
Home delivery eats DMart Ready's grocery lunch
Summary
- Avenue Supermarts Ltd will now offer only home delivery in certain areas, marking a change in strategy amid rising e-commerce demand. CEO Neville Noronha will be replaced by Anshul Asawa on 1 February 2024, as investors worry about future growth and competition in the grocery sector.
The instant commerce avalanche has caught Avenue Supermarts Ltd's DMart Ready stores off-guard, forcing India's largest listed retailer to shutter many of these pick-up points and shift focus to the home delivery space.
Avenue Supermarts rolled out the DMart Ready model following the covid pandemic outbreak in 2020, where customers could order online and collect groceries from a pick-up point. However, the model has struggled, even as the company's long-time CEO Neville Noronha prepares to exit.
On Saturday, the company announced, for the first time since it went public in March 2017, that it will offer only home delivery options to consumers in some towns, ending the model of small stores acting as pick-up points.
"In the rapidly evolving dynamics of the grocery e-commerce market, we are seeing significantly more demand for home delivery compared to the pick-up point, and hence, we continue to align our business to that extent. Our home delivery business now far exceeds our pick-up point sales contribution…In several towns, we now only operate home delivery as a delivery channel," said DMart.
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Alongside, the company said Unilever veteran Anshul Asawa will become CEO on 1 February, 2026, succeeding Noronha who built up DMart since joining as CEO in 2007 as India's largest listed organized retailer by revenue.
DMart, which ended FY24 with ₹50,936 crore in revenue, had a market capitalization of ₹2,39,841 crore at the end of last week, making it again the most valued retailer. Trent Ltd’s market cap totalled ₹2,33,980 crore on Friday. Still, Avenue's public investors, who own 25.35%, and the promoter, billionaire Radhakishan Damani, who owns 74.65%, are anxious about the retailer's future, especially its e-commerce business.
According to one analyst and three investors, who spoke on the condition of anonymity, DMart's e-commerce strategy, which had 387 large-format retail stores at the end of December, continues to be a work in progress as it competes with quick commerce firms such as BlinkIt, Zepto and Instamart.
Noronha, 50, did not respond to Mint’s detailed questionnaire.
The number of DMart Ready stores peaked at 573 at the end of March 2023, a Mint review of the retailer's annual analyst transcripts showed. In the ensuing 12 months, it closed over 40%, or 232 DMart Ready stores, ending with 341 stores at the end of March 2024.
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The retailer has not shared the number of DMart Ready stores now. Still, in December, the retailer closed over half a dozen DMart Ready stores in localities in Mumbai, including in Dadar, Mahim and Nagpada, and Pune, two executives said on the condition of anonymity.
“FY24 was the year of consolidation for DMart Ready," Jay Gandhi and Tanuj Pandia, analyst at HDFC Securities, wrote in a note dated 31 July. “It closed 232 pickup points (341 stores now). Format’s serviceable area hasn’t reduced though as a consequence, and sales density has increased as the coverage area for each point has gone up."
The launch of DMart Ready was a reluctant embrace of e-commerce.
"These are temporary activities and shall be withdrawn once the overall lockdown is relaxed and there are reasonable footfalls back to the store," said Noronha in prepared statements dated 23 May, 2020, after the retailer announced its earnings. "Avenue Supermarts Ltd would like to focus on what it is good at - running a brick-and-mortar business," Noronha said.
Quick commerce caught on like wildfire during the lockdown, and exploded in the post-pandemic era, delivering goods to homes in a few minutes; however, Noronha continued to back the good old shopping experience.
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"At a fundamental level, we believe that for grocery, e-commerce is a channel of convenience while brick and mortar is still the channel of joy," Noronha said in a prepared statement on 14 May 2022. "Each has its unique magic."
"The rise of the quick commerce model has brought in a structural change in how people bought groceries and many other goods," said the first investor. "DMart’s e-commerce strategy is still far from perfect. So, we will continue to see these recalibrations."
To be sure, DMart gets about 3% of its total business from selling online.
“But more people looking at buying groceries from quick commerce firms hurts DMart’s topline growth in this segment. The other bigger worry is that its profitability in the apparel business has taken a hit, as Trent’s Zudio format has become a rival," said a third investor, a Bengaluru-based executive.
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“DMart faces a double-whammy in that its revenue growth is slowing because of the rise of quick commerce, and its profitable apparel business faces competition from the likes of Trent," said the executive. “The next 24-36 months will see if the new CEO wants to have a more defined e-commerce approach because the current model makes DMart look like sitting in the middle," the executive added.
Still, all three investors agree that DMart must be credited for its succession strategy.
In July 2020, DMart reappointed Noronha for five years, six months before his earlier term was to end on 31 January, 2021. DMart announcing Asawa as CEO-designate, effective 15 March this year, implies that the new CEO would get to work with Noronha for at least one year.
"It is a very planned move," said the second investor. "I don't think investors would be worried only because of this leadership change as the successor, based on his profile, appears to be a solid guy."
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