BackFood and grocery retailers to clock 20% growth in revenue this fiscal: Crisil
New Delhi: Brick and mortar food and grocery retailers could report 20% growth in fiscal 2022 revenues on the back of higher realizations due to commodity inflation and market share gains from the unorganized players, ratings agency Crisil said in a report on Tuesday
PremiumNew Delhi: Brick and mortar food and grocery retailers could report 20% growth in fiscal 2022 revenues on the back of higher realizations due to commodity inflation and market share gains from the unorganized players, ratings agency Crisil said in a report on Tuesday.
“The largely non-discretionary nature of demand had kept the segment resilient even during peak pandemic in fiscal 2021, when revenue fell only 3%. Operating margin is expected to sustain at the current level of 6.3-6.8% due to better economies of scale and gradual pass-through of inflation in input prices, notwithstanding a normalisation of store rentals," the report said.
Organized food and grocery retailers will see revenues grow over 38% over the pre-pandemic (fiscal 2020) level.
“Low organized sector penetration of just 5% within the overall food and grocery retail market provides the players ample growth opportunities. Apart from deepening their presence in metro and tier-I cities, the retailers are also expanding fast into tier-II and tier-III ones," said Naveen Vaidyanathan, Director, Crisil Ratings.
Interestingly, the area under operations by such retailers grew by 40% over the past two fiscals as retailers continued to expand during the pandemic, taking advantage of low real estate prices. The momentum is expected to continue with 10-12% area growth this fiscal, said Vaidyanathan.
Meanwhile, organized retailers are also facing stiff competition from quick-commerce platforms that promise food and grocery delivery in minutes. Crisil analysts expect both the models to co-exist.
“However, brick and mortar retailers continue to hold sway as they cater to customers for their larger weekly/monthly grocery shopping, as opposed to quick commerce, which typically caters to smaller, unplanned purchases by customers who prefer the convenience of shopping from home. Besides, traditional brick and mortar players are also looking to increase their online penetration, including by partnering with quick commerce players," they said.
The report added that operating margins of brick and mortar food and grocery retailers are expected to remain largely stable this fiscal as retailers pass on the sharp increase in price of goods and continue with cost-optimisation measures.
“Credit profiles of F&G retailers will also remain stable, supported by strong cash-generating ability and low debt on balance sheets," said Shounak Chakravarty, Associate Director, Crisil Ratings.
Retailers are expected to continue with their expansion plans, these will be funded largely from internal accruals and large liquid surpluses.
In positive news for the sector, the ratings firm expects further waves of the pandemic to have no material impact on operations of retailers, unless severe. “That said, slower than-expected ramp-up of newer stores and increased competition from unorganized and quick commerce segments would be key monitorables," analysts at Crisil said.
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