Not just kiranas, but quick commerce is beginning to hurt organised grocery retailers in urban centres as consumers seek instant gratification and convenience.
While DMart, a popular grocery chain, admitted last week that online formats were hurting sales in metro stores, NielsenIQ data sourced from the industry corroborates this trend.
Sales volume growth in modern trade in July-August has decelerated to around 4% versus 24% in the corresponding two-month period a year ago, according to industry executives quoting NielsenIQ data. Sales numbers for the month of September 2024 are not out yet.
Traditional trade, meanwhile, saw volume growth of around 5% in July-August versus 8% seen a year ago, sources said. September numbers, say sources, are not expected to dramatically alter the picture for both modern trade and traditional trade, in part due to a high base effect in the year-ago period. In July-September 2023, traditional trade and modern trade saw volume growth of 7.5% and 19.5%, respectively, according to NielsenIQ data.
While modern trade contributes around 12-15% to FMCG sales, traditional trade contributes 80% and e-commerce, which includes quick commerce, contributes 5-8%.
From under a fifth two years ago, q-commerce share within e-commerce is now over a third for FMCG companies, according to firms as well as industry experts.
“Definitely, we are seeing modern retailers feel the pressure of online channels. Urban consumers want convenience and when a channel such as q-commerce is offering you just that, a pivot is likely,” Krishnarao Buddha, senior category head at Parle Products, said. The company has been pushing small, medium and large packs of all its products into q-commerce to take advantage of the boom.
In its recent earnings update for the September quarter, Dabur said it was seeing disproportionately higher growth in quick commerce. The company, therefore, had taken the strategic decision to correct distributor inventory in general trade, its largest channel, to improve return on investment. Inventory in modern trade for now had not been corrected, but this could happen in the future, experts said.
Nestle India’s chairman and MD Suresh Narayanan and Tata Consumer’s MD & CEO Sunil D’Souza also indicated in their respective post-results commentary last week that q-commerce was driving sales growth for their brands within overall e-commerce. They also indicated that they would continue to channel products to quick commerce to take capitalise on growth, especially in urban areas.
Rationalising modern trade
For modern trade, the q-commerce challenge has come at a time when retailers are streamlining operations, slowing down store launches and focusing on improving margins.
During its post-results analyst call last week, Reliance Retail, the country’s largest organised retailer, said it was taking a “calibrated approach” to its business to ensure growth levels remained intact. Reliance Retail’s Q2 revenue from operations declined 3.5% versus the year-ago period to Rs 66,502 crore, while earnings before interest tax depreciation and amortisation (Ebitda) from operations rose marginally to 1% versus last year to Rs 5,675 crore.
Reliance Retail also indicated that it was scaling up its quick commerce pilot by serving customers through its own network of stores.
DMart’s CEO & MD Neville Noronha has said that the retailer has no plans to launch a quick commerce operation and would instead continue to focus its attention on DMart Ready, its online platform, as a counter to q-commerce in urban areas. In the September quarter, DMart opened six stores, compared to nine in the same quarter of the previous year, taking the total store count to 377.
From: financialexpress
Financial News