HDFC Securities: India’s Retail Flywheel

HDFC Securities Report

The COVID-19 pandemic playing havoc in the high fixed cost Food and Grocery space is a foregone conclusion. More important is to assess which business model survives an extended version of the pandemic. This led us to assess multiple cost of good sold of the proverbial retail flywheel: (1) Location, population density and per capita income (2) impact on general merchandise, cost of retailing and fixed cost cover, (3) fear-inflicted shifts in consumer behaviour and consequent habit formation and (4) selection and discounting trends. While most grocers are likely to see severe footfall cuts, our district-wise store map approximately 600 districts on COVID-19 severity, population density and per capita income suggests that ~45% of DMart's stores are located in seven of the most populated or impacted districts (Mumbai, Pune, Thane, Kalyan, Ahmedabad, Bangalore and Hyderabad).

Online grocery purchases are likely to increase during the pandemic as consumers seek safety. This, in turn, is likely to put pressure on the cost of retailing for the industry as investments in online fulfilment capabilities increasingly becomes imperative.

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