NEW DELHI: Avenue Supermarts, which operates DMart retail store chain, is firm on retaining its lower price model for everyday household items to play the volume game despite increasing competition from online and offline peers.
Acknowledging that competition has intensified, the company informed investors in an analysts meet that it is taking steps to add more stores and will continue to offer staples to shampoos at cheaper rates even as its pricing gap with competitors has narrowed. “Based on our analysis, we have seen that a typical consumer basket at D Mart comes at a 10 per cent discount on an aggregate level (excluding credit card offers) to the most expensive seller,” Edelweiss Securities said in a note. Going forward with this strategy, however, will make margin expansion a difficult task for the company amid rising competition, the brokerage added. The management of the company, too, said that which seems to be comfortable with existing gross and EBITDA margins 15 per cent and 8.2 per cent, respectively, is likely to continue with this strategy in future.
In the online space, too, the firm has been following the same strategy. “On comparing DMartReady’s prices with peers in the online retail space for a basket of 27 essential household products, we have found that 52 per cent are the cheapest at DMart,” Edelweiss pointed out. The company treats it as a pilot project and is not in a hurry to expand quickly until customers are comfortable to pay for the delivery cost, noted brokerage firm Motilal Oswal.
DMart said it is committed to expediting store expansion in the FY20 and is also evaluating entry in the cash-and-carry format and open lease-based stores which could help it to reduce cost. In FY19, DMart said the store expansion was slower than expected due to a delay in regulatory permissions for the stores. The company added 21 stores this year as against 24 stores in the previous fiscal. Motilal Oswal expects the company to add 24 stores in the FY20. Kotak Securities pointed out that store expansion will increase expenses as land costs are certainly higher-than DMart’s historical land costs. However, the brokerage said the addition of new stores will support same-store sales growth (SSSG) as generally, DMart’s new stores have much higher SSSG than old ones.