Offline food, grocery retailers to see 20% revenue growth | The Financial Express

Offline food, grocery retailers to see 20% revenue growth

The growth will come on the back of higher realisations due to commodity inflation, market share prised from the unorganised segment, and despite heightened competition from quick commerce players.

Offline food, grocery retailers to see 20% revenue growth
An analysis of four retailers, which account for around a third of the organised sector’s revenue of about RS 1.3 lakh crore, indicates as much. (Representational image)

Brick and mortar food and grocery (F&G) retailers will report about 20% revenue growth this fiscal — similar to the 20% growth logged last fiscal. The growth will come on the back of higher realisations due to commodity inflation, market share prised from the unorganised segment, and despite heightened competition from quick commerce players.

The revenues are also expected to be higher by 38% from the pre-pandemic level in financial year 2019-2020. The largely non-discretionary nature of demand had kept the segment resilient even during peak pandemic in fiscal 2021, when revenue fell only 3%, according to ratings agency Crisil.

Operating margin is expected to sustain at the current level of 6.3-6.8% due to better economies of scale and gradual pass-through of inflation in input prices, notwithstanding a normalisation of store rentals. Credit profiles will also remain strong, characterised by healthy cash accruals and balance sheets.

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An analysis of four retailers, which account for around a third of the organised sector’s revenue of about RS 1.3 lakh crore, indicates as much. “Low organised sector penetration of just 5% within the overall F&G retail market provides the players ample growth opportunities. Apart from deepening their presence in metro and tier-I cities, the retailers are also expanding fast into tier-II and tier-III ones,” said Naveen Vaidyanathan, director, Crisil Ratings.

The area under operations grew by about 40% over the past two financial years, as players continued with their expansion plans even during the pandemic, taking advantage of lower real estate prices. The momentum is expected to continue with about 10-12% area growth this financial year. However, the trading density, which is represented in sales per square feet, will remain moderately lower than the pre-pandemic level this financial year because of store additions. This resulted in trading density being 20% lower in the past two fiscals compared with fiscal 2020.

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Organised offline retailers are also facing stronger competition from quick-commerce entities delivering food and grocery in minutes. While both models are expected to co-exist, offline retailers continue to hold sway as they cater to customers for their larger weekly or monthly grocery shopping, as opposed to quick commerce, which typically caters to smaller, unplanned purchases. Besides, traditional B&M players are also looking to increase their online penetration, including by partnering with quick commerce players.

Operating margin is expected to remain largely stable this fiscal, as retailers pass on the sharp increase in price of goods and continue with cost-optimisation measures. Notably, barring fiscal 2021, when the pandemic-induced restrictions led to revenue de-growth and margins dropping to about 5.5%, margins have remained largely in the 6-7% range.

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