Avenue Supermarts Limited (DMART) Earnings Call Transcript & Summary

I now hand the conference over to Mr. Rushabh Ghiya. Thank you, and over to you, sir.

Good morning, all. Thank you, Lise. Welcome, everyone, to our annual investor and analyst conference call. We do hope that you are staying safe and keeping healthy in these uncertain times. I have on call with me senior leadership team from Avenue Supermarts Limited, Mr. Navil Noronha, MD and CEO; Mr. Ramakant Baheti, Group CFO; and Mr. Niladri Deb, CFO, Avenue Supermarts Limited. We hope you've had a chance to look at our presentation, which was uploaded day before on the exchanges, and it's also available on our website. We will follow the usual format with Navil taking us briefly through the presentation. Post that, we will open up the session for Q&A. Just before that, I would like to draw your attention to the safe harbor statement for good governance, and I'll then hand over the call to Navil. Over to you, Navil. Thank you, everyone.

Thank you, Rushabh. Good morning, everybody. Hope you all are staying safe, and also your loved ones are keeping fine. Like every year, I will take you all through the presentation quickly and then open up for Q&A. And I'll do my best responding to every single question, time permitting. So I'll go by the page number based on the presentation uploaded on the exchanges. I'm on Page #5, key updates. This is a quick -- I thought it's nice to start the presentation by giving you an update of Q1 that has just passed by. Everything that's mentioned on this page, except point #2, which we added newly, is part of what we released in Q1. So what we're trying to say on this page is -- which effectively tells us how we are doing as a business, which is finally organic sales for stores which are 2 years and older, which is [ finally ] the point number 2, they're just saying that 2 years and older stores are already doing 91% of sales in the latter part of June. What is interesting to note there is, I had alluded about it briefly in my update for Q1, but we are now giving you more specifics that in states where regulation has been eased much earlier, we are already doing more revenue than 2019 for 2 years and older stores. That's a very, very positive sign for us. And that has been a consistent direction that if stores are operated with at least 10 to 12 hours of operations per day, but more importantly, caveat being that they should be opened in the afternoon and evenings. So if I'm open at, say, 6 in the morning to 6 in the evening, doesn't help as much as it's opened at least still 8 or 9 pm, the sales comes back, yes? So that's a very, very positive time. So we still have primarily 1 state where restrictions are still tough and hence, that state is taking more time for business recovery. If you go to Page 6, this basically talks about the mix of sales. Obviously, because of coverage last year, throughout the wave 1 and even in some states after that, there are huge restrictions on selling nonessentials. So the mix change is primarily because of restriction of nonessential sales. Food, obviously, in fact, had a positive growth rate vis-a-vis last year, and that's why it shows 57%. Non-food FMCG, which is basically shampoos and detergents and all that, didn't perform in line with food for the simple reason is opportunities to go out significantly reduced. And hence, consumption for those categories reduced. But if you look at this data in context of Q4, I think what we saw was general merchant and apparel business came back, yes. It was business as usual in Q4 of last year. But again, the second wave Q1, we again had a huge hit and business was literally shut for almost a month in quite a lot of cities. So that is about the mix. Page 7, same as usual. We continue to do what we've been doing for so many years. Given an options, open stores in cities where we already exist. And also there's a calibrated approach to going to new cities and new states, but it's business as usual. We opened 22 new stores, and we also converted 2 existing stores into fulfillment centers. I'm sure there'll be a lot of questions on e-commerce. So I'll take those questions later. But just to give you perspective. We did this more as an experiment in Mumbai because there was inherent demand. And we couldn't scale up our e-commerce demand by going to a greenfield new setup. So because we had 2 existing stores, we said why not try this and do e-commerce there. And we only picked up those regions where we felt that there is a store close by and a lot of that revenue that is lost is recouped by these stores which are closer. So that's why we selected 2 specific stores that in 1 in Kalyan and 1 in [indiscernible]. If you go to Page 8. Like we had spoken in the last analyst meet, primarily because of COVID wave 1 and practically everything shutting down for the first quarter, our store openings for financial year '21 was not very good, we had forecasted that. But we also said that we'll make it up for this year. But at that time, we never imagined the way -- a second wave. But we are still catching up and hoping that if there is no further disruption, we should hold on to what we had committed on store openings for a combination of last year and this year, with the 59 stores is what we had said. Going to Page 10. So again, we go to on the first slide which is bills cut. Obviously, because of COVID, the number of people walking to the stores significantly reduced. But interestingly, what happened also is people bought more per trip. So that was a good sign. And that was also one of the key reasons why we could keep our cost under control. This is again more efficient for us in spite of the lower footfall. Like-for-like growth is negative 13%, and that again happened because of COVID. This is for stores which are 2 years or older. So again, primarily because of COVID. But like I commented, which is also mentioned in the first slide that I spoke about, last 15 days of June has been very, very promising, and states where relaxations were declared much earlier are already in the positive. We added 1 million square feet this year because of the 22 stores. So more or less, the sizing of the store is more or less the same. [indiscernible] [ 50,000 ] SFT store. And the reason for that is what we have mentioned earlier also that larger stores is working out better for us, and that's why we like the size of stores to operate. On the last slide on this page. Revenue per square feet again came down because of COVID. [indiscernible]. If you go to Page 11, the first slide under top left is again basically revenues. EBITDA and EBITDA margin again got hit, obviously, because of the revenue impact. We had new store earnings and then we had overall revenues going down. But I still think it's -- considering the circumstances, delivering a 7.3% EBITDA is still not bad and also a PAT margin of 4.9%. So in general, quite happy with how the business was run and especially to our employees who did a phenomenal job in managing the business in such trying times. So I'm personally very, very happy with the way we run the business. Go to Page 12. So top left, inventory was a very interesting area but it also kind of showed or kind of reflected the capability of the buying team and the basic fundamental of the whole business in terms of what are the kind of articles we have, what we sell, how do we churn them. I think we've done a good job here. And the incremental inventory of 36.5% is something that's nothing to worry about because again when business comes back, we come back to our regular inventory in there. So I think no issues there. We've not had any major write-downs on inventory. And fixed asset to inventory turnover ratio, again, huge drop because we continue with our aggressive store addition plan. And it's just a simple arithmetic of deferred revenue and more addition of assets and therefore, has gone from 4.1 to 3.1. We don't have any debt, right, [indiscernible]? So can you comment, Niladri, on INR 296 crores?

So the INR 296 crores debt that you see on the right-hand top corner is largely the [indiscernible] restatement of lease liabilities for the stores and [indiscernible] we have, but on a borrowing basis, a borrowing revenue versus last year.

Thanks for that, Niladri. Thank you. And obviously, the last slide on this page is return on capital and return on net worth. It's 9.9% and 11.5%. Again, there was an impact of revenues purely on the consequent profit reductions that we fought because of COVID. And here again, my counter to that is Q4 was great. We recovered, we bounced back relatively well. But again, Q1 went down because of the second wave of COVID. But again, we are seeing a sharp recovery in states where everything has opened up for shopping. Page 13 is just a lot of details on the stand-alone, consol. But what I would like to go to is I'm sure everybody is more interested is on Page 14, which is the e-commerce business. And these are the numbers we have delivered. So I'll spend a little bit of time here on Page 14, the first Avenue E-commerce Limited business. Obviously, we've more than doubled our revenues. [ These revenues ] primarily from Mumbai city. We started other cities much later. So revenues were great. The business did phenomenally well during COVID. In fact, while the top line and the revenue numbers look good, we also got a lot of flak from the customers because we couldn't service them the way they would want to. The demand was super high. We tried our best to whatever extent we could. But we got excellent insights on the business. And again, kudos to the team for running it really well, very efficiently, kept the costs under control. So what's -- again, for me, very personally very, very satisfying is that we kept our costs under control. We've spent just about the same amount of money that we did at a significantly lower revenue, which is very promising. But again, preempting question on this area. I think we have a very, very long way to go, while we are more positive on this business and positive simply because customers want it, right? Any city, any place we go, there is a section of consumers, shoppers who want grocery at the doorstep or want grocery closer to their doorstep. And that's why the model that you've heard. And we're going to -- within the framework of our demand stands for, we are going to pay reasonably good attention to this business. So that's my comment on the e-commerce business. And with that, I'm done with my presentation and open for questions, Rushabh. Thank you so much for listening to me. Thank you, Navil. Lise, we can open the floor for Q&A.

[Operator Instructions] The first question is from the line of Avi Mehta from Macquarie.

My first question, as expected, would be -- is on e-commerce. I wanted to basically understand your thoughts on how you see the space evolving post the pandemic. And how especially do you see this changing the way the customer looks at off-line retailing, would you revisit the offline store sizes? And if you could kind of give your thoughts on this, please.

Avi, so it's more or less the same, Avi, as what we spoke last year. Our view is both will coexist. India, again, bulk of the incomes are such that the basic cost structures on one side, which is the commercial side, and the consumer profiling or the consumer need at the other side, have still not evolved to an extent that we feel that offline will -- grocery. I'm talking just about grocery e-commerce or grocery retail, right? We believe that offline also has humongous potential. So they are going to straddle both side, Avi, offline as well as online. We'll continue to focus our attention on offline, building the business, a profitable business, it's a business we understand, which has been built out and/or fine-tuned for almost 2 decades. So we will do both, but primarily all our investment focus, attention will be on the offline business. And also in large towns of India, we will look at e-commerce grocery the way we are doing right now. That's our view. That's my limited view. I don't want to comment on anything else for whatever. Simply put, in my limited understanding on so many other things that are happening, right? And you have instant grocery retail, you have marketplace retail, so many other things, digital convergence. I don't understand all of that. We understand grocery retail. We understand DMart. We understand the DMart customers. And we are looking at it as an alternate channel for more convenience for a particular type of customer who would not want to come to stores that often. That's the way we are looking at this one.

So then would it mean that for a -- is it a geography-wise kind of focus, so cities might see more focus on online or e-commerce versus smaller towns, tier 2, tier 1 would see more offline? Is that how I should read the comment, sir?

Yes, yes. So we will be focusing on online more on large stores, which we always have, that large metros, large towns, and we'll straddle from that direction. So when I say large town, what do you define as a large town, right? Somebody may say even a 1 lakh population town is a large town. What we are trying to say is that we're going to address this opportunity from a macro perspective. Let's see how it's doing in Bombay, Bangalore, Hyderabad, right? And then let me then try Ahmedabad. Let me then try Baroda or Surat before Baroda actually considering the population. And then within that, we say, okay, fine. Do I have some risk capital to even try and maybe another couple of cities? We'll do all of that. But our view is this opportunity is in large towns. I mean, you straddle it from very large town metro, make it work there and then go slowly to the other cities.

So the second part also hold true that the offline would then also be lesser in the larger towns and it will be more in the smaller towns when you see additions?

Okay. So it's -- again, I think this is what I constantly get asked, and I counter it by saying, why do we need to see as a binary? Why is it that in e-commerce growth, we feel that it's going to be a threat to modern trade? Not really. Because what's the modern trade penetration in the market today? Yes. So you have to look at that. So in a metro city also, what could be the modern trade penetration? 30%, 35%, 40%? You still have 60% opportunity left. Today, in a Mumbai city, for a brick-and-mortar business, actually, it's not online that is a threat. For us, it is the availability of real estate that is a barrier. So I could be 2x of my current revenue in Mumbai if I could easily find a DMart property, the kind of properly in more locations in Mumbai.

Okay. Okay, sir. Okay. Sorry for taking a longer time on this. But my second question, sir, if I may, was on the near term. Now you are at almost a 9% decline in the last 15 days of June. And you've highlighted in the results as well that it takes about 45 days of uninterrupted operations to reach back to normal. Does that imply, and please correct if I'm reading too much, that we would be back to normal probably by -- only for a third quarter, and that's when we see growth? And if that is the case, if that is what you're feeling, would EBITDA margin normalization also be in a similar kind of time frame?

I cannot comment on that, Avi. What we can say is that it is -- because bulk of our revenues come from 1 particular state, and there's the restrictions are still ongoing. That's what's distorting the overall company numbers, right? So I really cannot comment on that specifically.

Sir, would the second part be true that EBITDA normalization would be linked to sales normalization? Or would it be -- would there be a divergence because you are doing a lot more cost?

No, no, no. The biggest contributor to improved EBITDA is top line sales. And within that, nonessential sales. These are the 2 important criterias. And both of these, you can deliver them or bring them to normalcy only if the number of our other operation is reasonably good for the store. So let me put it this way. Consumers want to come and shop, right? It's just that regulation, to an extent, hampers that as of now, in certain states. From a fear standpoint, there is no fear anymore is our sense at the ground from a consumer shopping perspective because -- in fact, the nonessential side in other states where things have opened, actually, there is a surge. There's a reasonable surge of buying there because of pent-up demand, right? But it needs some relaxation from a operations perspective, store operations perspective.

Sorry, if I may ask for the -- if there is a surge, is there an increase in competition as well, competitive intensity?

It's too early to comment on that. I don't think many operators will think about competition, meaning, price discounts or whatever, but there is a inherent pent-up demand, right? People just want stuff. They haven't been shopping for a reasonably long time on the nonessential side. So I don't see it as competing. In fact, if there's anything, the unorganized sector has got disrupted quite a lot, especially the nonessential side, which is a good sign for operators like us. Anybody who is organized is going to see a reasonably good bump on nonessential discretionary buying.

Okay, perfect. And just one comment or a request, if I may say. I saw in the annual report you have actually followed through and have not shared any message. I would just request if you could pen or share your thoughts in any form, whether a letter or something, it will be great. It's always useful to understand your thoughts on...

We are talking about the CEO message, right?

Yes, yes.

He is asking you to write.

Yes. I'm asking you because you said in the last 2 annual reports, you would stop, you would stop and you've actually done that this time. I wanted to request if could please do it in any form. If not in the annual report, any other form, any other media, but we would love to hear from you.

Thank you. Thank you for that, Avi. The only reason I didn't write is because I have written a lot because of COVID, yes? In fact, last year the comment was a reflection of this year, right? But I wrote it last year because, obviously, we write it around July. But I have said that if there's something very meaningful, I will definitely write.

The next question is from the line of Abneesh from Edelweiss.

My first question is on the fulfillment center. So any more markets you want to do this kind of a pilot project? And there was a store which was there in, say, 4-, 5-kilometer radius. But any sense of some loss of market share because always the consumer is also quite lazy in India, that e-commerce is available in Mumbai everywhere? So any market share loss data you could point out because of this?

These 2 stores where we shut down?

Yes.

So Abneesh, what we saw broadly is in the alternate store is in a reasonable distance and has capacity to service, at least 40%, 50% of the revenue comes back to those stores, yes, around 40%, but provided those stores has the infrastructure or the capability to service. So that's 1 data point I can tell you. And another data point is, again, Indian consumer is very different from others. I think if there is one reason why people don't travel long distances is purely because of the infra, ability, the time taken to travel is the problem. Actually during the weekend, there's always people who don't mind traveling a little bit more distance to get great value. That's the insight I would like to give you.

And any more markets you're planning there?

So we are in -- we've launched in Hyderabad and Bangalore as of March, and we are looking at a few more cities. And Pune. Sorry, we are open in Pune. I'm sorry. Yes. Pune and Bangalore, Hyderabad. And we are looking at a few more cities. You are -- I mean, if you know, keep it track for the market, you know that we're doing some more cities, too.

Sir, my question was on the fulfillment center getting closed and getting converted. Any more cities you're doing there?

No, no, no. [indiscernible] shutting stores to do [indiscernible]?

Yes.

No, no, no. Like I said, right, we did Mira Road and Kalyan just because of paucity of time. There's huge pressure, huge demand, and we wanted to kind of monetize that demand, not just from a revenue perspective, but also it will give us good insights, good learning, yes? So -- and the trade-offs were just maybe 40% or 50% revenue loss for these -- just these 2 stores. And that's why we took that call. But I don't think we will do that anywhere else as of now as we speak.

Abneesh, in addition, we are also there in Ahmedabad.

Now you always discuss and for the customer also the lowest price proposition for Avenue Supermart is extremely strong. Now, of course, with JioMart, Flipcart, Amazon, Grofers, [indiscernible], Zomato, BigBasket backed by Tata's, I'm sure lowest price proposition would have deteriorated versus, say, 2, 3 years back. Last analyst meet, you are discussed, you give freedom to the local store management to address any specific issue on this front. So could you discuss how often that step was needed? And second, any sense you can give versus 3 years back, how the situation is, how much are you the lowest in terms of pricing, whether in any basket?

So at an entire basket level, doing a thorough analysis, I would not be able to comment, Abneesh. But like I said, even last year, our systems are very agile. Decision-making is now pretty low in the hierarchy. Store managers can decide for themselves what they want to do. So our systems and our processes are aligned to reduce prices is to maintain our positioning in the market. In terms of comparative intensity of competition, I don't think there is anything meaningful to talk about there. Everybody -- all retailers are focusing to get their overall business back on track. So I don't think the time has come yet about discounting or being aggressive on pricing and all of that. And we don't see that anybody has come reasonably close to our pricing yet. But your concern is as good as ours. Obviously, if there's a business that is working well by cutting prices, maybe a few other retailers will also copy that or do that. But we will see. We always said that we'll compete and we'll try to maintain our positioning as the best value retailer for a shopper.

And the freedom to the local store manager, was it something which was quite commonly used in terms of pricing?

Yes, yes. From the very beginning, that's how we work.

Last question on e-commerce and the delivery. So three questions there. Free delivery beyond the threshold, any thought process there? JioMart, there is that facility at INR 10 or INR 20 also free delivery. Second is franchising DMart Ready. Is that an option which is possible. So if you could discuss these 2, and there's 1 more question I'll ask on this.

Okay. So are you going to ask the third question or I'll answer these 2?

Yes. The third question is again on DMart Ready. So when I see your store in DMart Ready, it's quite small. But in that small store, you're selling pouch milk, which is essentially extremely low margin. So is that more to popularize that product -- popularize that store and as a concept to the customer? Because again, you need refrigeration, you need space and customers can buy that off the shelf. He doesn't need to actually get -- actually order and then come there. So again, the whole delivery thing is not getting popularized, the store is getting popularized. So what is the thought process? Is that a long-term thing or more of a short-term marketing initiative?

Okay. So I'll go one by one. Free delivery is something I don't think we will offer for home delivery. But at the same time, we have now executed a cutoff. We don't charge more than INR 79 now per delivery, the max. Yes. And that's the first question comment. Franchising, see franchising we haven't thought about it yet. And for the simple reason is you only do franchising if there's money to be made, right? First is that is the model right for us? Are we making money? And then you -- is the franchising -- what is the trade-off? That is, okay, you want to take away a lot of the day-to-day operational rigor to a local entrepreneur. And so that you scale up parts and things like that, so many other things. So I don't think we are still coming in our business building journey to think about that or even -- or if we are thinking, implement that in the near future. We have to first make the model work. So that's our response on franchising. And lastly, pouch milk in the DMart Ready store. See, it's an idea like those we run multiple ideas or the hundreds of such ideas, right? And obviously, milk is a footfall driver. [ Lots of you have done milk ]. Everybody in India uses milk extensively, right? And pouch milk is the way to go because of the value. So yes, so that's the reason, just to popularize the model. Because we were the first guys who came under this concept, and it looked very weird and on a shopping street, you are a DMart Ready store and then some guy with a computer and nothing to sell, right? So how do you generate curiosity about the model? It's because [indiscernible] so unique and stands out. And that's when the thought came okay, let's start selling milk because then somebody is coming into the store and then there is some conversations, some engagement happening [Foreign Language]. And that's how -- but DMart as a brand is very popular, right? So DMart [Foreign Language]. So we could get into meaningful conversations with customers. That is the whole idea of having milk there. And it came as an afterthought. We did it after we launched it, right. So like that, it's just an idea which has worked reasonably well for us. So we're continuing to do it. Even though it's, like you said, it's terrible business. You make no -- the gross margin itself are terribly low and then -- you have refrigeration, wastage, all of that, right? [ But it is a loss ] primarily.

[Operator Instructions] The next question is from the line of Latika from JPM.

I'll continue on the e-commerce pit. If you could talk a little about how are you thinking at the margin profile. PBT losses were fairly stable, and that's a good outcome given the sharp scale-up on e-commerce sales. But I'm sure you would have seen a mix changing between store pickup and home delivery savings as well. So as you expand into more cities, as you scale up in existing metros, what would you want to target? Would you expect these losses to remain in some kind of a range bound manner? If you could comment on that, please?

So Latika, I'll respond to both. Pick up versus home delivery, we don't have any preference. We allow the customer to choose. Customer behavior gives us insights on how we have to tweak the model or offer or give our offering from an assortment perspective. So we don't have any specific agenda per se. Whatever helps us expand our revenue, yes? On losses, all I can say is, as we speak, what I've seen over the last 2 years, we are quite delighted with the way the e-commerce team has run the show. And I think what you guys need to look at from a losses standpoint is it should be in perspective with the overall business. I mean we are a very capital risk, our organization per se. There is not going to be any high expenditure on this area. So if the overall business does extremely well, maybe our aggression on this area will be more, but within the context of how the overall business is doing. That's extremely important for us. And see, for us, again, is that [ actually ] the model has to be a working model, not a replicable model, and that is what we are looking at. And I think that comes from the DNA of the firm, right? So if -- even if we take more time in building it in a manner that we actually don't lose money, then expanding it will be super easy, super fast, right? That's how the DMart business has been built. So that is the way to look at it, to be very honest. And I think we are making reasonable progress there. I hope I've answered your question,.

In some manner. Just another bit which I wanted to clarify is on DMart Ready is in a separate subsidiary. Is there a thought that you could potentially, at some point, look to get a partner which is more clued on digital? Or you want to run the show on your own considering your expertise in grocery retail?

I have no comment to make, Latika. I think we have a brilliant team who's running it very well. So we never had that thought or that reason to look at right now, but I don't know about the future. But no comment currently. I think we are...

And now [ stick to this ] is that a lot of data would be coming your way on the e-commerce shoppers. Any thoughts of collecting data on the offline side in terms of any kind of a loyalty program or anything of that sort? And that's the last question.

So we don't run the loyalty program. Our basic philosophy of the business is all customers are the same, treat everybody equally. So I've commented on this multiple times. It seems a bit nonintuitive to do this. But we aren't harnessing data much. Our data is already the extent of okay, going to a customer, so and so address. And they're all functional. It's just used for functional yields but nothing else, and no loyalty programs.

The next question is from the line of Arnab Mitra from Credit Suisse.

Navil, my first question was on DMart Ready. I had actually an opposite question to the earlier one, which is that, you mentioned that you obviously want to have a perfect model which works and the unit -- at a unit economic level. You've now done this business for a few years. Do you think the model now works [ at the ] unit economics levels? And if that is the case, why is your rollout still a little slow? Because we are still a very profitable company and with the large changes happening in digital adoption, would it make sense to significantly accelerate expansion even if it means slightly higher losses as long as you are confident of the model working at the unit level?

Yes, good question, Arnab. Maybe that feeling will come maybe a couple of years later. We are not yet there from that standpoint. But okay, I know Bombay is working in a particular way, and hence, let me burn cash in other cities and crunch the time. I think we're still maybe a couple of years away from that. I get what you're trying to say, but I don't think the confidence level is still there right now. While we made good progress on, say, last year, we have to see -- and this is very important from a perspective also about once the country stabilizes from COVID, right? So once COVID is concretely sorted out, yes, and there's no further fear of the pandemic, then how are we trending on revenues, then what is consumer insight, what's happening to the business, stuff like that, right? So that's extremely important for us. So yes. But I get what you're saying.

And the next question was, I don't know if you will be able to answer this, but whatever business you're getting in DMart Ready, do we have a sense, is it incremental business over what we would have done from the store? Is it the same consumer now ordering from or is it for replacement business that you're seeing which is the majority of this business? I'm not sure if you have data enough to know this thing.

Yes, good question. I think it's a fantastic question, and this is what we've been tracking in Mumbai. But the right way to answer it is it's neither, Arnab, because Mumbai has far more potential, right? We could have maybe 100 stores in Mumbai, but purely for the lack of locations. So to the extent that we're doing more revenue in Mumbai from the e-commerce business, we aren't losing revenue from the stores. The store was doing reasonably well. But there's a caveat there, not because of COVID and Maharashtra having not relaxed [indiscernible] yet, I don't have a very, very clear opinion on that yet. But in general, I would say that it is overall top line accretive even though you have online business in Mumbai. So again -- and what is interesting is also that we have -- the profile of shoppers in e-commerce is slightly different, right? They are more aspirational, the mix is better. Like, for example, we're selling Davidoff Coffee on e-commerce. We don't sell Davidoff Coffee in brick and mortar, right? So it's quite interesting from that standpoint. So -- and the beauty of e-commerce is it allows you to take bets without losing anything, right? You just buy 12 pieces or 2 dozens of something and keep it in your warehouse and you list it on this website or the app, and you get your outcomes at very, very low cost. So that's phenomenal. That's not as efficient even in the brick-and-mortar business, right, as much as it is here. So these are very interesting insights we're getting. So yes.

The next question is from the line of Manoj Menon from ICICI Securities.

I actually only have one question but request multiple facets of this, hopefully, if you could help us with. This is actually on inflation, in general. So what we see as, let's say, agri inflation or food inflation or even crude-linked inflation in FMCG basket, et cetera. From the conceptual understanding that for a retailer like you is actually good. So question number 1. Subset is, is that even the right assumption to make? The reason I'm asking is that even the assertion level clarity from you is because of the limited history, listed history, we've not really seen this level of inflation, let's say, the last few years. right? I mean so just your understanding about the long term -- that's question number one. Question number two, within this -- let's say, take because of an edible oil where there is a 50% inflation for the housewife, what is the consumer behavior? Again, the conceptual understanding is these are -- may be relatively less price elastic, basically, I can't reduce the quantum of oil which I consume just because the price has gone up. So again, your thoughts on many of those such categories. So one is on the price pass-through. The second is actually on the volume, how do you see consumer behavior part. The third one, in your vendor negotiations, how does this work? I mean [indiscernible]. So let's say the vendors are also under a lot of their gross margin retention or reclaiming per pressure. So is it that per unit negotiation or still that percentage negotiation with your vendors?

Thanks, Manoj. So the recent -- the communication that I get from the [indiscernible] team, specifically on FMCG products, I haven't seen -- maybe it's temporary, maybe it's for a day only certain categories. But like you said, [ there are ] -- some of the price increases are quite large. So I do not know what will be the impact overall from a consumer behavior than this is across multiple categories. We will see. But I'll give you 1 insight specifically on edible oil that since you mentioned. We have seen the edible oil price increases and there's huge surge multiple times. This is not the first time. Like a 30% price hike or a 40% price hike over a period of month or 2, which happened typically in sunflowers. What we have seen is that there is a rapid migration, okay? Consumers move from sunflower to the next cheap available oil. That's the insight we've got always. It always happens like that, right? So if cotton seed is cheaper than sunflower, there is a huge migration there. If soya oil is cheaper than sunflower, it's a huge shift towards soya. That's what typically happens from a consumer behavior standpoint. So that's my take on inflation. In general, like you said, inflation is good for a value retailer. And the reason being is to respond to your third question. All our negotiations are percentage, yes. It's a margin basis percentage. So obviously, when percentage is the same and the value goes up, it's valuable for a retailer. It gives us more leverage to create better value propositions. So you can play both. Your overall absolute margins get enhanced. At the same time, you get more leverage to cut prices further, okay, compared to any other retailer. So for a value retailer, inflation is good because we can deliver better value. I hope I've answered all 3 questions.

Manoj, are you done with the questions? As there is no response from current participant, we'll move on to the next, that is from the line of Kunal Shah from Jefferies.

This is Vivek from Jefferies. Couple of questions. First, your stores have always attracted a lot of footfalls, and crowding has been the feature. How do you think about in the post-pandemic world and until things normalize, do you think that will have an implication on the throughputs at the store level?

So Vivek, like we mentioned in the update, right, Page 1 of the update that we uploaded in the exchanges 2 days back or yesterday, on a longer term, what has happened we do not know. But like I said, whichever states where those relaxation announced much earlier, revenues have come back, right? So that's our view. Other than that, I cannot comment. Longer term, maybe we'll comment after another 2 or 3 quarters past that.

Okay. I see. And Navil, a couple of times you have mentioned this issue about real estate. Now in the context of whatever is happening to, let's say, commercial real estate and all, are you finding it easier to, let's say, lock in properties, both for DMart as well as DMart Ready stores?

Yes. So considering whatever softness of real estate or whatever, it has a, I would say, a reasonable to marginal impact, not a very positive impact for our business. Prices don't reduce so much because we look for prime real estate. We look for clean titles, all of that, right, and those are in short supply. So far as times like these when markets soften, deals happen. Deals happen faster like any commodity, right? The transactions increase because people fear the prices will further go down. That's it. That's the only advantage we have. Our view of anything that we do is, say, for a DMart store, we do deal with an understanding that it should open in the next 2 years or, worst case, 3 years, right? So we don't try to build a land bank per se beyond that or anything beyond that. So yes. So whatever the balance sheet permits us to do within the limits of risk, we try to accelerate our acquisitions. DMart Ready, same issue, [ these are ] leased properties, these are all -- we are very particular about the location and all of that. And they don't come at a drop -- no, down prices. They have maybe a 10%, 15%, 20% discount, maybe because of the pandemic. But otherwise, it's business as usual. And it's difficult to get good real estate in India. It takes time.

Got it. And last question on DMart Ready. You made a very interesting point about Davidoff Coffee and the fact that you can just run some of these experiments. So in some ways, do you also think that DMart Ready, while it's a separate business for sure, but in some ways, it also could be an experiment factory for your base brick-and-mortar DMart store? Any learnings that you can -- or you are taking back into DMart stores?

Absolutely, absolutely. It's mutual. It's mutual. It's mutual.

The assortment [ on all ] have undergone change because of DMart Ready. I know we are in the middle of pandemic so there may not have been that much opportunity. But is that something which you think you will harness more as we go forward?

See, it's very complicated because what -- not necessarily what sells on e-commerce will also sell in DMart. But yes, we learn from each other. I mean that's what I can say. But it's very dangerous to say, okay, this works in e-commerce, let's do it in brick and mortar, not really. It's very -- because you are addressing different consumer subsets, right? And e-commerce, what is the beauty about e-commerce is that you can manage multiple cohorts at the same time because the nature of the business. But I can't do that in a brick-and-mortar business because it occupies a lot of real estate, which is not very efficient, right? So I hope you get what I'm saying. Like, for example, a store is in very expensive real estate. Whereas a fulfillment center need not necessarily be an expensive real estate, right? Yes. So to that extent, it's different. But yes, but we learn from each other.

The next question is from the line of Sunita Suchdev from UBS Securities.

Let me go back to the brick-and-mortar business. I wanted to know more about what you're thinking about your private label strategy. And I know it's a slightly wide question, but any insight into fresh staples, non-food and non-food FMCG and general merchandise would be appreciated.

Sunita, so on private label, again, it's the same story. We are focusing and looking at this opportunity as a long-term opportunity. We have a team which works on this. They're building our own label, but obviously at a much, much slower pace. All I can say is the pandemic helped the private label business relatively better than the overall franchise. Maybe it's because of the value that private labels deliver to consumers. And maybe after some time once the fear and the anxiety reduced and people are looking at tightening their expenditure, looking at alternatives. And within that, we saw more trials for private label. So the private label business did better if I look at the full year period. That's an interesting sign. It's also because of the way we are approaching private label, right? We're not going whole hog trying as many categories as possible. The direction with the team is to focus on quality. It has to be at least, at least equal in quality to major brand. And I think those efforts are helping us. But...

And any comment on which categories you've nicely given food, non-food, general merchandise, apparel in your presentation. So where is more of your private label salience in across these 3?

Okay. So I commented on this before. When we talk private label, we talk only branded FMCG private label. So that's all my comments just now was purely on branded FMCG private label. And yes, in apparel and general merchandise is different. We focus on basic low unit price products. And we don't see private label per se having any advantage there. So we work with the manufacturer brands. But my comment is primarily to address FMCG brand categories because that's where the cost arbitrage is available.

Right. And in your stores, obviously, you have extremely regular, extremely loyal customers. Any metric on private label that you could share us in terms of what is the percentage of basket? Or how is this market share across some of the major categories that you can share?

Nothing meaningful, Sunita, to comment. So -- like I just said, that there's still some time. Actually I've commented about this before. Even within the branded FMCG sector, even if certain categories have large margins, you have a local disruptor who comes and cuts prices and [indiscernible]. Because it's tough to play this game, to play the space. So yes. So it's still a long way.

All right. My second and last question is on your B2B businesses. I know we usually don't comment on these, but it's well known that there is a profitable B2B business also, which goes on FMCG. How big is that now? And how is the growth in that business going on?

We don't do any B2B business, Sunita.

No? Not at all?

No, we don't.

Okay. Okay. So not like cash and carry.

I think you've probably been commenting on a separate subsidiary we had formed, but there's no action there.

The next question is from the line of Aditya Soman from Goldman Sachs.

So a couple of questions. Firstly, on store expansion, you indicated that you've seen some acceleration in deals. If you were to open, let's say, 50 or 70 stores a year, what will be the main hindrance? And is it something that you could even do over the next 3 to 5 years or opening 50 or even 70 stores a year?

So the same here, we have spoken about this earlier, Aditya, that real estate is tough. We are trying to do our best. Having a large team, ensuring that due diligence is done well and then also building capability from an operations perspective, right? So all of this is work in progress. We are all working hard towards doing that. You ask me if -- you want a point of response from me on that. Will we be -- are we ready as a capability to open 50 or whatever number of stores per annum? Of course, we are. But the point is like we always commented, real estate is very complicated in this country. And if those elements work in our favor and we're able to acquire and have decent inventory of real estate, we can accelerate store additions over the next 2 to 3 years or 5 years.

I understand. Very clear. No, I think the point I was also coming from was that you obviously have more clusters, right, so when you initially started the number of clusters available [indiscernible] now as you've opened up in more states, there are more clusters available. So as an absolute number, that number of new store adds should be going up, right? I think that assumption on the base level is correct, right? I mean that's all I want to check, not specifically the numbers.

Yes. So let me now answer your question. But in general, I've spoken about this earlier that we look at opportunity from a population perspective, right? So all 1 lakh-plus population cities. And in general, 1 to 2 lakh population, 1 DMart store is reasonably okay to operate, right? So if you do that math and you look at the overall 1 lakh-plus cities in the states that we operate, we have a decent run rate from an opportunity perspective. The opportunity is there. The opportunity is awesome. It's around -- we can still have around 1,200 to 1,300 stores in the cities that we operate already. These are all 1 lakh-plus towns. We are in 96 cities. So if you just aggregate all these 96 cities' population, and you divide it by, say, 1 lakh, broadly [ achievable ] but that gives you a broad perspective in terms of how many stores can you add. So when I divide it by the -- by 1 lakh, the only interest there is a factor in -- and well, you will have to bring in an error factor only for cities like Mumbai or Bangalore or Hyderabad because you can't have 1 store for every 1 lakh purely because of real estate availability. But if you take those numbers out, still, there is a huge, huge opportunity. And this is only for cities we operate in. If you look at the entire country, I mean, the picture again changes. The opportunity goes up for some 2,300 stores. So if you -- yes, opportunity is amazing, it's just that we have to do our stuff right.

Right. No, that's very clear. I think that's something we do. And in terms of the opportunity you talked about beyond your cities, I mean we see no or very -- no presence in East India. Is that something that you'll be looking to tackle over the next few years? Or it's still more medium term?

So you're asking about East India, right?

That's right. Yes.

So I don't know. We'll see. We've reached out to AP. So Orissa is on the border. So we look at the supply chain -- from a supply chain standpoint and then that's how we progress. But again, this is a comment which I always give, 80-20 or 70-30, right? 70% to 80% of our investments will be in an existing state. We like to do that because that creates a moat. That gives you amazing operational efficiencies. So we'll continue to do that. So within that, if it means that we need to go to Orissa, why not, we will go or when we need to go to Uttar Pradesh -- in fact, we are already there, even more, yes, we will do that. But the point is more money, more investments in existing markets.

Very clear. And then just one last one on private label. As you indicated, obviously, that you're gradually ramping up private label. When you think of the gross margins here, do you just think of a gross margin at a DMart level? Or do you think of 2 levels of gross margin, one for the product and one for -- at the DMart level?

Come again, come again. I missed the question.

Yes. So when you think of gross margin for private label, do you just think of it that it should be 15% gross margin that you make for DMart? Or do you think of it as 2 level, one as a gross margin for the product and then a gross margin separately for the retail business?

So we look at the gross margin within those categories, Aditya. So FMCG is not at 15%, 16%, it's lower, right, because it's a mix. So we operate FMCG at a lower margin. But what we look at is within each category, right, within each category, we look at what margins these categories operate at. And based on that, we have our own modeling of what we should make on private label. But before you think about margins on the private label, you actually first have to address the ECP to consumer per 100 gram, right. So if the brand is selling, I'd say, INR 10 per 100 grams, what price should private label be? Should it be INR 9, should it be INR 8, should it be INR 7?. That's the first question to ask. And then you decide, okay, what's the cost of making this product at the same quality. And based on that, then you decide, okay, what should the margin be? So these 2 or 3 things are needed to evaluate and then decide the margins you need to keep. But obviously, you are getting in this business simply because you have a product at a price cheaper than main brand and giving you margins better than the main brand, right? That's how you keep -- you end up making more money on these categories.

The next question is from the line of Anand Shah from Axis Capital.

Just a couple of questions. Firstly, I just wanted to get your thoughts on the GT transformation. We're obviously seeing the return of GT. I mean apart from the e-commerce and especially given what you and [indiscernible] are doing in terms of the digital transformation here. I mean, do we see any threat at all from the GT share coming back very strongly because that obviously is a much larger domain than e-commerce. And have you at all seen that impact in any of your markets?

So Anand, our response to that is it's great if that's happening and it's bringing the capabilities to a much higher level for GT which is very good. And from a perspective from our business, again, I will repeat the same thing saying that the market opportunity is too large. So everybody is going to do well, yes. So the...

But you don't see at all that the conversion or acceleration because I mean let's say, at the top level, the pie is large, but the argument top-down is MT and e-commerce will gain because the conversion essentially is happening. But if GT for whatever reason start to hold its ground, then the conversion sort of will not accelerate to that extent, I mean that could make the entire [indiscernible] more competitive.

I haven't got your question. Competitive like GT will get more competitive to us?

No, as in MT itself, if the conversion doesn't accelerate because like whatever 8%, 10% penetration or [ modern trade ] going to 20%, let's say, in 10 years, if that doesn't happen, and MT for whatever reason stays in that 10, 15 bucket only, then MT itself would start getting a lot more competitive within the existing players because who want to grow and expand.

So our view is defining our business as MT and defining the kirana as GT and all that is a nomenclature we have done for our own simplicity of communication and understanding. What do you define a kirana guy who becomes like an MT? He puts in his technology or POS and so he also is an MT, right? So the entire industry evolves to be a better operator, good for the industry, good for everybody, right? Also, remember that GT kirana operates on the principle of convenience and not really value or price, right? And we are positioned on the principle of value. So I think we'll coexist. So it's not an either/or. And yes, so I hope I've answered your question, right?

No. Got it. The second question was more on cost. I mean, if I look at general costs, like other expenses or staff per square feet, I mean, on a quarterly basis, I mean, you've done a commendable job, pretty much being range bound every quarter, even though your revenues have obviously scaled up from Q1, Q2, Q3, Q4 last year in the pandemic. I mean so if you can highlight this, what you have done on cost structure because this really seem to have sort of come down from peak on a per square feet basis, even though we keep seeing progressive increase in our revenues.

So how are we able to do that is your question?

Yes. I mean, the initiative. The initiatives you have taken or any line items you want to call out where the specific reductions have happened?

A lot of our costs are variable costs. So it's nothing much. I mean it's part of our DNA, the way we work. It's part structural, the way the business operates. See, frontline also offers a lot of attrition on a month-to-month basis. You have the ability to moderate your costs far better. If management is very tuned and focused on, okay, how our revenue is moving, so what should we be doing and not doing for this month or next month and stuff like that. So like we've always said, we are very agile. The operations team is very empowered and very focused on all these things, trained very well to manage all these things. So that's how it happens. Then the inherent nature of the business, right, less revenue means less transportation costs, less logistics costs. So more or less, these are quite variable in nature, and that's how we are able to manage our costs better.

Okay. Okay. And just 1 last question on your balance sheet side. I mean, we did see a sharp jump in CWIP to almost INR 1,000 crores. I mean it seems you're obviously accelerating the real estate expansion here. I mean, this would be at all incremental to the 59 store guidance that you are seeing? Or this will be more in that direction?

I cannot comment on that. Balance sheet is balance sheet, what you see there, right? And whatever is tried -- we generally don't give guidance, but just that because of COVID, we just wanted to reassure everybody that the real estate acquisition continued with the same pace. There's no impact on the real estate side of the business because of COVID. It's just that there've been postponement due to delayed construction activities. That's the only thing I can comment on.

Yes. The store acceleration, I get it. I mean in the sense [indiscernible] and your focus there, based on the pipeline building on the real estate side because we do see CWIP going up to a big sum. You haven't done that in the past. I mean just wanted to get your [indiscernible] there's some acceleration here on building the pipeline or within the plans.

I cannot comment on that. You can make your own words.

The next question is from the line of Garima Mishra from Kotak Securities.

Neville, any consumer behavior trends from your stores that you think will sustain post COVID as well?

The trends are what we've commented earlier, Garima, that basket value has increased with lesser footfalls. That's one trend we saw. Another trend we are seeing is whatever -- but it's not just about COVID, but in general. Whenever there's inflation, people downtrade a lot. So that's the second. Third is the trend we are seeing recently. We do not know whether it's the tightness of the wallet or it is restricted times to shop. But even the nonessential is very need-based shopping. So to that extent, discretionary spending has not come in the nonessential part of the business in states where there is restriction on timings. These are the indicators I can give you. At the same time, cities are -- it's open, everything is open, sales are happening well, nonessential sales are doing very well across.

Sir, do you think, I mean, post COVID, and you've had maybe a couple of months in between, right, where restrictions have been relatively lesser. So I want to know is that this basket size expansion, I mean, is it something that you think will normalize extremely rapidly or some impact of the COVID-related moving mentality or whatever you may call it, going to the store a little lesser. Do you think some of this is going to remain basis whatever little you may have seen during the last year?

It's too early to comment, but my broad assumption is it will come back to normal. I mean maybe a 5%, 10% differential. The right way to look at it is vis-a-vis de-mon, right? When de-mon happened, how much of the cash business went back to credit. So that's a good indicator to look at consumer behavior. But once everything was okay and fine, cash came back, right? But yes, it had maybe 5%, 10% higher bump, which has changed. But that's it. I mean, very marginal, I would say. So if you take that as a queue, I think it will be very marginal, but it will come back to their old ways of shopping behavior.

Okay. Understood. The next question was on real estate. So you mentioned earlier in the call that real estate availability in some sense would constrain to what your actual growth potential could be. In the past, you haven't been very open to leasing, but why not explore this more to grow faster?

So Garima, it's a misunderstanding to say that, if I lease, I will grow faster. We are not a 1,000, 2,000, 5,000-square feet store. We need large stores. Large stores are not easily available. So while the opportunity grow increases maybe instead of, say, 30 stores, you'll probably have 35 stores, maybe 38 stores, something like that because of leasing, but that's it. It will not allow you to do 3x or 2x of your current run rate. Just because you're saying, okay, I'm going to lease now. And I'm saying that for a simple reason is we are still out of the reckoning in a mall. Mall operators generally don't like us because of the rentals that we asked for. And we've always been saying that the retail DMart brings in footfall. So you should give to us a price better than anybody else. But I think that mature -- I thought that in 3 to 10 years that maturity will come what I've been talking about in the last 12, 13 years, but still not happened. We still don't get invited by the mall operators. They -- and we don't go there if we don't get the price. So the mall parted off. So it's just stand-alone. So yes. So to that extent, there is limitation.

Okay. Understood. And the last question is really more on your product procurement. So is it safe to understand that the larger you grow the more proportion of your products, you would be focusing directly from companies than their national or retail distributors.

Yes, logically, yes. Makes sense. It makes sense to do it that way.

The next question is from the line of Amit S from HSBC.

I had a question on the network rollout potential, which many people have already asked, but let me just attempt my bit as well on that. So if I were to look at the 3 things here. Real estate availability and procurement cycle, store size as our choice of format; And third, obviously, the organizational capability, which is like supply chain or training of people and leadership, et cetera, and that whole package that comes with it. So if I ask you one by one, if real estate and other things were not a problem, from an organization's point of view, how much stores you could have opened? Like could you do -- given your size, is there a limit that organizational capability places on it, like 70, 80 or 100 stores?

So Amit, I never thought about it like that. So I've not really thought about it like that. Honestly, no.

Sure. But let me just stretch it a bit, but why, say, you obviously -- the last 2 years, if I noticed the store sizes have been very large. I think, 50,000 to 60,000 square feet, which is a great thing because we were getting a real estate you buy [indiscernible] get a bigger one. But then I'm sure that many smaller stores like 10,000 to 15,000 square feet store must be also running great throughput for you and economics as well. You would know those stores very well yourself. But why not have an open mindset about, let me have larger format stores, but also maybe supermarket style stores as well and go deeper into India rather than having to grow with that owning the real estate large store. So that's a great model. But why have that sort of thinking if you can clarify? And third, obviously, if you can maybe -- store sizes can be flexible, then rental ability can be easy and maybe penetration could be deeper. Because I believe that, network rollout, is it -- are we like constraining it ourselves? That's the question.

Yes. So that's a brilliant point, Amit. And honestly, we are not set it with the 50,000 I think. So a large town, obviously, 50,000 stores are not easily available. We are very happy to find even 20,000 stores. We -- if they make sense to us, we do it. It's not that we don't do it. But our view of market is that 50,000 or 20,000, they're not very easily available. But we're not averse to it [indiscernible] smaller stores also. 20,000 also is what we do.

Sure. Where I'm coming from, Neville, is that if you model the entire India footprint, real estate, urban market centers, I'm sure the large formats will be just 1 format and largest format will be maybe supermarket format. And why not play aggressively as a tactical strategy rather than having to sort of pursue 1 line of thinking. I'm saying that eventually, they will exist like that. So there should be a very aggressive quest for seeking those -- I mean that's the kind of -- where I'm coming from. I'm not really pushing it too much, but that's where I was coming from. And the hope is that network rollout obviously accelerates by dealing with all these constraints.

Yes, fair point. And like I said, right, we ideally prefer 20,000 and above. Probably you're nudging us towards 10,000. We have a couple of [ 10-year ] stores also. And if it's a very compelling reason to even do a 10,000 store, we do a 10,000 store also. But like I said, it is not -- okay, let me answer this this way, Amit. It's not that we are rejecting stores which are coming to us which are around 10,000 to 20,000 or 10,000 to 30,000. No, we're not. We're evaluating it on its own merit, and if it make sense, we'll go ahead and do it.

Okay. Sure. Got it. Very, very helpful, Neville. And second, if I may quickly ask about the e-commerce integration with your own model. Like you obviously have offline-driven model, which you understand very well, execute really well. The cost economics are perfected over time, perfectly understandable. And e-commerce is new complement or enabler for it to serve the convenience kind of customer, which has emerged even more post-COVID. But if you were to -- if I were to ask you, what is the economic reality of these 2 services, whether this e-com business should be like an arm of the store nearby? Or is like from an organization structure point of view where how the incentive structures run and how the execution happens, shouldn't it be more efficient if stores were the main economic center of that endeavor or it should be run separately? Because my sense is that it could perhaps be more deeper if store were to own it rather than a separate subsidiary doing its own thing. I don't know how to think about that.

Yes. So Amit, if you could refer to our -- to my call of last year when we spoke about this. So I'll repeat that again. So again, I know where you're coming from but globally all retailers are doing this. And why we are not doing it for a simple reason is we don't have the infra. Our asset utilization is already very high scale, right? If you look at the value per tonne of India versus the rest of the world, and then you compare it with the turnover per square feet we do, our assets are already operating at a very high level of utilization, and it cannot be disrupted to service the e-commerce customer. It will create dissonance. It will bring the productivity down. And that is the reason why we decided to run e-commerce separately. Yes. Unlike you go to large retailer in the U.S.A. or U.K., there is inherent opportunity to utilize the assets better.

Yes. Indeed. That's where I was coming from, actually, Neville. Very, very clear. Just last bit, if I may, Neville, is that about, for example, a global role model because obviously, retail has evolved investment markets for the last 50, 70 years and what perfected. Several models have come in general retailers, European retailers and U.S. retailers. If I ask you who is your role model? Like -- or actually there are many role models for different things, but how do you role model your organization? Or is it unique and or you're shaping the product portfolio, cost economics, everything from best practices already established. Can you enlighten us a bit how do we think about that?

My favorites haven't changed. I like Costco, I like IKEA, I like Uniqlo. I mean, these are the top 3. There are many more, but top 3, which comes to the mind. And it's just not about 1 thing, multiple things. I mean, culture, assortment, simplicity. It's awesome. I love these 3. These are always top of my mind. And this all revolves around fundamentally culture. I mean, the way they think, products, people, business, partners, employees, it's awesome. I just love it. We're a shameless copycat. Anything we like about any of these companies, we just go ahead and obviously, you apply it, why it makes sense and then go ahead and implement it. Yes, these are role models personally for me.

The next question is from the line of [ Sandeep Patoria ] from [indiscernible].

One quick question around, if you could comment on the impact of COVID on the resiliency of your sort of process and system-oriented decentralized company culture. And in Q2, what you answered previously around the -- you see the culture as a fundamental force behind retailing. So if you could talk about what, if anything, has changed? And whether resiliency of your culture has been proven and any insights on that?

So Sandeep, nothing much has changed. I think it's the same. I mean people are committed. People are doing the job brilliantly well. In fact, the second wave, interestingly, -- In fact, if I look at -- if I think about the second wave vis-a-vis the first wave, even though the second wave had more casualty in the country, I think our team was actually more confident on the second wave. And there's a caveat there. I mean the caveat is that we have a very, very young force, right? Retail, we typically have people -- 95% of our -- actually 97%, 98% of our front-end employees are below 30. So young fellows and we all know that COVID doesn't hurt or impact young people, right? So that was a huge, huge advantage. So it's absolutely view of your -- amongst your people. We took all the necessary precautions. COVID cases in our ecosystem was very, very low relatively to the country. So I think -- so that was a inherent advantage we had during this time. And we are very liberal for everything. Anybody call in sick or whatever, we ensure that nobody had any pay cuts, everybody is comforted. In fact, we have a central command system created with quick development of certain apps to ensure we get real-time updates on all those who are COVID-positive, ensure timely medical care, things like that, having oxygen concentrator on standby for our people, stuff like that. So I think great culture is culture, it doesn't get kind of shaken during tough time, right? So you get the best around people during tough times. So I think second wave also -- my sense is, we are more confident to deal with it. And let me put the business [indiscernible]. So we are more confident in our business model, right. First wave, we didn't know COVID well, what will happen to the business. But in the second wave, we're very confident. So our call, direct decisions to even shut stores are more aggressive, more -- it's okay if the store is shut for a week, 2 weeks, 3 weeks, doesn't matter this is going to come back because we saw that in the first wave. So our decision-making capability, the confidence is also there. So yes, so these are the top-of-mind thoughts that come to my mind. And when front-end staff see management or the senior leaders taking very decisive specific call, keeping safety of employees and customers, #1 priority, I think it builds more confidence in everybody. So I think, yes, so that's the difference, I would say, that we saw second wave versus the first wave. And I'm addressing this question in this way because the first wave I know a lot about how people reacted to the pandemic, our own employees. And second wave, I think was a breeze from a management perspective.

And just 1 more question. I guess your DMart Ready, your e-commerce initiative, you come at it from a brick-and-mortar perspective as in your brick-and-mortar trying to build this out or see whether it works from a unit economic perspective, whether you can scale in the future. And most of the e-commerce operators come at it from a tech perspective, right, because they have expertise on technology from them come at it from that. So does that -- do you think that limits you in the sense, how is your team built in terms of capabilities around technology, whether you've hired a lot of people with that expertise and any thoughts on that front.

It's a brilliant point. In fact, that's something that plays on our mind all the time that brick-and-mortar retailer comes with legacy baggage, who always talks about costs, talks about ops and sometimes tends to look at technology as 1 ancillary part of the whole business. And we are very aware of that limitation that it brings to the table. And one of the reasons why we decided to set this as a separate company was knowing very well that this is a limitation we have. And the fact that we run this as a separate company with a separate CEO allows us to bring in that dimension of giving extreme importance to technology. So we are aware of that and I hope that we build products on the tech side, which are as good as any other operator in the space. But I get what you're saying. Our only direction [indiscernible] is that build a few things, but do it really well. So we'll not have a lot of the [indiscernible] a thousand questions around tech for e-commerce. But the basic transacting system, the basic app, the basic search, the way the journey, the navigation works, we want to be the best-in-class. So just do that really, really well. Make the entire shopping journey super good. That's the direction that I have given to the team. So -- but point again, and that's something that's on top of our mind, too.

The next question is from the line of Prasad Deshmukh from Bank of America.

I have a couple of questions. The first is actually a follow-up of the question that was asked just before this. So when you do say a benchmarking, how do you take an ad-based abilities compare with, say, other e-commerce, food and grocery peers like a BigBasket. When I'm saying tech, I mean customer interface, back-end abilities. And if you have done any senior hires since the change in strategy for DMart Ready in the last year. So that was the first question.

So you're talking about how does it change prices?

No. So it's more like a customer experience perspective on your app versus, say, other e-commerce players? Is there any benchmarking that has been done? And if you have made any senior hires since the strategy -- DMart Ready strategy last year.

The second part I cannot comment on. And the first part, on benchmarking across the applications, what you're saying?

Customer experience and your back-end server capabilities.

Okay. Okay. So overall, the application or customer experience, all of that, there is a team who runs it. And we ensure that on every parameter, we are as good as anybody else, right? And so that's a continuous process. And that's -- I alluded to in the previous question also that, from a tech standpoint, we have to ensure that the journey for every shopping customer on the application is top class, friction-less operations throughout the journey of shopping. Whether it's search to eventual checkout. And even post checkout. We are awaiting until the point we get the item delivered, how is the journey? And then also -- The customer has to reach out to us . So if there is any returns, any issues. So every single element of their entire journey or touch point of communication, we try to ensure that it's super smooth, super good. Yes, and from that standpoint, there is a team that works on this diligently to make -- to ensure that we are among the top 2, top 3 players in the city from that standpoint.

Got it. And the second, again, is a follow-up on private label. While I understand probably the margins in private label are very similar to what you had in branded. How does the working capital cycle work in private label?

Yes. So good question. By the way, margins are not similar. Margins are relatively better than brand companies for private label. Otherwise, you wouldn't do that business. Working capital is a very good question. We generally tend to hold more inventory in private label products than in brand products for obvious reasons of production cycle, minimum order quantities and stuff like that. So -- and that's why, like I said, that you need to ensure that every element on the private label piece is working only when we get into those categories. So what's my minimum order quantity. The minimum order quantity should not be more than x number of days of sale. My running inventory holdings should be within the limits that we have for those categories, stuff like that. Write-offs have to be minimal. [ Branding ] has to be created out of that. But yes, in general, your inventory holding is more than for a branded product.

Okay. So just to clarify, is this a [indiscernible] working cycle business, working capital business for you?

No, it's not. We -- our policy is, let's say, we pay quickly, right? So it can't be negative [indiscernible].

Okay. And last question on, again, DMart Ready. Here, I just wanted to confirm if all your orders after charging for this INR 49 or 3% of sales, whichever is higher, on the per order basis, are all the orders' contribution positive at the gross level?

Yes. Gross level, yes.

The next question is from the line of Sheela Rathi from Morgan Stanley India Private Limited.

I have 2 questions. My first question is, you have talked a lot about the tough bit with respect to acquiring good real estate. So the question here is that over the last 12 months, have you seen -- if there are any acquisition opportunities that have got created with respect to some small modern retailers which you could think of acquiring and get the problem solved with respect to adding more stores or adding more real estate. So that's my first question.

Okay. Sheela, so our view is we're not very confident about acquisitions per se as we speak. So we don't -- okay, let me put it this way. If growth is our objective or store addition is our objective, is the right -- is acquisition of another company the right way to do that? No, I would not say that. I would be -- if I look at the landscape today in the country, I would rather add stores in my current setup by doing this organic method of store acquisitions.

Okay. And my second question is the earlier DMart Ready delivery charges were higher, which was INR 49 or 3% whichever is higher. What was the thought process behind reducing the delivery charges?

Yes. We've capped it to INR 79 now. You don't get charged more than INR 79.

So what was the reason to cut the delivery charges? Because anyway, you were seeing higher traction with consumers on the online bit.

Good question. It was simply because, a, people are complaining like hell, considering the COVID context. And b, we took that call but it didn't blame the trade-off to the consumer angst to vis-a-vis the loss to bottom line, it tilted towards the decision to say, hello, let's knock it off. Because in general, the idea anyway, the home delivery side of the business was anyway doing well for us. So then we took a call to cap it off.

And 1 final sub-question on that. Lastly, you mentioned that home delivery and pickup were about 50-50. Is the number still similar? Or has there been any change?

Yes. So good question. Tough to comment now because we just come out of the second wave of COVID. What I can tell you is whenever COVID was intense, it tilted significantly towards home delivery and the pickup contribution was lower. As the first wave kind of settled down and people are comfortable, again, it went back to 50-50. But again, the second wave, again, it tilted towards HD. But in general, it's kind of 50-50.

The next question is from the line of Hiren Dasani from Goldman Sachs Asset Management.

I just had a slightly different question on your ESG-related practices. And if you can maybe spend a few minutes on highlighting some of the things what you are doing. I'm coming from the perspective that if I look at some of the external rating providers on this parameters, I'm sorry to say, but you rank very poorly on environment and the social-related parameters. And part of those poor ratings is maybe lack of meaningful disclosures in your annual reports and in the other published documents. But if you can just highlight what you are doing and if you can also increase the disclosures meaningfully on many of the practices, that would be really helpful.

Yes. Thanks for that feedback. There's an honest admission that we need to do more in terms of disclosures. I think we need to explain more about what we are doing on this front. So we've got this feedback from multiple other -- analyst community also earlier also. So we are working on that. But we are doing reasonably good work there, especially on the environmental side. [ DAR ] speaks a lot about what we do there, especially around renewable energy. We do a lot of work there. I personally look at that myself to ensure that we can convert as much as possible from the usual sources of energy to renewables. So that's one thing. On governance, I wouldn't want to say much. It's for you to judge versus what we do, what we say, stuff like that. Social, I think, again, I think it's more to do with disclosures in terms of how much we should be writing. Maybe it's also a limitation because of the culture we have, but that's not an excuse, where we talk less, we don't talk in half. But yes, but point taken, feedback noted, but we do a lot of work even on the social side for our own employees or for communities within the cities we operate. And we do a lot of work with the municipal schools of Mumbai. A lot of information is there in the -- so -- but like I said, again, feedback noted. We'll make more disclosure there and speak more about what we do. And wherever we see an opportunity to do more, we will do more.

Sure. Just -- I mean, what I see that the meaningful difference between the industry leaders or the industry -- at least industry average scores versus where you are scored, a few points on sustainable sourcing of raw materials, privacy and data security or on the product safety and quality, I think those are most of the disclosure issues. And if you can have a separate document on your website later on also for all these things, it would be really helpful.

Fair enough. Point taken.

The next question is from the line of [ Swagato Ghosh ] from Franklin Templeton.

I have 3 quick questions. Firstly, just wanted to know maybe directing some stake in the Dmart subsidiary to...

[Operator Instructions]

Yes, I hope it's clearer now. Yes. So first question is I wanted to know management's thoughts on bringing in some growth capital by directing some stake in DMart Ready, probably that can lead to much higher value generation even at a lower stake for us. So any comments on that?

So whatever the business needs, we are able to fund from the parent company. We don't -- beyond that, I don't have any other comment to make right now.

Okay. Sure. And the other question is you said that you did not have a loyalty program per se, but I'm sure you must be collecting customer data on mobile and e-mail ID, et cetera. So I just wanted to know what is the level of digital engagement and outreach to our existing offline customers? And whether there was a ramp-up in those engagements in the last 12 months to bring them back to the stores?

So we don't have any specific data on offline customers, and we don't engage with any off-line customers digitally with any specific customer-related data. We don't have any customer-related data from that standpoint -- for off-line shoppers.

Okay. So like you do not also like publish the discounts going on, et cetera, vis-a-vis to these customers.

No, we do not.

Okay. And so would we be having then the data that how many of our DMart Ready customers are unique to DMart Ready as in they have -- how many of those customers have never shopped in off-line stores. Would we be having this data?

No. We only have the DMart Ready data, but it is very need-based. We use it only to make deliveries to the right addresses, call the right telephone numbers, so that the order fulfilment is appropriately done.

Right. But on the offline store, Neville, aren't you missing a [ trade share ] by not like collecting any data and not like engaging with them in any way?

We haven't been doing it since the very beginning. And it's not that we're saying, oh, we didn't do it earlier, so we won't do it. We don't -- considering our model, we don't see value in doing that. We are -- basic philosophy is run the business well, create very strong word of mouth, all old fashioned, I know, not appropriate for today's tech word, but that's the way we are.

Okay. Sure. But you are saying you're open to change in the strategy if you find merit in it.

Absolutely. If business tells us that we have to change, we'll change. But so far, it's working for us. So why change?

Sure. And one last question is a bit of a basic question. The 2 fulfillment centers that you opened by closing out stores, I just want to understand why couldn't we have done a partial closure and converted that to fulfillment centers because you also said that 50,000 square feet store and a 20,000 square feet store both can act as DMart stores. So I'm just trying to understand why couldn't have downsized the store like the front-end store and have that store still there and maybe utilize a part of the store as fulfillment center. Why did we have to close the store altogether?

These are not very large stores that could allow us to run both together. Otherwise, we would have done what you said. In fact, one of our fulfillment centers is like that. It's on top of a store. So if space is available to run more, why not. But only if it's a very large construction, otherwise no. Doesn't make sense.

The next question is from the line of [ Mahesh Kabra ] from Purnatha Investment Advisers Private Limited.

Query I have is about our employee numbers. And the disclosed number in the annual report is a standalone company. Why is this down Y-o-Y on contractual employees?

Just give me a minute, let me check the number and get back to you. About the contractual number is being lower.