-COVID. If I take page number five, general merchandise apparel contributes 27%. We are not hitting 27%.
That was quite helpful. That is all from me. Thank you, sir.
Yeah.
Thank you, sir. In the interest of time and fairness to all participants, ladies and gentlemen, please restrict questions to two per participant. If you still have more questions, kindly join the queue afresh. Your next question from the line of Avi Mehta from IIFL. Please go ahead.
Hi, sir. Sir, just wanted to get your thoughts on the customer behavior. You had highlighted at the initial part of the lockdown that there is a focus on safety over value. How has this progressed? If you could link it, do you think there is a possible need for higher discounts to lure back the customer to the offline stores?
Discounting is a factor of market situation and what we do. I think making any further discount to bring in more customers would not be appropriate in our view. Let me answer this question to give you more color on what is happening. What we are observing is the profile and class of people who are shopping into a DMart, relatively, you have a larger section of the middle class or the lower middle class who are coming to the store, and the higher middle class contribution has relatively come down. That is visually is what we see. Now you could see this in two ways. Premiumization may reduce. May reduce. But what we are also seeing is there is an opportunity for selling more of a basic in a non-FMCG side. Yeah?
Okay.
Broadly, this is what we are seeing in the market. That is the way we are looking at it. Avi, the point is, we have commented on this, that if a store is allowed to operate unhindered for a long period of time, three weeks, four weeks, we are saying 80% of the business comes back. That is minimal. I am not talking to you about the maximum. We do not want, again, the basic culture of the organization. We do not want to get people excited, but it is encouraging. I mean, brick-and-mortar business, the way we think while we are sitting at home, work from home and all that, and what we observe in the store is very different. People are coming back to shop. The mix of the people is changing.
One insight we clearly have is for the middle class and the lower middle class, suddenly, the chatter has become more that, "Go to DMart and buy the goods, the goods are still cheaper there. Whereas in the grocery store, there is full MRP." I do not know. But the point is that the chatter among the middle class and the slightly lower middle class is more around DMart now.
But does that mean, Neville, that you have to relook at? One of your strengths was the consistency and your in-depth understanding of the product portfolio. Does that have to change now given this, or do you think it is more tactical now that if that happens?
No, nothing much has to change. Buyers are smart and agile. They look at off-takes and decide what they need to do. It's not that there is a completely new ecosystem of vendors that you have to look for now to align all of that sort, not really. Every manufacturer has got a range across the spectrum, most manufacturers, and the current assortment will solve that problem. Not an issue at all. In fact, we are quite excited with this phenomenon. We see a lot of opportunity here.
Okay.
We are more attuned to the middle class breadth. The assortment breadth is more tuned to the middle class, right?
Yeah. It's just that the premiumization kind of moving away is bit of where I was coming, what I was trying to understand from that. Does that kind of hinder or change our thoughts on that portfolio? That is what I was trying to get from you.
Yeah. Premiumization has got impacted. That was a contributor.
Okay. The second bit, Neville, I know you highlighted that the focus remains on brick-and-mortar, not taking that away. But one of the strengths of this company has been a very, the employee base, the organization culture, the strengths that brings in. Now, that allows you to experiment, which you have done as well, through various means to explore new opportunities like e-commerce. In that scenario, while I appreciate that you have pulled back some of the tactical initiatives that you had done to capture demand in these uncertain times. Now with a trend emerging of e-commerce, how would you want to play that? Would you want to invest in technology a lot more in e-commerce, in DMart Ready or in more offline stores? Any thoughts on that would be helpful.
See, we still maintain the stand that e-commerce for our kind of business, which is grocery e-commerce.
Opportunities are there only in large towns. Okay? So we will hold that position and we will have a strategy around that we will expand the grocery business in large towns. For e-commerce, wherever we see an opportunity.
And.
See, just because of COVID, we are not going to based on like all hell is breaking loose and we need to accelerate and those in 1,500 cities, we are not going to do that.
Not just in city count, but in the modes that they use for this. Would it still be more the way you are doing DMart Ready, or would you explore delivery-based options or How are you looking at that part of that?
Currently, we will follow our Ready model, unless you have something specific to tell us in terms of anything that you have a point of view on weaknesses. But I think that the delivery model, the DMart Ready model is the model that we will expand. We are quite happy with what we are doing there, which has both options. It has a pickup option as well as home delivery. We also do home delivery, by the way. So there is an opportunity to do it through that same model.
Okay, fair enough. I was exploring or understanding, there are other offline, online partnerships that are now becoming the talk, and whether you see that opportunity in the same breadth that is being talked about.
No.
Kirana partnership model.
No, we haven't thought about that yet.
Okay, perfect. I'll come back in the queue for the other question. Thank you very much.
Thanks.
Thank you, sir. We have next question from the line of Arnab Mitra from Credit Suisse. Please go ahead.
Yeah, hi. Thanks for taking my question. My first question was on the competitive landscape within modern trade, and we've seen one of your largest competitor expanding rapidly, one of the competitors in financial trouble. Overall, how do you see the competitive landscape? Versus your largest competitor, has the price differential equation remained same in the last year, or have they become more aggressive and you are having to respond to that? If you could just throw some light on that.
Hi, Arnab. We will continue to say what we have been always saying, that the market size is too large. You spoke only players in this market, and there is still opportunity for every single player. The size is just too humongous. I think we are not worried about any competition, and I also say that none of the competitors should be worried about each other. The market opportunity is extremely large.
Okay. Thanks for that. On the DMart Ready business, just to go back to the previous question. Two years back, I think you had a view that you are still not sure about this business. You want to keep experimenting, but whether this is to be grown aggressively or not very sure of that. That has essentially changed to a situation where you are saying that you are happy with the business now, you want to actually expand it.
How do you take care of two things here? One is the possibility that you have been always talking about that your own consumer may actually go from the store to a DMart Ready, and you do not want that to happen because the general merchandise mix is better in the store. How do you protect that as you now start to expand this business in a more regular fashion?
Okay. One is what I said two years back and what I say now will be distinctly different for e-commerce, for sure. Two years is a very long time for a digital business. We are probably. Okay, let me put it this way, pre-COVID, post-COVID. Pre-COVID also, we were relatively more positive than we were two years back about e-commerce. Let us put it this way. Post-pandemic, all the numbers have changed. It is crazy. The demand, the costing, everything has gone. The point is, you have to take a punt or you have to take a bet, what will it be once COVID settles?
That point or that view is what you begin to do from now, right? Our view is it will settle down somewhere in between. The intensity of demand that is there in e-commerce today for grocery, I am only talking about grocery, will not sustain once the pandemic settles down. We are looking at the e-commerce business. As far as consumer shifting, moving from brick-and-mortar to e-commerce, those are not things that we bother about. The moment you start looking at things like that is a very negative way of looking at it. You should let the customer free.
Let them shop wherever they want to. We will not design our business architecture in a manner not to allow the shopper to move from brick-and-mortar to e-commerce. That would be very foolish because if she does not get that opportunity at DMart, she will go somewhere else. Right? We don't look at it like that. If a Borivali or Mulund customer who was shopping in the store wants to now shop on DMart Ready, she is very jolly well free to do that, and we would love to give her that choice. We don't look at the business like that.
Just a follow-up on that. You don't see that as a risk for the mix, which will be much more basic grocery in a Ready versus a store where the consumer explores and ends up buying general merchandise. Do you see that as a relatively lower mixed business?
Yeah. The Ready business is a relatively lower mixed business. Yes. But every business has to be viewed in its own way, Arnab. I will look at the revenues, cost structures, all of that independent to how the consumer basket is changing across two channels. Why should that bother us? I have to make it work within the cost structures and the parameters of that individual business. Let me answer it this way. If people are moving from brick-and-mortar to e-commerce, I will relook at my brick-and-mortar business to ensure that it stands on its own. Yeah. We are pretty confident about that. Nothing is going to happen to the brick-and-mortar business because people will need apparel and general merchandise products too, right?
Yeah. Thanks so much, Neville. That's very clear. All the best.
Yeah, thanks.
Thank you, sir. We have next question from the line of Prasad Deshmukh from Bank of America. Please go ahead.
Hey. Thanks, Neville, for taking the questions. First question is on the cost structure of the new stores that you would be opening. Post-COVID, we hear there is a sharp cut in asset prices. Could you just give a sense as to, in percentage terms also it would help, as to pre-COVID, post-COVID, what kind of per store CapEx trajectory would be?
Prasad, again, I would not recommend to think about it like that because real estate that we look for is generally reasonably prime real estate. It may not be CBD, it may not be high street, but it is still prime because we want real estate in a particular manner. It has to be clean title, it has to be in a busy street, relatively busy street, good infra, stuff like that. Properties like these don't collapse. They don't fall to that extent. The only thing that happens is, in situations like these, when real estate becomes soft, deals happen.
People close out deals faster in the fear that if I wait for another three or six months, the prices may fall further. But it is not like you get a 30% discount or a 40% discount. That doesn't happen. You may get a 5%, 10%, 15% discount, but that is it. The point is, deals happen faster. In a growing, accelerated, heated market of real estate, deals do not happen because people wait. "If we wait for another six months, we will get 10% more." This is what typically happens in real estate. Land.
Got it.
You get more closures.
Got it. Second question on the working capital. The question is more long-term. Typically we have seen in global retail plays, working capital as a percentage of incremental sales keeps going down. In fact, it enters into negative territory after five, 10 years. As far as DMart is concerned, what are the levers that would move this working capital as a percentage of incremental sales in such direction? If there is any possibility like that.
Prasad, I have no view on that. Currently, we like to do it the way we are doing it. We like to pay upfront. I do not have a view of moving forward. It will all be a factor of the market, the supplier, and the cost of capital scenarios in the country. As of now, we aren't looking at changing any of that. We continue to do what we are doing.
Got it. Thanks, Neville.
You're welcome.
Thank you, sir. We have next question from the line of Aditya Soman from Goldman Sachs. Please go ahead.
Yeah, hi. Good morning. Couple of questions. Firstly, in terms of sort of delinking the sales to store area, one way to do that is online, potentially. Another way is exploring the wholesale business, given that you already are a large customer for a lot of FMCG companies, you are a large buyer in agricultural commodities. Any view on growing that wholesale business?
Aditya, we were kind of talking about this earlier, but considering the pandemic and what we are going through, I think we kind of postponed that idea for further. Nothing much happening there. We would like to focus on the brick-and-mortar business and a little bit more focus on the e-commerce business.
I understand. Secondly, we noticed at least before the pandemic, that there was an increase in private label, especially your own brand. Was this a trend or was this just a small experiment in specific stores?
I do not know. Maybe our private label thing must have gone there, but no strategic direction at a general level. Maybe that particular store you must have seen that. But nothing of that sort. In fact, we are very clear that pandemic is a time to not push private label. That is the direction I had given because some guy came with a very novel idea. I said, "Nothing doing." Pandemic is a time to reassure people, and people get reassured when they see familiar brands. We have put a complete focus on manufacturer brands, to ensure that they get what they really want. In fact, it is harakiri if at times like this, we try to push an unknown brand when a person is already very anxious on so many other things.
Fair enough. No, very clear. I think in terms of where you are seeing store closures already in the early stages of the pandemic, how did you deal with excess inventory that is perishable?
So we have very little perishable. We do not sell F&B much. Whatever we sell is more on the vendor, not on us. The inventory is not on us. Whatever we do that. Otherwise, the only perishable we have, if you may call them, is what is temperature controlled, like your cheese and butter and stuff like that. But then the nature of the business is such that we carry very low inventory as you just saw.
So, let me put it this way, for us, the worry is not the FMCG or the perishable inventory. For us, the slight worry is the apparels inventory, which we feel see some obsolescence because almost four months have passed and sale has not happened much. So that is an area of concern. Apparel primarily, otherwise, we are okay. But in general, we are okay. Nothing major or major issue. Food and FMCG, we anyway carry very low inventory. No issue at all there.
I understand. Very clear. Thanks.
Thank you, sir. We have next question from the line of Hussain Kagzi from Ambit Asset Management Private.
Hi, thank you for taking my questions. Most is answered. Just two questions. One is, can you give any broad sense on how our margins have been for food and non-food and general merchandise over the last year?
We don't declare or disclose that level category margin. But in general, I can tell you margins are more or less the same as it has been pre-COVID.
Okay. For all the three categories?
Yeah.
Also, just one data point is, can you give an indication of how many DMart Ready stores are there currently?
Around 220-ish in Mumbai. Mumbai means greater Mumbai. Mumbai, Thane, Navi Mumbai.
Okay. Most of these are only in Mumbai, greater Mumbai, correct?
Yeah. Mumbai, Thane, Navi Mumbai.
All right. Thank you.
Thank you. We have next question from the line of Susmit Patodia from Motilal Oswal AMC. Please go ahead.
Hi. Good morning, Neville and team.
Good morning.
Couple of things. One, you mentioned in the annual report, the two trends that could have a lasting change with the social distancing and changing consumer preference. Our assumption was that as soon as we have a vaccine or a durable cure, these may not be long-term shopping behaviors. If you could expand on that a little bit, please.
The only way we are trying to deal with this issue is by having extended hours. Authority is cooperating. What we are doing immediately is wherever possible, we are extending operating hours. A lot of our places, stores open at 6:00 A.M. A lot of places, stores are open till 11:00 P.M. Certain places, stores are operating 24/7. For the time, our view is that a set of consumers who are extremely worried about social distancing will come during these hours and shop.
Yeah.
That is the way we are looking at it. As far as sheer numbers are concerned, like I've been repeatedly saying that if stores are allowed to operate for a longer period of time, then minimum 80% of the revenue comes back.
Right. The second is, for how long do you think availability will trump value in terms of customer behavior?
I don't know. We have to see. But see, you guys all read. You've seen previous outbreaks. You see the last thousand years pandemics. Eventually, things have to come back, right?
Correct.
Yeah. Your guess is as much as our mind or optimism is as much as yours is as much as mine. But you have to play by the year, play every month, every week, as you see an access coming in.
Right. Just lastly, if you could give us any initial insights into the impact that we may have or the benefit that we may get because of the agri reforms that are happening.
Okay. We don't do too much of fresh.
Okay.
To that extent, our benefits, I do not know to what extent we will get. As far as grains are concerned, I think we have kind of extracted the juice there because we are deeply connected to the farm for grain. Our setup there is pretty good. I cannot put a number to this in terms of how much more will it be, but it is a very encouraging rule, and we hope in the longer term, there is no downside, there is benefit only. We are aligned to that. I mean, at least from the grain side, the staple side.
Right. Best of luck. Neville, just one request, please don't stop writing your annual letters. You keep threatening us every year, but I would request you not to.
Okay. Thanks.
Thank you, sir. We have next question from the line of Fatema Pacha from ICICI Prudential Life Insurance. Please go ahead.
Hi, Neville. Wanted to ask you on. There are some markets which are very big for you, like Mumbai is big, MMR is big, Gujarat at the margin is big. There has been a decent amount of unlock in these two regions in the last 25, 30 days. What are you seeing in terms of customer response in these two markets? Are you seeing the risk aversion coming down? Are you seeing this demand pull back?
Because the underlying demand is not bad. Even on the non-food side, you can see the neighboring stores are all out of inventory. Apparel is the only exception, maybe. But other than that, the demand for, say, FMCG is good. It is just that you have lost shares to the neighborhood store. What are you seeing in these two regions where at the margin, unlock is in progress?
Hi, Fatema. Good question. We just want more time. The problem is the inconsistency store opening. At least we do not see at least, say, eight weeks of data. We will not be able to give a very clear indication in terms of what is really happening. In general, I can tell you this, that every day additional of opening is better. The business is coming back, but we just need more time. As far as what is happening to shopping patterns, like what I said earlier also, that it is very clear that in the economic strata, higher you are, more afraid you are, lesser are you coming to the store.
But at the same time, we are getting a lot of crowd from the lower strata also into the stores now. That is broadly our visual view, but we need more time to kind of see the trends. In general, again, like I said, it is not like stagnant and the needle is not moving. It is every three days, four days, the needle is moving more and more positive. Revenues are slowly creeping back. But I think another six to eight weeks, maybe this quarter.
Q2, is it fair you would at least be on a revenue per square feet flat year-on-year? Would that be a good metric for you to have? Like what would you judge yourself?
I don't want to be Krishna Gesuria. We all know what happened with all the projections on the pandemic, right? Especially from the scientific side. So, I don't want to make any prediction. My request is just wait for one more quarter, and we will follow on the results with a very detailed note on what is happening. My request is wait for the quarter, and I will write extensively on what we are observing towards the quarter end.
Thank you so much, and all the best.
Yeah, thank you.
Thank you. We have next question from the line of Richard Liu from JM Financial. Please go ahead.
Hi, Neville. I have got a couple of questions out here. I know you spoke a lot on e-commerce already, but I am sorry, I am just raising this point again. I know your view saying that e-commerce is not a viable business considering the way it is done today and so on and so forth. It is difficult to do e-commerce in grocery. The question here really is that, considering the kind of guys who are there in the e-commerce field today, even if those guys lose money, there are people who are willing to lose money, right. I mean, in all these years that will pass, would these guys not have taken away a lot of market share and a lot of consumers away from you. That is question number one.
Okay. Your question.
Should I give the other two questions as well?
No, hold on. No, no. Great question. Hold on. You are saying that should I be worried if somebody is spending a lot of money on e-commerce and that may take away share from us, right?
Yeah.
Yeah. Richard, our view is on a pricing perspective, we are complete. We will not sit tight if somebody is selling something at a significantly lower price than us. Okay? That is all I can say. And it is not that I am saying this because you are asking me this question. This is what we have been doing in the past too. Okay? And it is not that e-commerce grocery has not been cutting prices.
In fact, if you see the last year or two, there has been a lot of aggression on grocery e-commerce pricing. Yeah? And in spite of that, our business did not get affected. Okay? And our business did reasonably well. And that is where the hypothesis again is that the size of the market is so large, that there is space for everybody. And see, while DMart may stand for value and pricing, there is something more also about DMart, right?
And that is to do with the assortment. And I think a play between pricing and assortment jointly brings out something unique about what we stand for. And that has been demonstrated if you look at the last two years of e-commerce aggression. So, there was e-commerce aggression even in the last one and a half to two years. I am speaking primarily based on the past. I do not know about the future, so we will see.
No. The reason for asking this is that if I go by a couple of the statements that you have made in the last few results, and also by your action of retracting from home delivery the moment things started to normalize. And I got your comment earlier that it is because of infrastructure at the store earlier. I get this feeling that you are extremely confident that e-commerce is not going to give a dent to your business no matter what, right? I mean, despite the fact that there are guys like Amazon and now Walmart, et cetera. I mean, you seem to be very confident that you do not need to really get into this game. I was just trying to understand what-
Okay. I think. Okay. It is like this. I think what you are talking about is in absolute, and I am talking about it as a journey. So we are not trying to be so naive by saying that e-commerce won't do anything. But if you tell me that do I need to put serious money right now and build the e-commerce network, we won't do that. We will observe what is going on. We are reasonably agile, and we can accelerate if we want to. Okay? Only if we want to. Okay? We are not speaking about our pessimism around e-commerce because of an inability to build e-commerce. And I think the fact that we expanded in 200 cities within a span of 15 or maybe days or one month, okay, and it was from scratch, that we did it, indicates that we can do it. Okay?
We don't want to do it for some other reasons. Part of which I explained, right? Where brick-and-mortar and e-commerce running from the same place is not the best way to do it. But if we see e-commerce as the preferred channel for shoppers, and shoppers are changing, we will also do it. But we are again saying as for today, the opportunity is in large towns only for a model like us. By the way, mind one point, is that we are not talking about marketplace. That is a business we don't want to get into. This is pure grocery e-commerce. Only his.
Only Richard's line has dropped. Maybe we can move on to the next question, and then once Richard joins back, we can. Can you move to the next question, please?
Sure, sir. Thank you. The next question from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, Neville and team. Thanks for the opportunity. Good to hear that DMart team is keeping safe and healthy. Sundar, if you could share your thoughts on non-FMCG private label share and patience, and especially how this China sourcing rejig will impact our non-FMCG private label plans now?
China component is very small, insignificant. There is going to be no impact.
Non-FMCG also. We saw a lot of private labels are actually sourced from China.
Yeah. But in the overall scheme of things, our major source is from India. Major sales is sourced from India. When you walk into our store, while you see some made in China, the bulk of the component of articles and our revenue is made in India. I am talking about only non-FMCG. I am talking about only non-FMCG. That is a general merchandise and apparel. Bulk of the revenue is made in India.
Since I think we seem to be already at a very high level of throughput efficiency per square feet. From here, we see much more room because the shift from grocery to higher case size non-FMCG was one driver in private label.
Tejas, your line is unfortunately not very clear. Maybe you can try again once more.
Sorry.
A little slower, that will be helpful.
Is this better? Hello.
Sounds better, yes.
Just go a little slowly. I think there is some issue with the line.
Yeah. I was just asking that since already our throughput per square feet is very efficient and private label share or increasing share, that share was one of the most important driver to actually increase that number. So where do you see that ambition? Where do you see private label numbers settling down for us both in FMCG and at the whole company?
First and foremost, revenue per square feet and private label, I didn't get that question, but our private label business is very, very low. The percentage contribution to the overall business is also very, very low, especially in the FMCG segment. And we continue to retain that position. That private label as a play will take more time. Again, one day at a time. I mean, I don't see private label making a huge dent on the FMCG consumer space right now. So yeah.
Sure. And lastly, Neville, if you can, any new initiatives or experiment that you would have taken last one year, which is not meaningful to actually show up in a P&L yet but you are personally excited about, if you can share with us.
Nothing of that sort.
Okay. Great. Thanks, and all the best.
Thank you, sir. Your next question from the line of Nitin Gosar from Invesco. Please go ahead.
Hi. Thanks for the opportunity. Almost a similar set of question from the earlier participant. Wanted to understand the kind of scenario we are getting. Hello?
Nitin, we could not hear you. Sorry.
Okay. Thanks for the opportunity. I just wanted to understand something similar to earlier participant question. You currently are combating with multiple near-term challenges, maybe not the structural one. One is with regard to throughput per square feet. What is the reading on the per consumer mindset, even if things were to change or were to improve? Do you sense there is an opportunity to go back to the earlier throughput levels?
Because earlier the mindset of consumer was, [Non-English content ] Now probably, the same mindset will be probably wherever the crowd is, you tend to avoid going there. Your thoughts on that, and the second question is with regard to sales mix in general merchandise, which was a good contributor to our gross profit. Your perspective on that, how much time it can take to revive? What are the cost levers we can maneuver around if certain parameters don't go the way they had been going in last few years?
Nitin, again, I cannot predict about the future. I can give you one data point, and this is a very interesting data point. Recently Raksha Bandhan was celebrated, right? Lockdown was off. We were extremely pleased with the revenues we did. It was like a regular day, regular crowd. Okay. In fact, it was quite encouraging that way. That is one thing I can share with all of you all. The day prior to Raksha Bandhan, we did phenomenal sales. It felt like a regular day. Humans, people have element, they want to go out, right? Like I said, this is not a pandemic that is as serious as it was imagined to be. I mean, there is enough data out there. I can tell you what happened with Raksha Bandhan. I do not know about the future. Like I said, there are so many elements that have to come together for business to come back.
Mm-hmm. Second, your take on the general merchandise.
Sorry?
Your take on the general merchandise sales mix. You think it can come back to normalcy sooner or it will take some time? You want to see how things play out.
I will reserve my comment. Like I said, wait for the quarter. I will write more in detail.
Okay, sure. Your point is well taken.
Yeah.
Yep. Thank you.
Sure.
Thank you, sir. We have next question from the line of Sandip Patodia from Fundsmith. Please go ahead.
Hi, Neville. Thanks for doing this call. I just had one question. I do not know if you can answer it but just wondered if you had any thoughts on the sort of new marketplace model being contemplated by the likes of Reliance and Flipkart possibly on technology-enabled collaboration with kirana stores and its impact on sort of the value offering that you do and general retail sector and FMCG companies.
Hi, Sandip. We would prefer doing what we are currently doing. We do not want to get distracted with anything else. Just our current written mode of business. In fact, we are also postponing our cash and carry thoughts that we had earlier. We are focusing just on our current DMart business, and wherever we see an opportunity on e-commerce, we may look at that. That is it. In fact, this is the time to completely focus on just this and get this business back on track. Yes, sir.
I appreciate that. That's good to hear. I just wanted your general thoughts on what you think the impact of that model might be on players in the sector, be it retail or consumer goods companies, if you had any thoughts.
I don't think I'm qualified enough to make a comment on that. Honestly, I can't comment on that. I really don't know.
Okay. No problem. Thank you.
Thanks.
Thank you. We have next question from the line of Garima Mishra from Kotak Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity. Neville, from a land cost perspective, I understand that IRR requirements for different locations will be very different. But is there an absolute ceiling in terms of what you would want to pay per square foot for a land parcel that you keep in mind?
Absolutely. We will never buy an expensive place, for sure. That's why they're not in South Bombay.
Right. Okay, and any sense on what that number is?
Do you know what the South Bombay price is?
Fair enough.
But like I said, it's a factor of what is the price. There are two things, Garima. What is the price that you should pay for a local area? That means a very deep understanding of the local market so that you do not get tricked into buying at the wrong price. That is also extremely important. That is one part. Then the second part is, what is the maximum ceiling that you will ever pay? Which is absolute, again, that is the second part. The third part is also very important, is what is the rate you will pay depending on that city for that city's revenue that you make. So, it's a combination of two, three things that will tell you that, I will not cross this line. Yeah.
Right. Okay. A related question to that is, you are fairly well-capitalized, especially after the January fundraise. Real estate, like you mentioned earlier, at least deal-making or from an availability perspective, prices may be a little on the softer side. Why are you not thinking of accelerating your store additions? I understand this year may be muted because of various lockdowns and construction activity having been halted. But any plans of just accelerating this 25 to 30 per year kind of a number in the future, given you have adequate capital available?
Yeah. So, we are accelerating our acquisitions. In fact, that is in no way impacted by the pandemic. We are still very confident, and we are continuing the acceleration of store additions. But store additions in terms of acquisitions. We are giving you a feel of next year because of the pandemic and the delay in construction. That does not in any way mean that we will delay the real estate acquisition activity. That will continue.
Okay.
But see, the time we acquire a land till the time it is open, it typically takes around two years, right?
Right. Yeah.
That is the lag. But we are very aggressive in terms of property acquisition. Absolutely.
Okay, got it. So, you are saying even during the pandemic, deal-making per se has not suffered much?
No. We are very active there.
Okay. Understood. Just last question. See FY 2020 SSG trends, could you give us what would have been the impact on that number had the Q4 sort of impact of COVID not happened on your revenues or something, just an indicative sense?
We haven't done the numbers, Garima. Cannot comment. Not looked at it like that.
All right. Thank you, Neville.
Yeah. Welcome.
Thank you. We have next question from the line of Sanjay Singh from PineBridge Investments. Please go ahead.
Yeah. Hi, Neville. Thank you for taking my question. Just wanted to know this separate subsidiary you have for packaging of dry grocery like pulses and all. What is this need for a separate subsidiary, or is it just historical, or is there a plan around that?
It is part historical, part the nature of that business is very different. So, it needs a different set of people. That is it. There is no interplay between in terms of the people, the structure, the OpEx of retail and that. So, it is more like a manufacturing setup.
But any thoughts on taking that outside your stores?
No, not yet.
Okay. Secondly, can you just share your experience of the Ready stores which are also selling convenience format Ready stores?
Encouraging is all I will say, Sanjay. Give us more time, and since it is a separate company also. Once we get a reasonable scale there, then we will be able to comment, but obviously it is value accretive.
Is it better than the Ready format, like-for-like?
Which one are you talking about? I didn't get it.
The convenience format of Ready. How is the experience there?
What do you mean by the convenience format of Ready? I didn't understand that.
Where you are already also selling stuff from the store.
It is better, it is good. It is good because it is encouraging. We also feel good about it that we were the first guys to build this model or this concept, and it is encouraging, is all I can say. But too early to comment on breakthrough and how much money are we making and all of that. We have to see it at scale.
But all the new DMart Ready stores will be on this format or will be on the older format?
Mix of both.
Mix of both. Okay. On a lighter note, one of your competitors are facing financial problems. Have you ever thought about acquiring?
I don't think this is an appropriate forum to comment on this, Sanjay.
Okay. Thank you very much.
Thank you, sir. We have next question from the line of Latika Chopra from JPMorgan. Please go ahead.
Yeah. Hi, Neville. I think a lot has been discussed on the front-end part of the business. I just wanted to check on the back-end side, you already run a fairly efficient model, but any areas where you are working more to further improve the efficiencies and supply chain technology investments for your brick-and-mortar piece, given the rising scale?
Yeah, it is a good question, Latika. It is a continuous process. Supply chain is a continuous process. You build warehouses, you build a logistic architecture, thinking stores will come in a particular size, format, shape, and all of that. So that keeps evolving, changing. So, there is where we feel that there are opportunities to make it better. But like I said this earlier, all these opportunities are all in basis points, the savings.
But yes, there are opportunities and they constantly evolve. That is why the beauty about this business, and that is what also keeps us awake at night, is the excitement around re-architecting the whole supply chain based on intensity of sales. So more and more sales we do from the same region, opportunities emerge automatically for cost savings. But like I said, it is a continuous process, and we constantly look at those.
Sure. The second bit is your main premise or your mission is to ensure low pricing every day. I just wanted to understand, how do you compare this pricing? How do you benchmark it? Is it done at a region level, city level, and how frequently you do this? Just trying to understand who would be your comparable base for different product categories.
We compare with everybody. Anybody who is operating within a 1 km area from our store, we have a team who does that, tracks that. Because our objective is to be the lowest price, this is something very important for us. And we have a mechanism through which we track it. So, it could be anybody in the vicinity that we track.
And you would do this on a monthly basis or that frequently?
It is almost daily, Latika.
Daily? Wow. Okay.
Thank you. We have next question from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi. Hi, good morning, Neville, and thank you for taking my question. Just one small question on the store expansion again. I know you've been maintaining in the past that you want to own all the stores, and the fact that you wanted to rent some stores in malls as well, but rental negotiations always are zero sum game. How that thought process has changed this time post-COVID? Because I assume that malls, everybody would be in severe pressure. Is there an opportunity to play a larger role here in terms of securing store expansions in malls which might want a tenant like you? Would you still back your ownership strategy? I think there's an opportunity here to accelerate not just owning the stores, but also probably expanding presence through rental as well. Any thoughts here?
We have actually moderated our view on ownership over a period of time, last two to three years. We are open to leasing. Wherever we see an opportunity to lease, we will definitely lease. Only thing is our request is with the landlord is to lease for a longer period. We typically like to do 20, 30-year leases. That is what we want. We've changed our positioning for the last two to three years. We also do lease. Like I said, most of the properties are owned. Leasing would be 20%, 30% if we intend to. We'll not cross beyond that. We're open to lease. Absolutely open. On malls, I'm not sure right now considering the situation. On general property acquisition, we continue to be aggressive. That is what we do.
Okay. Sure. Post-COVID, any soft rental on leasing, has that changed relatively for you? I mean, or is it just the same?
Leasing market is becoming very attractive. We are getting a lot of inbound inquiries, but they are mostly in malls. We are evaluating them and let's see. Yes, leasing has become extremely soft. Mall leasing has become extremely soft.
Great. That is very good to hear, Neville. My second quick question is that you alluded to new stores being larger, but give you a short-term cost, but a long-term long range of growth and opportunity to expand SKUs and things like that. If I read you correctly, and also sort of put two and two together that your last two years average store size has been more like 50,000 to 60,000 sq ft versus 30,000 earlier. What percentage of the area of the new stores is actually less operational, if I may say, in an absolutely optimized way, relative to older stores because relatively smaller? If I may compare, the 30,000 stores would have a typical SKU of 8,000 or more.
How these larger stores have an SKU and what kind of SKU expansion we should think about that you could do in various areas, given that you believe that new SKUs could be margin-enhancing and the larger format stores give you a room for longer CAGR. Any thoughts here about how we think about SSG, etc , in that context where it could come from assortment, SKU expansion and also maybe higher margin?
My simple response to that is the same, that we are doing larger stores simply because Okay, let us put it two ways, okay? First picture, simpler part, which is the CapEx. When I build a larger store, what you do is you are building more construction.
Sure.
The incremental construction cost is a small part. It is not that if I move from 30,000 to 50,000, that means my overall cost of the project goes up even in the same proportion. No. It is just the incremental square footage construction cost that goes up. From a cost perspective, it is okay. That is CapEx. From an OpEx perspective, yes, there is a higher OpEx, and hence the trading area sizing is decided based on the year opportunity. Even if I build a 60,000, 70,000 sq footage trading, I may not operate the full. I may operate half or three-fourth or whatever. That is the call the local team takes. That is where you calibrate your OpEx, so that your OpEx is in line with your other stores. These are the cost parts.
Now, on the business side, what happens is why we decided to take this direction is you get a far higher CAGR for a longer period of time, okay? That is extremely profitable for the incremental CapEx. That's why we did that. The second part is that our ability to sell higher margin products becomes better. So our general merchandise and apparel, the ability to showcase the products becomes more richer, more better, okay?
Without doing any fancy investments in CapEx. So the mix of the assortment and a higher CAGR gives you an accelerated ROIC. So that's it, broadly. But if you tell me, oh, does that mean that I'm going to have a different strategy for the larger format stores? Not really. See, even today, depending on the size of the store, we have different assortments for different stores. We do have that. Okay?
We calibrate it based on the sizing. But within that overall DMart positioning that we have. So it's not something distinctly different that we do for larger stores vis-a-vis the smaller stores. So for example, let's say the 399 kurti. Okay? A small store may get maybe 30 varieties at a time. The big store will get 50 varieties at a time because your ability to showcase them is better. That's it.
Got it. So typically, Neville, how many?
The conference is now being recorded.
Price changes in two hours, we can change prices in two hours.
And that across the stores, or would be just localized decision-making and localized decision is implemented only locally where it is relevant, or how does it work?
Tech is aligned to do anything. You want to do all stores one shot, you want to do one region while not touching the other, you want to do only one store, everything is possible.
Okay, brilliant. Thank you so much, Neville. All the best to you.
Thank you.
Thank you. We have next question from the line of Vinod Bansal from Franklin Templeton. Please go ahead.
Hi, Neville. Vinod here. A couple of questions. One, perhaps I am repeating an earlier one on the e-commerce part. I think the risk or the fear some of us want to express is that as a platform, if e-commerce gains greater traction, especially after this pandemic, some of the customers already are doing a lot more shopping on e-commerce, and there are much larger, bigger players competing with us.
The risk one is seeing is that the offline platform might lose existing customers to online platform. An Amazon or someone else in your core Mumbai market, core customer, existing customer in Kandivali, Borivali might shift to Amazon, and therefore your existing store sales might lose out incrementally. That is one risk we are trying to get addressed, especially now that you are saying that DMart Ready is there, but it is not really going to scale up very fast. Do you see that if e-commerce activity from consumer side remains high, we are on a weaker platform. We are a good player on a weaker platform. That is one primary risk if you could comment on.
Vinod, the way we look at it is in two ways, that because of e-commerce, is the business affecting us? Yes or no? If it is not, we are okay. Because of this pandemic or whatever, somebody else is doing extremely well. That should not bother us if our business is doing well. But at the same time, we will also look at our e-commerce business more aggressively. The whole idea of getting into DMart Ready was because of that thought, that someday, something, some opportunity may arise. Otherwise, culturally, as an organization, if you go back seven, eight years back, it was, what should I say? Not a problem even talking about e-commerce within our company, but yet we got into that business.
Like I said, but then if the analyst community expects us to build everything in the span of the next six months, eight months, that is not going to happen. We will take this slowly. Our view is the business is not going anywhere. Build your brand, build what you stand for, and which is very unique. As and when you are ready with your model and you present it to the customer, the customer will come to you. That is our view. Even if somebody else does this faster than us, we do not want to beat in that game. We want to play the game of being better than anybody else rather than being faster than anybody else.
Right. Also, your DMart Ready model, has it scaled up? Is it profitable to the extent you want it to be profitable? Are the inventories cleared and healthy to the extent you want?
No, it is not at all profitable. It is not profitable, and I am just kidding.
When I say ROI perspective, is it something that you are happy with or you think that a new change needs to be made?
Sorry, what is the second part?
I am saying from the return on capital perspective, is it something that you are happy with or there are changes to be made there to achieve the ROI targets?
The principal capital is no longer there. If it was there, it would have been good enough. Otherwise, it is eroding. Where is the ROI? Return is a distant thing. There is time for return on capital and all those discussions for e-commerce. In fact, our whole focus is on not losing money as much as possible or trying to make the drain as little as possible.
Right. Lastly, you had mentioned in the earlier part of the call that those smaller stores, they take a flatten. I will just talk about inflation level when the stores mature. Based on the experience so far, any broad sense on how many years it takes for a store to flatten or inflation level CAGR, or what sales per square feet on your existing network?
Typically, stores, which like we said, INR 32,000 is the revenue per square feet, but some of our stores do a multiple of that too. Stores which have very high turnover square feet, they grow just about as inflation or less than inflation or more than inflation, depending on the year. Otherwise, if the infra is good, the stores continue to grow at a healthy pace.
Right. You said that some of the stores are doing much higher sales throughput. Any broad number, at what level of throughput that you start to see this thing play out? Is it 50,000 sales per square feet, 60,000, 70,000? What is the price?
It depends. It depends on multiple things. I will tell you. Say, Bombay. Bombay per capita income is much higher than, say, Karad or Satara, right? It also depends on that. The flattening also happens depending on the purchasing power of that city.
Okay. Thanks for that.
Thank you. We have next question from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Yeah, hi. Good afternoon, and thanks for the opportunity. Neville, my question is on crowd management, given our stores are amongst the kind of retail spaces which attract the highest amount of crowds, especially in the current environment. I am not talking about post-COVID when things, in terms of come back to normalcy, but in the current environment where the number of cases are on the rise and still we do not know how we are getting out of this. How do you think about crowd management and what kind of things we are seeing at the store? One more clarification on this count was that the 80% that you spoke about sales coming back to normal, is it for the total sales, including the apparel and home essentials, or is it only for the food and accessories?
Sales is total. Pre-COVID, I was doing 100, including everything. Post-COVID, I am doing 80, including everything. Absolutely.
Got it.
Crowd management, what you see is what it is, right? We are following local rules and ensuring that everybody maintains at least a six-feet distance between each other, and we calibrate the entries accordingly. Wherever we see that the crowds are too much, we request authorities for allowing extended hours of operation. But it needs political, sorry, police alignment. Once agreed, then we operate the store for a longer period of time, then we constantly announce to consumers. Because items will come during the non-peak hours. That's all the management.
Right. Neville, with that, you also spoke about the equation around safety versus value, in today's time, people are seeking safety over value. As these things normalize, as and when we get towards normalcy in life, do you think that generally there will be a habit change where people will want to avoid places of crowd and save some money, so on and so forth? Do you think that as a habitual long-term habit change, is that a risk that you see in the business that people will want to, on a longer term basis, value convenience and safety than getting into high crowded places?
See, like I said, I don't want to play the role of a predictor. I don't want to predict anything right now. Wait for a quarter. We will give you more color on what's really happening. As we speak today, like I said, higher on the socioeconomic strata, higher the fear and lesser the walk-in.
Right.
That is clearly being visible. What will happen in the future, I do not know. I also gave you the Raksha Bandhan thing. That also talks a little bit about what people want, and they like to come out. But what will happen longer term, I do not know. I would suggest just give us time. I know as much as you know, I mean, on these matters, right? I am a retailer, I am not an expert on all these things. I cannot comment on this.
Right. And one final question, Neville. In the past, we had spoken about the e-commerce, where you said that people in India don't value convenience. People value discounts. And we are all aware that people have paid premiums to just get even the basic essentials. Do you think that this is an event where, in e-commerce, people will tend to favor convenience, the 100% fill-up of the basket, and a lot of those attributes which I would presume people in the U.S. value or in developed markets value. Those kind of things, essentially, for the highest strata of people. Do you think people are in that mode of paying up for those things, which makes e-commerce more viable?
See, broadly, yes. Post the pandemic, e-commerce will be operating at a different level, at a higher reset level. That is for sure. Because there will be a certain overflow. People who never tried or suddenly get introduced to the format, and they like it, and they are using it. So that will happen. But even in developed markets, let's not forget one thing. Even in the most developed markets, and if the markets are free, value precedes everything else. You see U.S., you see U.K., you see France. Value retailers are generally the largest retailers, right? Value is eternal. I mean
Correct.
I don't think there we have to be anyway worried. Value in e-commerce, value in grocery, brick-and-mortar, whatever, value remains eternal. If you can deliver value and still eke out a profit, you will be done.
Right. Great. Thank you so much, and wish you guys all the best.
Thank you so much.
Thank you, sir. We have next question from the line of Ritesh from Ambit Capital. Please go ahead.
Hi, Neville. Thanks for taking my question. Neville, I just wanted to check on one thing. On the sourcing bit, I know that in other categories or the merchandise category, you do a lot of FRLs and a lot of other categories. Do you think there are any sourcing synergies there as you grow bigger and which can support the gross margins even further? Secondly, as you expand into more categories within that other category or the merchandise category, could you build dominance in some of those categories and try to push your share of that merchandise over the next few years? That was the question one.
On the second thing, on the e-commerce, my understanding is that while in India, people are excited about Indian e-commerce, the logistics and the assortment has been a bit of a challenge, and you can see the kind of investment that Amazon has done in U.S. So it won't be just a matter of the kind of P&L you see, but the kind of investments you will have to make for many years. In that context, do you think e-commerce is something which suits your DNA at all? I mean, are you ready to invest that kind of money? Even if you don't invest that, then how the P&L will eventually justify it?
Okay. First is on the sourcing. I didn't get the question on synergies around sourcing, but broadly, our view is the more revenue we do, the more stores we open, more opportunities in getting price discovery better. At the same time, our objective, we are not in the business to enhance our gross margin any further. I think at article level, subcategory level, or overall at a company level, gross margin, this is it.
It won't be more than whatever we've been doing. Anything additional in terms of efficiency at the manufacturer level or efficiencies at our level will be passed on as a price out. Try to make our products more and more efficient from a quality enhancement perspective. So same price, can I make the quality better and differentiate? Or for that quality, can I bring the price down?
We'll focus on our gross margins will remain the same. As and when the manufacturer does more and more revenues, we will ask him to make less and less margin, so that his ROI is controlled. Oddly, that's our view on the assortment bit. Thomas, you've raised a brilliant point, and that's exactly our attempt. We are trying to move into a DMart Ready model so that it is aligned to our DNA. We came up with this idea of doing a pickup point as a concept. Because we believe that there is an opportunity for an operating leverage, CAGR, if the model works. If I tell the consumer, "Hey, you know what? I'm not going to come to your home. Painful for me. Can you just check out of your house?
Just a few cases. We'll try and put pickup points in as many locations of the city as possible. Maybe every household is 200 or 300 m. She gets her delivery for free, which actually means she gets DMart products at DMart brick-and-mortar prices. That is what we're trying to do through the e-commerce model.
Sure. Just to follow up on that, when I said the categories, the other question I had there was that, could you expand? Is there a lever to expand? Because I haven't seen that changing in the last few years. While I think the depth that you offer in some of the categories, at least in the larger stores, has increased meaningfully. But that mix hasn't moved more than 100, 200 basis points over the last two, three years or so. So do you think it can, let's say, next five years or so, it can change materially? Or do you think that, no, it's pretty much maximized in terms of the basket proportion?
See, how the assortment changes, I cannot comment on it. But even if the assortment changes, suppose from 28% it goes to 40%, just say, for example.
Yeah.
Even if it goes to that level, if you ask me honestly, I will still like to keep my gross margin at company level at 15%-16%. I will make my pricing more and more aggressive and make the model more and more stronger. That's the mode, right? That's how you make businesses which are eternal, and nobody can touch you.
Sure. On the DMart Ready, what is the mix of pickup versus delivery? Because I think you charge for delivery versus pickup, which is free. Just to get some consumer psyche, what is the mix?
Interesting. Good question. I cannot share numbers, but I can tell you that the pickup is more. That is the point. Value is eternal. People do not like to pay extra.
Okay. Thanks, Neville. I am done.
Thank you. We have next question from the line of Shirish Pardeshi from Centrum Broking. Please go on.
Hi, Neville and team. Thanks for the opportunity. On slide nine, I am just talking about few parameters which you have mentioned, is that your retail business area has gone up by 32%, while your total bill cut has gone up by 15%. The retail business, I mean, revenue per square feet has fallen by 8% year-over-year on FY 2019. Would you be able to share these numbers for the month of June and July?
We disclose this only once a year.
Neville, what I was trying to point out is that, is this significantly higher or lower? Because out of 214 stores, which summarizes this all, is the average run rate bill cut is about INR 1.67 crore. Is that number psychosocial or is lower for the month of June and July?
June and July specifically. Okay. Can't comment on specific numbers right now. All I can tell you is there is a pandemic effect. What has happened is the pandemic effect is, and that's come in the press with a lot of other retailers, not specifically DMart, is even those who have come to shop at DMart, they have bought more than usual. So the average basket values have gone up significantly, and the number of trips per customer has come down significantly. Okay, that's one thing I can tell you for sure. This is what has happened.
Okay. What I was trying to point out is that maybe a number of bill cut which might have come substantially, and I usually salute it, saying that the value of the purchase would have gone up. But is that there is a significant consumer behavior change that large pack has sold more, and small pack will have a lesser saliency, which the other companies are trying to paint.
Yes, large packs have sold more for sure. In fact, what is interesting is also there are certain consumer trends which are very interesting, is higher efficacy products have sold more. Okay? But it didn't compensate for the loss of sales of certain other categories. Like, for example, just a classic example is liquid detergent or liquid dish wash. Because the boys stopped coming and the family members had to do all this activity, there was a huge trend towards picking up material which was more higher performance. Right? So things like that have happened. But that has not compensated for the overall loss of sales.
Okay. Got it. My next question is on slide number five, where you've given the share of food versus non-food. I am more curious to understand, your food has gone up to 52.4% in FY 2020. How the consumer behavior has happened in quarter one, I mean, I'm sure there is a higher propensity of buying and stocking groceries and settle. But how frozen and processed food and dairy has performed in the share of the total food?
In general, what I can tell you is that anything that is in-home, in-home consumption has increased. Food has done better than non-food. Okay? Broadly, that is what we can tell you, is that essentials, groceries- I've done. See, a lot of things have happened in April, May, June, July. Okay? A lot of the people who earlier not shop in DMart have begun to shop in DMart. There was a point in time when basic staples were not available.
So, a lot of basic staples are sold a lot. So multi viewers have been operating at multiple times. So if I give some direction on certain categories, that will be relevant only for that month. Now, the buys are made, they've started coming back. So again, it will reverse to the older sales. But a certain section of consumers will continue to buy the higher efficacy product. Like I said, secular trends, if you want to know post-COVID secular trends, wait for another quarter and wait for a note.
Okay. My last question is, out of 214 stores you mentioned, and I assume that you alluded saying that most of them are open. Are all 214 stores open as on date?
I think as of today, around four to five are still shut. Otherwise, all are open.
Out of this 214, how many stores are having a long working hours, what you mentioned, opening at 6:00 A.M. in the morning and working till 10:00 P.M. in the night?
See, I cannot give you a number there because everything is fluid. They will keep doing this because, see, every local authority is given the chance to make it more stringent than what is in the notification. I do not want to give you a number which could seem misleading. Like we have a tracker which looks at all of these data points on a daily basis. Even store closure, yesterday was six. I was just looking at my data. But tomorrow could be something else.
Okay.
We still have certain cities where they say Saturday, Sunday, closed. Certain cities say only Sunday closed. Certain cities suddenly come out with a notification next 10 days closed. But broadly to take away is 90% of the stores are open, 90%-95% are open.
Okay. My last question is on the revenue part. Say, for example, Mumbai is your larger market, and Mumbai, Pune has seen a lot of shutdown. Will you be able to give us a tentative share of Mumbai, Pune market in overall scheme of things?
Share of market of what?
Yeah. Revenue share.
In comparison to DMart or that city share?
That city share.
How much share do we have of that city?
Yeah.
Well, I am telling you, we are very simple guys. We don't get into such complex data analysis. My simple funda is, pre-COVID, what is the sale I was doing in those cities for those stores? How soon can I hit those numbers again? That's all that we keep watching for. We also keep watching about what's happening in competition. I don't think there's anything happening in competition because of which we are inferior in terms of the way we operate.
Our focus on operations, availability, assortment, pricing, continues to be as strong as it is before. We just try to ensure that we get back our business. We're just focusing on that. The other aspect is, which obviously everybody's talking about, is e-commerce. Yes, in e-commerce there is a huge surge. Even our e-commerce business in Bombay, we cannot manage the demand. If we open, I am sure a lot of you will have those complaints. Which is a fact. Because the demand is like 5x of the ability for us to supply. So these are the only two things we are looking at right now, and nothing else.
Okay. All right, and thank you and all the best.
Thank you so much.
Thank you, sir. We have next question from the line of Hemant Patel from Alder Capital. Please go ahead.
Yeah. Hi, Neville. Thanks for the opportunity. I have one more question on your e-commerce side. I am just trying to understand this, that if you look at this business as what you commented as a journey, and we look at the Mumbai region on a unit economics basis. I am just trying to understand over the next few years, which part of the variable do you see it improve in a dramatic sense, which is either the ticket size or the frequency or logistics cost, to enable us to get to a breakeven point at a Mumbai region unit economics level?
Pandemic?
During the pandemic and after.
So your question is post-pandemic, which areas have improved the best?
No. What I'm trying to understand is which part of your e-commerce unit economics do you believe at some point, like you said, that your demand is like 5x of what it is at the moment, right? In a post-pandemic environment, this will normalize to a certain extent. As a company, you have external demand where customers are walking in for purchasing more in terms of a basket and frequency of purchases. As a company, internally, you're driving down cost economics as well on logistics. I'm trying to understand which variables will enable you to get to a breakeven on just the Mumbai region.
For e-commerce?
For e-commerce.
It's primarily top line. See, because of our model, and that's why we did this pickup point model, right? The moment you are getting the top line, the operating leverage kicks in because a lot of your costs are fixed. You're paying rent, you have a boy sitting there and all of that, right? The more top line you get, the cost just plummet. Right? The biggest advantage is top line.
In a pre-COVID environment, has the customer frequency visits to, let's say, DMart Ready improved over the last four, five years?
Four, five. Okay. Yeah, for the DMart Ready outlet, right?
Yeah.
Yeah. Ready outlet, we were restricted only to the extent of our ability to serve it. Otherwise, the demand is huge.
Okay. If I ask this question in another way, if I look at your brick-and-mortar format, and I look at the customer purchases on a monthly basket buying versus a weekly, is that something very different from what you see in a DMart Ready format?
If I do a Bombay to Bombay, apples to apples comparison pre-COVID, the shopping behavior from a basket value is more or less similar. The assortment in ready item sales was more premium.
Okay. But the ticket size would be lower. I am just trying to understand that.
Ticket size is similar. Ticket size pre-COVID was similar.
Okay, fantastic. Is there any chance at some point of time, could you have general merchandise sales go through your ready stores?
Currently, are you based out of Mumbai?
Yeah.
You should go and see some of our stores. We do sell general merchandise in some of our Ready stores. Not all, some of our Ready stores.
I am sorry, I missed that out there. Thanks a lot and wish you all the best.
Thank you.
Thank you. Sir, we have next question from the line of Rohit Dokania from IDFC Securities. Please go ahead.
Yeah, good afternoon, Neville. Thank you for the opportunity. Just two questions from my side. Will it be possible to disclose as to how much was the contribution of e-commerce for the MMR region? We can see it for the company level contribution, but how much was this for MMR as a percentage?
I can't disclose that.
Sure, no worries. The other thing was, Neville, in the last year when we had met, you had spoken about competitive intensity increasing in terms of pricing and value by other modern trade and e-commerce players. Just wanted to understand pre-COVID, how has that been over the last let's say a year or so?
The competitive intensity, right?
Yeah, in terms of pricing and value.
Within brick-and-mortar or brick-and-mortar plus e-commerce?
Both if you can sort of touch upon.
It is fluid. I think in the last year's conference call also we had this conversation. I think at that time I had said that e-commerce had got aggressive. Generally, also things have got aggressive. So, it is fluid. It keeps going up and down. Pre-COVID, I would say was relatively lesser than the year before that.
Now I think pricing is least on everybody's mind.
Yeah, absolutely. That is why I asked pre-COVID, not now.
Sorry.
I think that is why I asked pre-COVID because currently pricing is not what people are looking at.
Yeah. Pre-COVID was more or less, but it is fluid. It keeps moving up and down. But pre-COVID was lesser than the year before that.
Got it. Thanks a lot and wish you all the best.
Thank you.
Thank you. We have next question from the line of Aditya Bapat from Equentis PMS . Please go ahead.
Hi, Neville. Thanks a lot for the opportunity. I have a few questions. First question is a little bit on the longer term. Neville, I wanted to know, are you people looking at going to countries outside of India but with, say, similar consumer choices, like value for money and preference of value over IT and stuff like that over the longer term?
Our cluster strategy is a cluster within the country. We don't think outside of four or five states. I don't think going out of the country is even considered. No way.
Okay.
This is our country. Why do you have to even think about going out of the country? It's ridiculous.
Okay. Got it. Secondly, my question is on, do you plan to backward integrate further, say, by owning warehouses or fleet or drivers to a larger extent so that supply chain can be controlled in a better manner?
Owning the drivers and the fleet?
Yes.
Yeah. See, that's a good question. We've been contemplating over it. When I put this data on paper, it looks very tempting to do it. But I think we'll leave that for a couple of years later. But yes, it's a very encouraging and tempting opportunity for further faster growth. But at the same time, India is very efficient even on leasing, okay, in general. So, most of our trucks are now leased. We use transporters, but I get your point. And over the next four to five years, I think, once you get more and more density, then the opportunity looks more and more lucrative. So maybe in future. But yes, your point taken.
His line is off. So, thank you, sir. We have next question from the line of Akshat Hariya from Multi-Act Equity Consultancy. Please go ahead.
Yeah. Thank you for the opportunity, Neville. I have two questions, both relating to real estate. My first question is that, since you said that deal-making has accelerated for sure. What kind of land bank do you generally like in terms of number of years of expansion are you comfortable with? Like we would be having a two-year or a three-year land bank in hand at a time and do you see that expanding like you would be having higher land bank in hand now given softer real estate prices? That's question number one.
And question number two is, we had a smaller store size and in our older stores, say, in our areas in Mumbai, like say for Borivali, Kandivali, Mulund, Thane, et cetera. In those areas, do we plan to put an additional store somewhere nearby? And those would be the low-hanging fruits and it will also give us a lot of operating leverage. But of course, the real estate prices would have gone up. What are your thoughts on that?
Okay. See because of our model, we do acquire properties in advance because of the lag between acquisition and operating the store. But we don't look at it like a land bank. Every store or every property that we acquire, we acquire with a view that it should be opening in the next two to three years. To that extent, we have a two-year visibility, and that's why we commented that with two years of store openings, we hope to maintain that. 21 + 38, we opened 59, right?
Yeah.
Hopefully we should open that many in the next two years. But like you've mentioned, this year will be muted because we lost three to four months of construction activity. My response on the lands. On the second part of your question, that is what we've actually been doing. For example, see Mumbai, what happened. We had Malad store, opened another store in Marve Nagar, then we opened another store in Dahisar.
Obviously within a 2-km radius, outside 2 km or even 1 km in some places, it works for us. We don't mind opening another store. Same happened in Mira Road and Bhayander or Virar One, Virar Two, or you have Vasai and Nalasopara. That's how we're doing it. This is a continuous process. We keep adding stores wherever there's an opportunity, even if the real estate price is higher. Obviously, if you buy later, it's higher. But that's okay. As long as it makes sense in the business model, we constantly do this. In every city, in fact, this is what we actually do.
Understood. Thank you.
Thank you. We have next question from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead. Mr. Shakir, your line is unmuted. Please go and ask your question. Thank you. We have next question from the line of Dheeraj Pandey from Goldman Sachs. Go ahead.
Yes. Thank you. Earlier in the question you answered that the DMart Ready demand is a 4x or 5x, but we are constrained by our ability to service. What is that constraint and what are we doing to sort of overcome and manage that demand? In the cities where you want to scale up DMart Ready, can you just give some data point in terms of what sort of expansion in terms of number of store count or any other infrastructure that is needed to sort of scale that business up? That will be helpful.
I will split this up into two. One is we are working on stuff within the current setup by enhancing teams to service the current demand in Mumbai. From a tech standpoint, we are perfectly okay. We can do it, no issues. Multi-city, all of that is possible. But we are just trying to enhance the team and all of that. On the second part of the question about multi-city and all of that, I would request you, like I said, wait for some more time. I cannot comment on anything right now. But we are working on something.
But in the earlier part you said, like in Bombay and other places you are scaling it up, right? So at least in those cities where you have decided to scale it up, can you share what sort of expansion have you seen in terms of number of store counts in the last four, five months?
I will have to check with my investor relation team how much I can disclose. But we will make the disclosure to the extent that it is fair to everybody. So please give us time on that. Yeah?
Okay. Thank you.
Thank you, sir. We have next question from the line of Chetan Gindodia from AlfAccurate Advisors .
Hello, and congratulations to you for actually managing through the pandemic and all the hard work that you have been putting. My question is more on the e-commerce business. Can you throw some light on the cost metrics of DMart Ready? What are the costs that is negatively contributing in a major way to the EBITDA loss currently, and with scale, how we can cover it. Also, is there a case for differential pricing for DMart Ready?
There are two things in the e-commerce business. One is your head office and tech cost, which is huge. Unless you do not have a sizable revenue, it is very tough to kind of break even. That is one part. Secondly, at the operating level also, which is the low-hanging fruit, you have to at least break even at the operating level. The energy that goes in breaking even at the operating level itself is humongous. But once you achieve that, then you have to look at how do you apportion the head office cost over the entire business. Then you think about how to make money in this business. It is a long shot. E-commerce is a very long shot. That is the way to look at this business.
Hence, we are trying to do stuff to ensure that we shrink this whole part to as short as possible, and that is why probably people get a little impatient with our speed, because we are very slow. But that is the way we want to do it. The pricing differential piece of your question, our view is very clear that e-commerce runs separately. While the broad e-tail pricing will be that of DMart, it is not that the item will be exactly same price on DMart as well as DMart Ready.
Okay. Thank you.
Thank you, sir. We have next question from the line of Srinath from Edelweiss. Please go ahead.
Hi. When I had looked at the assortment of some of the durables assortment like OTGs, microwaves, very visible fans. Are we looking to scale up the business over a period of time? Will we be retailing the whole durables suite of products in the economy space, say, the INR 7,000 to INR 10,000 ASP kind of durables? Just wanted your view on how durables would fit into our retailing culture and landscape.
The idea will be bulk of the SKUs will be similar to the DMart brick-and-mortar store. We want to try to leverage the buying capability of the DMart store. Okay. Then once we gain a particular scale, if we want to extend our assortment beyond the DMart store business, is a call we will take at that point in time.
No, these are assortments in the DMart store, the OTG, the microwave, the fan.
Yes.
Are we looking to expand the durable space in the general merchandise segments?
It depends. It depends on the category calls that people take, but the broad direction to the category team is that be in the low-price segment of home appliances and durables. Earlier, maybe eight, 10 years earlier, we used to sell a lot of microwaves, then suddenly we stopped them. Those are all calls made based on some market analysis and our positioning and stuff like that. But in general, small appliances and low-cost durables, we are open to sell.
Okay. Thank you.
Yeah.
Thank you. We have next question from the line of Richard Liu from JM Financial. Please go ahead. Richard, your line is unmuted. Please go and ask your question.
Hi. Sorry, I got dropped out earlier. I just had one more question, aside than that e-commerce one, was regarding your everyday low price strategy. I heard your comment about keeping gross margin maximum at 15%, 16%, and beyond that, you will pass on everything. But the downside of such a successful business is that you have a lot of people who are looking at what you are doing, and everyday low price seems to be the mantra for everybody now, right? Given that everybody wants to be lower than DMart and DMart wants to be lower than everybody, how does this whole thing really go?
I think the operator who has the lowest cost will survive. At the end of the day, whoever is able to give lowest prices and keep their costs also very low. See, both have to go high. See, EDLP precedes EDLP.
That is it.
I am actually, okay, relating this back to what I was asking earlier in my last attempt at the question. Is that you have very, very strong-pocketed guys, right? Like Amazon and now JioMart. I think for Amazon, EDLP obviously does not precede EDLP. They are willing to go at it for many, many years because they have realized that they have burned a lot, and I think they are pretty okay with it. Jio, obviously we know have deep pockets, and everybody is really talking about EDLP. To that extent, it is not really unique now. In light of this newfound love for EDLP by all retailers, where you are taking a cue from your success, how should we look at it going forward?
See, I have been listening to this thing, this concern for the last three to four years, but it is not panned out. It is not panned out for the simple reason. There are two primary reasons for it. One is that the market size is too large. Why should we all burn ourselves or run down the cliff when there is no need to? Because the market is so large. So, while everybody does this sporadic price cut, it does not go so out of hand. Because business still comes because the market size is so large. You just need a trigger point of pricing, such that the consumers start coming to you. So, you do not need to really race down to very, very low margins that it completely wipes out your profits. That is one.
Second is also remember that Retail means you are not just selling one SKU or five SKUs or 10 SKUs. You are selling hundreds and thousands of SKUs. Through that assortment, every retailer builds a certain positioning, which is, to a relative extent, unique to the other. Then there is a particular customer affinity to that brand, and that also brings in a certain level of stickiness. So as long as you are reasonably relevant to the consumer, you will build your own positioning.
So DMart stands for something beyond pricing, too. There will be some other retailer also who will be standing for something that a consumer will like better. So at the end of the day, that is the beauty. If you see globally also, in brick-and-mortar retail, it is not that DMart takes all. There are so many other retailers, multi-billion dollar retailers operating. So there are, b rick-and-mortar retail, I am very confident there is play for multiple players to be operating. There is no issue at all.
Okay. All right. Thanks, Neville.
Thank you. We have next question from the line of Omkar Hadkar from Mirabilis Investment. Please go ahead.
Hello?
Yes, absolutely.
Hello. Neville, my question is on the supply side, particularly your distribution and packaging centers. You have about 43 odd of them, and typically, on average, you are servicing probably five stores through those centers. My question is, on the next three to five years, probably, with scale and the new stores opening, will the distribution centers also be increasing the same scale, or will there be some operating leverage that you will gain from the
There is operating leverage available. When you build a warehouse, obviously, you do not build it for a year, right?
Right.
Build it for a longer period of time. Operating leverage kicks in, but the operating leverage may not be seen in financials. Because you are building today for next three years or four years or five years or whatever that number is. But at the same time, you are also adding more and more stores every year, right? This whole period of additional CapEx and additional capacity will continue for the next 10-15 years.
Right.
The operating leverage will creep in slowly. You will not see a thin increase. I hope I have been able to answer your question.
Yeah. Another question is on the non-staff cost, particularly other expenses. In the annual report, there has been a lot of focus on the green energy and stuff like that. So how do you see that power and other costs that probably, reduction plan that you have during this current time and also on a longer period of the next two, three years?
I think cost as a percentage of revenue, I think we are there. We are almost there. Anything else, I think you should look at it as a basis point improvement, if at all there is. You see, in the other expenses also, huge chunk is also on account of the employee cost.
Right.
But I think operating leverage per se, further benefits may be 2 basis points. See, you guys only look at lowering costs. Also remember that bulk of our cost is employee cost. As minimum wages and all of that goes higher, then the cost can also go up.
Right. Okay. Thanks, Neville, so much.
Thank you. We have next question from the line of Aditya Bapat from Equentis PMS . Please go ahead.
Hi. Thanks for the opportunity once again. I got disconnected earlier on. See, my question is that, apart from store expansion and obviously volume growth, which other areas do you think that your future revenue expansion can come from? Say, by having an in-house pharmacy counter or selling books or furniture or something like that. Is something like that on the cards as well?
Aditya, we constantly review opportunities, and this is part of the merchandising team's job and the merchandising head's job to look for opportunities continuously.
Okay.
Small incremental improvements or small category additions depending on relevance. Our principle is relevance to the model. It should be relevant to the model. For example, furniture doesn't make relevance. The relevance is very poor. That's why we don't sell furniture. But within furniture, simple chairs or something like that, a few things we still do, right? Decisions are based relevance to the model, which is quickly viewed, quickly analyzed, and quickly picked up. Less time for or hard-to-comprehend products we don't like to sell.
Okay. Got it. My second question is on the DMart Ready. The rough guidance that we have is for your stores, but then what is the number of DMart Ready stores that you're targeting, say, per year on a steady state basis?
I can't give you a number. This is the incubation period for DMart Ready. Unless I don't get the model right, I can't give you a number. If the model is right, the opportunity is huge. But we have to first fix the model.
Okay. What is the kind of CapEx that we incur? I understand realistic costs will be different, but on other things, for a DMart Ready store?
DMart Ready also has the lease.
Yeah.
Simply means that everything else is just related to small civil and a little bit of lighting and air conditioning. If you do a square footage to square footage comparison with DMart regular store, it is around 20%-25% higher per square feet.
Okay.
It is very small, right? Very tiny. So, the average outs are higher.
Okay. That would be it from my side. Thanks a lot and all the best.
Bye-bye.
Thank you. We have next question from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah. A few follow-ups. On the cash and carry, you have delayed the plans. I wanted to understand what was the reason for it.
All hands are on deck to manage the pandemic, Abneesh. That's it. We're just focusing on the current business.
Once the vaccine comes, it will be back on track?
I cannot comment on that. We'll see.
Second is, WhatsApp in their global call, they said that just like the tie-up with Jio in India, they'll be open to more such tie-ups within India. What's the thought process? Are you engaging with them? Do you see this as something which is important for the business?
What is that? I missed the question.
WhatsApp, essentially, JioMart has a tie-up, so essentially the retailers, the customer, ordering on WhatsApp.
Are you also engaging with WhatsApp on that?
I would not like to comment on that, but I will tell you what this is all about. See, to get orders from WhatsApp is possible even without engaging with the WhatsApp company. There are a lot of operators who provide this service, tech partners also. If we want to go down that path, it can be done anyway. But currently, we are busy with the DMart Ready model and our app and our business. We are focusing only on that.
And last question is, in the initial remarks you said FMCG tends to do better as the aging of store happens. Why is that? Is that because of the better pricing in FMCG in the minds of customers, that is the thing? That's why that happens.
That is one. Second is the propensity of people who are living closer to the stores coming in with higher frequency is higher, and when the frequency increases for them, then the FMCG buying becomes more.
Okay. That's all from me. Thanks a lot.
Sure.
Thank you, sir. We have next question from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Yeah, hi. Good afternoon, Neville. Thank you for taking my question. My first question is with respect to you talking about that at the store you're seeing more middle class and lower middle class coming to the stores, and there's a kind of shift in terms of customers. Is there a trend you are seeing that there could be market share gains from the unorganized, which is the kirana stores, on the back of this pandemic?
Yeah, quite likely, Sheela. But like I said, give us a quarter to give you more color on this. But I am personally quite excited about these changes. But we need some more time to see how this pans out.
Okay. Just another question here. You talked about larger stores going forward. Is this something you will do across larger towns and small towns, or is it going to be more strategic in terms of the location?
Obviously, cost of real estate will be the defining factor for it. Logically it will be more mid to smaller town kind of strategy. I can't be having $50 leverage stores in cities like Delhi or Bombay, unless it's outskirts, real outskirts. So, price of the real estate will be the defining factor to decide.
Okay. And one final bit on DMart Ready. Obviously, the DMart Ready revenues are up 2.5x in the last 12 months. Demand you said is up 5x. Are there any learnings which you have gathered especially outside the MMR? Because you have actually expanded into 200 cities in a period of one month. Is there something which you picked up in terms of consumer trends, in terms of ticket size, in terms of pickup or delivery? Is there anything you would like to share?
But I would like to just clarify, when I say demand is 5x, it doesn't mean I'm clocking 5x. I hope that's clear. I'm not giving any comment on how much revenue we are doing right now. But as far as Ready is concerned, what is interesting is what we are seeing is a lot of the people who are shopping on Ready are people who know DMart. The pattern of shopping a lot, not everybody, but a lot.
So, the pattern of shopping is almost similar to a DMart store. What we are only seeing is that there is a reasonable premiumization, which effectively was also what was the hypothesis why we got into this business, that there is a chunk of people who like the DMart product but do not probably like to come to the DMart store. Okay? And we are capturing that very nicely, very sweetly through this format. And they are more affluent people. That's why the premiumization. So that is one insight I can give you on the DMart Ready model.
And then last one, Neville, is if you can share the number in terms of what is the number of orders DMart Ready is doing on a daily basis.
I can't comment on those now. I can't comment.
Okay. Thank you. That is it from me.
Thank you. We have next question from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Yeah, hi. Thanks for the follow-up. Just one question, Neville, on, again, coming back to DMart Ready. One of the things is, what is the bottleneck here in terms of fulfilling orders? If we do a rough math of the number of stores and the revenues we have, it implies about, say, INR 40,000 revenue per store per day. Are we seeing some of the stores, say, doing INR 1 lakh, INR 2 lakh, INR 3 lakh, and some of the stores being in latency?
Just trying to understand and also coming back to one of the things you spoke about earlier, that a lot of the cost at the e-commerce level are head office and tech costs, which need to be amortized with a higher amount of sales. When we say that, is it that this pool of 200 stores can get us INR 1,000 crore of sales? Or does it necessitate us to have 800,000 stores to make up for that large common cost?
First is why we are going slow is we want to focus on the breaking even at the operating level without the head office cost. That is the first target. Unless we don't see a reasonable visibility there, we didn't want to expand. That's broadly the thought. And obviously, DMart Ready the way we wanted it to be done. And the basic DNA and culture of the organization tends us to go a bit slow on this. But now because of the pandemic, the revenues are significantly higher than what they used to be earlier. We will see. We will need probably another three to six months to kind of have a broad direction in what we should be doing here. It's definitely better than what it used to be earlier. It's very encouraging. Let's see. Final thought.
Thank you, sir. We will take the last four questions. We have next question from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi, thank you so much for my follow-up. Neville, I have just one curiosity. You keep referring to the business model which is relevant category and which is not. For example, I assume that business model is low cost, ticket size, mass market, it sells quickly, doesn't require too much of capital to be invested in inventory, et cetera. And you also probably think grocery is a mainstay and that is not e-commerceable as much as other categories are. My question is that while we define the business around our model, does it also mean that it limits your vision to think about the larger game about retailing as such, where you have an opportunity.
Because in my view, DMart is a philosophical idea where customers would think its business is positioned to deliver superior value, and probably they'll come to expect of superior value in anything that you can sell to them. But is too much of focus is sort of a trade-off between the larger businesses you could build or maybe it's too conservative at your end. I'm just thinking that does it mean that that's the reason you are also so conservative about online because many categories which are very, very online available and marketplaces can be created, but you're not going there because you just think about grocery as a mainstay. I mean, are your thoughts there that is this opportunity being undermined?
No, Amit. Amit, let me make this comment, which is unambiguous, that what you think and what we think is the same, okay. From the idea perspective. I think there is a dissonance in the speed. You guys probably want us to do it very fast. We don't want to do it that fast. That's it. That's the difference. And we would like to evaluate ideas as they come one at a time.
If it means that, okay, I can do 10 things because of this value proposition, you may want me to do all the 10 in the next 12 months. I will probably do one at a time. I'll do one, I'll review, analyze, and then I'll go to the second. If I've got a strike rate which is 100% by the time I've reached the third, then maybe the next time I may not do one idea at a time, I'll do two ideas at a time. And that is the DNA of the organization. We're completely on board. And I've heard you about this before also. I think there's alignment in the thinking. It's just there is no alignment in the speed. That's it.
Sure. No, I get it. But it doesn't mean that where I see an opportunity, to be honest, you run the business. We don't. We're just outside observers. So, pardon us for being so inquisitive and at borderline sometimes, obviously, on which we could easily understand and think. But let me just stretch this as well. For example, private label journey, right. I mean, you have obviously been conservative about a little bit private label thing as well. That let's build it very slowly over time, which I understand from mainstream FMCG brands, but there are whole lot of categories which have always been served by unorganized players and smaller players. I see beyond staples very little attempt for you to actually organize that under DMart brand.
I mean, that's the reason where I'm coming from is there's some very obvious opportunities which can be plucked away, but it is still served by regional brands which customers actually don't care whether you buy some DMart brand or another regional brand. But those opportunities probably are not aggressively sought. That's what my observation is, but I may be wrong.
You can send us a note on which are those categories you think about.
That probably we are missing. We are happy to relook at it. Very happy to listen to anything that is a blind spot to us. We tend to have blinkers on because of being so focused. Very happy to listen to your point of view. Please write to us and tell us which are the categories we are missing on.
Sure, Neville, I will write you an email.
Thank you so much.
Thanks.
Thank you. We have next question from the line of Dheeraj Pandey from Goldman Sachs. Go ahead.
Yes, thanks. My question has been answered.
Thank you, sir. We have next question from the line of Avi Mehta from IIFL. Please go ahead.
Hi, sir. I just had two bookkeeping questions. One was the extent of the one-off cost that would have been incurred because of pandemic. Would it be possible to kind of quantify it in the first quarter so we can look at help understand the demand impact only?
Avi, we cannot comment on that. Yeah, we can't comment on that.
Okay. Second, Neville, I just wanted to kind of take, you said that the gross margin across categories has not changed. Was this more a yearly comment or were you talking even about first quarter? Because you didn't see a very material kind of, thankfully, moderation in gross margins. So, I wanted to just understand that context.
For a short period, during the pandemic, mix changed.
There was a certain recalibration on a very small sector of categories for margins. Small recalibration. That is it. Very marginal.
This will be more market-driven and has it been corrected back or is it.
Corrected back.
Okay. Lastly, on the store acquisitions, you are doing a lot of acquisitions during this pandemic, but knowing the DNA of the company, would it then mean that these 50 stores that you would add or whatever, 50, 60 stores or whatever you are adding on next two years, they would have a higher salience in your existing cities than your 70-30 rule because the ability to explore new cities is kind of compromised given where we are right now. Is that understanding correct or no?
No, but see, our strategy was anyway aligned with the pandemic also. We always said 80-20 or 70-30, right? 70 or 80% of our stores will be in existing cities. We continue with that positioning.
Okay. But it does not tilt it more towards. What I am saying that exploring a new city becomes extremely difficult, right? I mean, going and finding out demand and patterns are not stable. That is why I was
Yeah.
Trying to understand whether you are still even looking at even new city. That is what I wanted to know.
Yeah. The balance sheet allows you to go to new cities, and it is a fundamental business from a breakeven point of view is not so challenging, Avi. As long as we maintain a 70-30 or an 80-20 ratio of old cities or existing cities to new cities, I do not think we have a problem even with the pandemic.
Okay, perfect. This is very useful. Thank you very much. Thanks.
Thank you. We take last question from the line of Srinath from Bellwether. Please go ahead.
Hi, Neville. Just wanted to understand, given that location cost and wage cost significantly differ from locations, and we would probably have dynamic costing, how does dynamic pricing work? Is it at a store level decision, cluster level decision? Would we try to assume that as we move into Tier 2 and Tier 3 cities, that the discounting or the value proposition that we give would be significantly stronger than what one would see in a city like Mumbai or Bengaluru?
Yeah. We have all levels. Pricing can be decided at a central level, certain pricings can be decided at a regional level, and certain pricing decisions can be decided at the store level also. All have been given authority based on certain rules. The tech is designed to be agile. People are trained to be agile. That's it. Everything is possible. But in general, broadly, margins are a factor of the assortment contribution.
But generally, the pricing to the consumer, more or less, the vision is irrespective of real estate cost, the pricing proposition to the consumer has to be the same. I don't want my team to start getting into, "Oh, Bombay real estate is very expensive, so we'll make more margin in Bombay, and small town we'll make less." It doesn't work like that. We are very particular about our positioning in the market.
We want to be a deep discounter. We want to be seen as a retailer who's delivering great value. And if somebody is giving an ROIC of 25% and another is giving a 15% because of this common positioning, it's okay. As long as the blended average ROIC at the company level is what we are delivering, I don't think too much of micro-analysis because of real estate cost is something that we bother too much about.
Not from a margin perspective. I'm more referring from driving better value for footfall perspective.
Better value footfall perspective is assortment. We always do the assortment alignment with the local market. What the local market wants is what we deliver. Assortment is totally aligned towards the local market. You will not.
It should be based on the costing of the real estate. If we are getting a sweeter deal on real estate or the operating cost of the store is significantly lower, wouldn't that give us leeway to pass on more to the customer and drive footfall?
Yeah. That's why I'm saying real estate is a real estate decision. We don't mix real estate with business. Business will operate based on business calls. There should be no connection between the two. What I'm trying to say is that assortment is aligned to the local markets, and we have a very strict protocol on what is the maximum margin we can earn on each subcategory. Nobody's allowed to cross that line.
Got it. Thanks. Thanks a lot.