Vishal Mega Mart’s value proposition faces test as it changes strategy | Today’s news
Bengaluru: Vishal Mega Mart Ltd’s results and new initiatives for the September quarter are raising questions about how hard the retailer is trying to defend its value proposition while pursuing growth.
The company is keeping base prices unchanged while concentrating price increases at higher price points. It is also piloting Belong & Co., a stand-alone premium clothing brand, and is testing smaller-format stores, even as it continues to expand its larger-format network. These moves signal an effort to penetrate new customer segments and markets while protecting affordability.
The strategy comes as the retailer faces pressure on profitability and a muted market reaction to its latest results. Sales increased by 14% year-on-year. ₹3,398.5 million in September, but net profit grew by only 3.7%. ₹157.9 million crowns. Operating Ebitda margin narrowed to 7.7% from 8.5% a year earlier, while reported same-store sales growth (SSSG) was 5.4%.
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The company attributed some of the moderation of the shift in based on the holiday calendar, the estimated growth would be about 9% without timing effects. Its shares fell as much as 8.2% on Wednesday.
Speaking to analysts after the results, CEO Gunender Kapur said the change affected the reported SSSG as Durga Puja, Dussehra and Navratri have fallen in October this year compared to September last year. “In normal circumstances, if the season hadn’t shifted, you would have done 9% SSSG,” he said. Kapur said the company would need an SSSG of 12-13% in the December quarter to achieve growth in the first nine months of around 9%. “Our goal is to achieve double-digit growth in a year,” he added.
The decline adds to a broader decline in stock. Shares of Vishal Mega Mart were down 33.73% year-to-date as of October 21, lower than the Nifty 50, which was down 12.76%, and shares of Avenue Supermarts Ltd, which were down 12.52%.
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Sandeep Abhange, research, consumer and midcap analyst at LKP Securities said, “The results were dull. On the margin side, a few missed. But I believe it will come back on the margin side overall.” He said Vishal Mega Mart’s revenue growth of 14-15% is reasonable given its presence in tier-2 and tier-3 markets, but added that “after the December quarter, the key thing to watch out for will be how margins develop.”
He said of the retailer’s new initiatives: “I wouldn’t say it’s losing its value proposition,” adding that a premium apparel brand could help boost average transaction values.
Kapur said the company does not see the need for further price increases at the current level of inflation as it has so far concentrated increases at higher price points. “I am absolutely committed to protecting our initial price points,” he told analysts, adding that core products make up about 18-20% of revenue. The highest price points contribute 24-25%, with the balance coming from the middle. “Whatever we’ve done, we’ve done, and that’s good enough,” he said.
Format testing
Along with its pricing strategy, Vishal Mega Mart is exploring formats and customer segments beyond its traditional model. She opened the first pilot store of Belong & Co., an independent clothing brand aimed at young, affluent urban shoppers looking for more fashion items. “We want to play in every significant opportunity that the apparel market has to offer,” Kapur said. He said it was too early to decide on a wider rollout, which would depend on lessons from the pilot. Initial feedback was encouraging, with more than half of visitors to the first store converting into buyers, although the company only had anecdotal evidence.
The retailer is also experimenting with store sizes by market. It has 18 smaller-format outlets in Uttar Pradesh and Haryana and is testing smaller outlets in Gujarat and Maharashtra, where rental costs, electricity tariffs and minimum wages are higher. In Kerala, it increased the planned number of outlets while reducing the size of outlets after realizing that the population was spread over a more contiguous geographical area rather than concentrated in a few large cities.
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Kapur said the company will determine store sizes based on catchment areas and the local economy, rather than focusing on a fixed increase in retail space. “I would absolutely focus on the stores,” he said, adding that the company wanted “100% viable and profitable stores”. It will continue to open brick-and-mortar stores of about 18,000 square feet where economics allow, while considering smaller stores where a smaller footprint could generate comparable revenue.
As of September 30, Vishal Mega Mart operated 844 stores in 582 cities, covering an area of about 1.41 million square feet. It added 26 stores on a gross basis in the September quarter and 53 in the first half of fiscal 27. Private labels accounted for 73.9% of revenue in the first half, helping the retailer maintain control over its product mix and price position. Its hyperlocal delivery service operated through 781 stores in 532 cities, with about 1.52 million users registered on its digital platform.
Kapur told analysts that the company believes it will open more than 100 stores in the current financial year and intends to open more every year. “Obviously the effort is to open as many stores as possible that are profitable and viable in a particular year,” he said.
The retailer sees potential for roughly 2,000 large-format stores across the country and more than 3,000 smaller-format stores. Kapur said the company will maximize openings in both formats while ensuring new stores are as profitable as existing ones.
“We are firmly determined that new stores should not be diluted in any way,” he said, noting that the company did not want to open a large number of stores only to close them later.
