Vishal Mega Mart IPO: Why the retailer is undaunted by new threat

Vishal Mega Mart, a one-stop destination catering to middle and lower-middle-income consumers by selling both in-house and third-party brands across three key categories—apparel, general merchandise, and fast-moving consumer goods (FMCG)—is set to launch its Rs 8,000 crore initial share sale on December 11 for public subscription. The proposed IPO is entirely an Offer for Sale (OFS) of shares by promoter Samayat Services LLP, with no fresh issue of equity shares.

Vishal Mega Mart shares are currently commanding a premium of about 31% in the grey market, ET reported yesterday, with the latest grey market premium (GMP) standing at Rs 24.

Vishal Mega Mart is entering the market amid rising concerns about quick commerce potentially gobbling up organized retail. However, the retail chain remains unperturbed by the growing threat, confident in its own business model. That said, it is keeping a close watch on the quick commerce sector.


Quick commerce challenge to modern retail
Quick commerce, fueled by consumers' need for speed and convenience, has been challenging both kiranas and organized retail, as more and more people prefer their items delivered instantly with the click of a button.

Sales growth in groceries, personal products, and home care items in modern trade and supermarkets slowed to a four-year low in July and August, impacted by consumers' shift to online channels, especially quick commerce, and retailers shutting down hundreds of stores to improve profitability over the past year. Sales in modern trade increased by 3.2% during July and August, compared to 24% a year ago, ET reported recently, citing executives quoting the latest available NielsenIQ data.

According to a study by NielsenIQ, 31% of shoppers are using quick commerce for purchasing essential items, and 39% for top-up purchases. About 42% of shoppers are using quick commerce for ready-to-eat meals, and 45% for salty snacks.

Quick commerce companies are increasing the total weight that can be delivered per order, as consumers have started doing their monthly large pack shopping between the 1st and 10th of every month, replacing modern retail stores and other e-commerce platforms, ET reported a few months ago.

Also Read: Catch All Vishal Mega Mart IPO GMP Today Live Updates Here

Large FMCG companies also want to initiate sales of such packs through quick commerce, as they do not want to miss out on the sales opportunity. An ITC spokesperson had told ET that, while earlier consumers largely bought from quick commerce for impulse, indulgence, or convenience, this behavior has evolved, with people now also undertaking monthly grocery shopping.

Discounts on large orders by quick commerce players will only intensify the battle between convenience and value, as organized retail relies on its value proposition.

Why Vishal Mega Mart isn't scared of quick commerce
Since Vishal Mega Mart follows a unique model, it may not be significantly affected by ambitious quick commerce players like Zomato and Swiggy Instamart, which are raising funds to expand into newer domains such as large orders, white goods, and deep discounts. Vishal Mega Mart relies heavily on a portfolio of its in-house brands for high-margin items like apparel, which contribute nearly half of its revenue.

The Gurugram-based company operates more than 645 stores across 414 cities, selling apparel, general merchandise, and FMCG products. It earns about 48% of its revenue from apparel, 28% from general merchandise, and 23% from FMCG. While FMCG brings in the footfalls, apparel and general merchandise are the more profitable and value-accruing categories for the company, according to an ET Intelligence Group analysis.

The retail chain posted double-digit same-store sales growth across categories in FY24, with a growing portfolio of its brands. It achieved the majority of sales from its brands in apparel, in addition to increasing the share of its brands in general merchandise and FMCG segments. The company has a track record of profitable and capital-efficient growth.

As much as 70% of its stores are in tier II cities and beyond, where organized retail store densities are low and consumers gravitate toward products that are high in quality and functionality while being affordable. With the rising cost of living hurting consumer demand, affordable retail models are likely to gain favor with value-conscious Indian consumers.

Vishal Mega Mart also has its own e-commerce platform, which offers the option of two-hour delivery, in addition to preferred time slots such as four to six hours later. It has recently launched this model in 391 towns across the country. While it is nimble in responding to the latest consumer habits, it is also watching the quick commerce space closely.

"We haven’t observed any significant impact on our business from quick commerce players. However, we understand the importance of staying vigilant in the consumer market," the retail chain’s MD & CEO Gunender Kapur told Moneycontrol recently.

"We are closely monitoring the growth of quick commerce, particularly how critical the '15-minute delivery' model becomes and whether the necessary infrastructure, such as delivery partners, develops in smaller towns. Right now, it’s something we are watching carefully and proactively."