Established grocery chains have begun feeling the pinch of the rise of the quick commerce upstarts.
Brokerages have downgraded DMart’s stock and cited the impact of quick-commerce firms as one of the chief reasons. The downgrades follow Dmart’s parent company Avenue Supermarts posting a weak set of numbers this quarter. This, along with the lowered guidance from brokerages, sent its stock down 10 percent in trade today.
ICICI Brokerages downgraded Avenue Supermarts from an “Add” to a “Reduce”, and revised its target price to Rs. 4,100 from Rs. 5,400 earlier. “Overlap of consumers seeking convenience and shopping at DMART (value) appears to be higher than expected which should continue to impact its growth trajectory. Further, scale-up of DMART Ready (DMart’s online play) continued to be significantly lower (+21% YoY in 1HFY25) vs quick commerce despite lower absolute size,” it added.
“We cut our earnings estimates by 14% / 17% for FY25E/FY26E due to lower revenue growth assumptions (impact of quick commerce) and operating margins (due to operating deleverage), modelling revenue/ EBITDA/PAT CAGR of 17%/16%/15% over FY24-26E,” ICICI said.
Another brokerage Nuvama retained ‘Hold’ on the stock, but cut the price target to Rs. 5,040 from Rs. 5,183 earlier. “Building in the impact of online grocery players and weakness in Dmart’s H1FY25 showing, we are cutting FY25E revenue/EBITDA/PAT by 3%/4%/7%,” it said. “Management acknowledged that online grocery formats are having a noticeable effect on its high-performing metro stores,” the brokerage added.
Dmart itself reported a weak set of numbers for the September quarter. Its profit grew just 5.7 percent over the same period the previous year to Rs. 659 crore, and its revenue grew 14 percent over the same period last year to Rs. 14,444 crore. DMart’s EBITDA margin of 7.9 percent was lower than the 8.1 percent it had managed in the same period last year, and sales revenue per business square foot of retail dropped to Rs. 8,582 from Rs. 8,648 in the previous quarter.
This slowdown has coincided with a big push towards quick commerce by both the incumbents in the space, as well as new entrants. Companies like Blinkit and Zepto are rapidly expanding their portfolios into goods beyond groceries and services like print-outs, and newer players, like Flipkart Minutes have also entered the fray. With all these players vying with each other over discounts and offers, quick commerce has become competitively priced compared to discount malls like DMart, especially when accounting for the convenience of not needing to visit a faraway location and spending several hours in finishing your shopping. There had been many doubters over the feasibility of quick commerce models, but with their impact now being felt in the balance sheets of large retailers, it appears that quick-commerce could be here to stay.