Tanya Thomas
There’s been a lot of attention around D-Mart from the time it was listed, and even up till now, considering the stock has more than doubled in less than a year of listing. BusinessLine met with Neville Noronha, MD and CEO, Avenue Supermarts, which runs the D-Mart chain of hypermarkets. He admitted that the company can afford to be more aggressive in its growth targets. Excerpts:
The overwhelming response to D-Mart's IPO and its stock valuation since then has been unusual for both the primary market and for a retail company. What do you think sets you apart?
We’re in a low-margin business and this business is about managing costs and supply chain. Our supply chain is organised in clusters and we don't spread ourselves too thin geographically. All this is in our DNA.
Every time we go to a new State, it’s a new challenge. It needs to be a calibrated approach, where we look at how much (revenue) comes from existing markets, how much from new markets. You have to keep your balance right so that at the company level, the cost of doing business is not adversely affected.
You are still focussed on the western market. When does this reach saturation and when do you think you will be forced out of your comfort zone?
This is not a business that’s going away anywhere — it’s not fastest-finger-first, where if you capture the market first, you win. In any country, retail is 30-35 per cent of its GDP. I don’t think any retailer thinks of saturation. On the granular level, even in a city like Greater Bombay where we have several stores now, we could get to 75-100 stores and still see opportunities. This is an industry that has headroom for growth for 40-50 years in India. You only have to run your business well; the market exists for small, medium, large businesses simultaneously.
The only thing that bothers me is that at times maybe we’re too conservative. We believe it’s better to be conservative than to go to the other extreme. Our balance sheet definitely allows us to be slightly more aggressive than we are now.
This is true especially with your store expansion...
Primarily that. With everything else, nothing is going to change. We used to open 10-12 stores per annum and in the last two years, we've hit 20 new stores every year. Now we aspire to open 30 stores each year. We will continue with the ownership model. But if leasing stores help us accelerate growth, we are open to it.
Till a few years ago, everybody was forecasting the end of brick-and-mortar retail. But we’ve seen the reverse happen in some cases, like with Amazon buying out Whole Foods. Where do you see Indian retail five years from now?
It’s never going to be either/or. You have to give the choice to the consumer. Some days she would love to go to the store, some days she will buy online. The fact that e-commerce companies are buying brick-and-mortar and are doing technology interventions in brick-and-mortar means convergence is happening. Another important point to note is that if you sub-segment e-commerce, there have been larger disruptions in segments where consumption of products or services has dramatically changed — like with buying music, or in food delivery. But this isn’t true for grocery. At least yet.
Businesses can move online only if there’s a cost advantage. If you’re shipping a mobile phone or an appliance, the delivery cost is a small percentage of the merchandise value. But in grocery, that’s a huge cost even over short distances. And the moment you make the ticket size smaller, the cost goes up further. So, brick-and-mortar has the cost advantage in grocery.
Having made the case against home delivery in grocery, D-Mart does offer the service to some shoppers in Mumbai. What has been the response like?
Home delivery is at a fee. It’s not free. No customer likes to be charged. India is used to getting free home delivery on everything. We are against a big challenge not just economically but psychologically too. We have just begun. Let’s see.
Have your customers been taking to it?
It’s still at a very early stage. We would have been happier if we did more business in this segment. But it’s only been a year since we started. We’re looking at this with a 10-year horizon. We will learn and adapt along the way.
A hallmark of big retailers in India is for them to launch their own in-house brands which gives them better margins. But that’s another thing that D-Mart hasn’t done much of. Why is that?
We feel that private labels as a concept takes time. We don’t have the bandwidth or the capability to launch private labels nor do we have the DNA to spend large amounts of money on marketing our own brands hoping that one day it will be popular. For us, our store brand image is important. We don’t want to offer private labels just because it’s half the cost of the leading brand in the same segment and gives us better margins. Quality of products is important to us. We do have a few of our own brands in personal care, home care and a little in food, but again, these are small experiments. India is a very efficient market. Manufacturers have built strong brands with reasonable margins.