The country’s top two organised retailers – Reliance Retail and Avenue Supermarts – have reported contrasting numbers for the quarter ended March 31, 2025 (Q4FY25), pointing to different strategies deployed by the two players.
While a consumption uptick and store rationalisation helped Reliance Retail, which is the country’s largest organised retailer, report double-digit growth in consolidated revenue, earnings before interest tax depreciation and amortisation (Ebitda) and net profit in Q4, Avenue Supermarts, the country’s second-largest organised retailer, saw a surprise consolidated net profit decline in Q4, amid higher competition in FMCG, wage cost pressures, and ongoing investments in service levels.
The company, which is best-known for its DMart chain of stores, saw revenue rise 17% versus last year. Q4 Ebitda, however, increased 1.2% only versus last year, its lowest in five quarters.
Ebitda margins of Avenue Supermarts fell 100 basis points year-on-year to 6.4% in Q4, its lowest in five quarters. In contrast, Reliance Retail’s Q4 Ebitda margins were within the 8.2-8.5% band it has been reporting for the last five quarters.
“Reliance Retail is at the end of its store rationalisation efforts,” brokerage JP Morgan said in a report last week. “This has helped the firm maintain its margins.”
In an earnings call following the company’s recent Q4 results, Dinesh Taluja, chief financial officer of Reliance Retail, said the company had net additions of 500 stores only after shutting almost 2,200 stores of the total of 2,700 stores launched in FY25.
“Margins have expanded because we have taken these calls to weed out unprofitable stores and wind down some of the low-margin categories. The transition in store strategy has been completed and that is reflecting in the numbers,” he said.
Brokerage Macquarie noted that Reliance Retail’s revenue growth improved significantly – moving from 3.1% in the first half of FY25 to 7% in the December quarter to 16.3% in the March quarter, driven by local festivals and weddings.
While Avenue Supermarts too had the leverage of festivals and weddings in the second half of FY25, brokerages such as Citi Research and Morgan Stanley believe there is pressure on earnings of DMart from lower sales throughput and adverse product mix.
Contribution from general merchandise and apparels (GM&A) has been falling, Citi Research says, driven by a slowdown in discretionary consumption at the lower end of the retail market. Store additions in smaller towns and rising competitive pressure from quick commerce is also putting pressure on earnings, Citi Research says, as DMart responds to these divergent trends with higher discounts and sustained store launches in small cities. DMart derives nearly 58% of its topline from foods; 20% from non-food FMCG, and 22% from GM&A.
While Avenue Supermarts was amongst the first grocery retailers to call out the impact of q-commerce on its metro stores about a year ago, on Saturday, Neville Noronha, MD & CEO, of the company, signaled there was a shift in strategy of the company. The firm was pivoting in metros to offer convenience as opposed to only providing value to its customers.
The retailer was scaling up DMart Ready, its e-commerce business, which was doing extremely well in the home delivery segment. Its click-and-pick e-commerce model, on the other hand, would be scaled down, he indicated.
“We have shut down several pick-up points (PUPs). But our home delivery channel in metros is growing strongly and has more than compensated for any loss of sale of the PUPs. This year (FY25) was a year of reset and review. However, it is also giving us confidence that our model is scalable and relevant to the metro city shopper,” Noronha said.