D-Mart and Trent to outperform amidst India's changing consumption landscape: Jignanshu Gor

"I do not cover FMCG so far. But on restaurants, I am outperform on Jubilant and Devyani, the two larger players, while being underperform on Westlife and market perform on Sapphire," says Jignanshu Gor, Bernstein India.


Let us pick it up from where Mr Mehta left. You think elephants will continue to dance? India is a large consumer market, miles to go?
Jignanshu Gor: So, I am outperform on D-Mart and Trent, the two retail large stocks that I cover. I think Aditya Birla has a lot of cover up to do so I am underperform on Aditya Birla.
I do not cover FMCG so far. But on restaurants, I am outperform on Jubilant and Devyani, the two larger players, while being underperform on Westlife and market perform on Sapphire.

But I bet you have a view on FMCG right, I am not asking for a recommendation here.
Jignanshu Gor: So, over the years what I have seen from a more structural perspective is there is always this tussle between horizontal channels and vertical channels. So, whether we talk of FMCG’s self-made distribution which was one of its strongest advantages as a channel which they built or we talk of e-commerce or we talk of modern trade.
As any industry segment matures, different parts of the value chain start becoming large enough for specialised players to come in, which in most cases leads to a scenario where the continuous innovation is required by the larger players and that agility and that elephant dance concept is required by larger players to sustain.

Otherwise, it becomes increasingly more difficult to grow, whereas the smaller players will find it easier to grow and this is a structural story we have seen.

There is a plateau that e-commerce players in India have reached because there was value chain disruption or there is potential for younger D2C brands to go direct which will put pressure on firms, does not mean that well-run firms cannot succeed which I think is the case for D-Mart and I think will be the case for Trent and possibly for a large part of the FMCG universe as well.

You think Q-comm is going to win the race? So far, it has.
Jignanshu Gor: I think that is a very generalised way of looking at things. Like we look at customers having multiple segments and their behaviour changing from category to category, the same thing happens at business level as well. Whether quick commerce will be the primary market share, like Mr Mehta mentioned, it is overall maybe e-comm plus quick commerce is maybe 10%, but is it much higher in the top 10 cities in India? When you cut the products by premiumisation, is it much higher for the premium products, which are better margin earning products in India.

Whether that will happen, it looks more likely from where we are sitting right now, that that will continue to happen because we basis our understanding of consumer behaviour also believe that some of this is habit forming.

It is not going to go away. The fact that cooks are coming in the morning and then saying, can you please order this because it is out versus having to plan two days in advance, I think that behaviour is habit forming. But whether given the spread of India geographically or the spread of India from an income pyramid wise, there is a large segment of people who will want to be served by the general trade and there is a segment of people who will find value in going to a modern trade retailer and stocking up on groceries.

Using that saving to maybe increase their BPC spends or increase their entertainment spends because I believe that is how consumers think about their wallets versus thinking about a black and white of convenience versus grocery or quick commerce versus grocery.

Wear your analyst hat? What from within the large pool of India consumption do you think is the best category right now?
Jignanshu Gor: Look, you need to figure out this question from what is your value measure, what are you trying to solve for? As an analyst, if you are trying to solve for companies to invest in, then you have to make one big choice. The choice is a single brand versus a portfolio of brands, who is building what? A case in point is Amul, where they have built one brand across a plethora of products.


Amul is not listed.
Jignanshu Gor: Fair enough. Versus India has always been a market which has the heterogeneity of the Indian people translates into heterogeneity for consumption. For example, I am sure Sanjiv sir will agree that a shampoo brand in one market or the composition does not work in another because hair, water, etc, are different and so on.

So, if you want from an analyst hat, the evaluation required is what is the biggest question is, what is the target addressable market or the TAM or the total addressable market.

It is always overstated, in my view, with a very broad brush when people talk about 1.4 billion consumers. You really need to cut it, slice it to understand what is the real potential.

From brands, there is another lens which I have a view on, which is brands versus channels. So, do you invest in brands or do you invest in channels or do you invest in something who creates both.

I think legacy companies or rather companies which create their own legacy will need to do both together. You cannot be overly dependent on other brands on your channel or on other channels for your brands, which is why from my coverage, like I said, that is I think a strong point for D-Mart and Trent, has been the source of success for FMCG players for 20 plus years.

So, I would go for somebody who is doing both, channels and brands, and within brands probably today, apparel, groceries, and BPC are the three fastest growing and large markets in India.