DMart will get killed by quick commerce - Hilarious af.

A little "(un)common sense" is enough to kill such arguments.

Firstly, I shouldn’t even stop to think about it relative to the other options I should think about that will be more beneficial to my own net worth. With no amount of analysis is there a chance that I buy a retail business stock in India anytime soon or ever for that matter. But again, my irrational defect—my pet peeve—is at play.

Any retail business in the world at core is a distribution system. Imagine the business model somewhat as a tree. The trunk represents the manufacturing hub where the items you purchase are manufactured, the leaves are the customers everything in between is the distribution system.

Now imagine a pack of Maggi being transported from its factory to the customers. Many packs of Maggi are combined in boxes, put in a truck and transported to “hubs” like D-Mart stores or warehouses which are relatively closer to the customers than the Nestle Maggi factory. Now D-Mart stores locations are less than the total number of Kirana stores around you. So, more volume of Maggi can be transported per vehicle, per litre of fuel used to a D-mart store compared to your local Kirana/dark stores. Right there, D-mart gets its first competitive advantage - cost efficiencies due to transporting and selling higher volumes of each product compared to Kirana/dark stores. Let us say you are not convinced and make the argument that the costs are almost equal to get the product to D-mart or the Dark stores. Think about the difference between the unit economics of those two models. D-mart essentially says to its customers - “You want low prices, you come to us, use your own vehicle, burn your own fuel”. While the quick commerce bros say, we will partner with a Kirana store to deliver to only the 5% rich and middle-class population in India. On which we charge some convenience fee to help us pay for huge marketing expenses, technology platform, Appstore fees to Google and Apple. On top of that, our Kirana/Dark Store “partners” will employ an additional person, who will burn his own fuel and have his own vehicle to bring the pack of Maggi to you. This is basically termed as the “last mile problem”. The more spread out the customers(leaves), the more it costs to deliver it straight to their homes from the nearest warehouse(branch). To get that Maggi pack to customer, the quick commerce bros have so many additional line items or costs compared to D-mart to get the same pack of Maggi in the hands of the customers which have to be covered up with the markup they have to put on the price per packet sold to have a sustainable business. Basically, the unit economics is never going to work, you are never going to get the “D-Mart Price” from the quick commerce bros.

No amount of technology or collaboration can solve the last mile problem given the need of additional vehicles, fuel, people and other costs to transport the same product to the customers vs them coming to you. Because the best way to solve the “last mile problem” is to never have one. Amazon has been able to solve it to some extent but not completely by effient algorithms longer orders delivery timelines that help with efficient route planning in place from courier services like UPS/Fedex etc. Still Amazon will never outcompete something like a Costco given its obvious relative cost advantages as a retailer.

By now you are saying, I recently ordered the same packet at discount from a Quick commerce bro. How? Simple - With the deep discounts that the quick commerce bros are giving you while burning money at rapid pace. Who’s money? Venture Capital. So, VCs are making losses, right? No, they are basically running pump and dump pon** scheme and charge 2 & 20 on all the money they "manage" while bloating the valuations to unsustainable levels, why? so that the founders and “occasionally” their investors make money by offloading that overvalued crap to the greater fools called the retail investors and any Mutual funds willing to buy some of that overvalued poop with their large pools of dumb money who are also making 2 & 20 fees. End of the day the common man is going to pay for those deep discounts through the losses on his stock ownership in such businesses directly or indirectly through your MF holdings.

On top of that, all these quick commerce bros lie through their teeth while touting bullshit “adjusted metrics” or play games and fudge their accounting numbers to get new investors into the pon** scheme while cashing out their own ownership stakes in their business at lightning speeds. I was told by some equity analysts having 8+ years of buy-side experience at an investment fund that they would still study those annual reports, build and adjust their “precious excel models”, saying there were still learnings in such businesses and a case for putting part of portfolio in them. What exactly they are learning seems to be their best kept secret that will “forever elude me”? Are they willing to put significant part of their net-worth in it? Can you imagine learning and spending a hell lot of time on something that is UTTERLY USELESS. Trust me when I say, it is a full-time job for many. Doing more work when actually none is needed. But you have to just to justify your fees by showing that you were at least doing “something”. Thats all what these VC fund analysts do for entire months and years who supposedly are our best and brightest graduates from IITs & IIMs. Such massive stupidity is only explained by perverse incentive induced irrationality/denial I mentioned in the previous post.

A simple common sense goes a long way. I have no inclination to dig into documents for information which were essentially put out by a bunch of assholes or their agents/brokers that can’t stop lying. Or where the founders are lying about profitability while running loss making core business. The profits that actually come from FDs or interest on cash they are holding which they got from raising huge amount capital at ridiculous valuations. It’s like watching fake news all day. Why even spend 5 minutes on their annual reports or investor ppts that are all fluff? Make life simple, use the mental model of avoiding the stupidity of entrusting your hard-earned capital to such chronic liars or jackasses and sleep like a baby at night. That does not mean go and buy the ridiculously valued D-mart stock like some of the dumb CAs I know would as the 95% of the poorer demographics in India is still not developing as good as China’s same demographics once did. Today D-mart is a 30B USD company while a similar company (Alibaba) in China with similar population dynamics while being much richer per capita is 200B USD with a dominant market share. A 14x on investment at best if world economy doubles in next 30 years and we reach China level. A mere 9% CAGR return on investment if EVERYTHING GOES RIGHT. And there is a huge confluence of important factors as to why one should not consider investing in a business like D-mart. But that is a post for another day.

Coming back to the argument, the only critics that will remain I guess are ones who run these quick commerce businesses or who work for them living in that group think bubble as I once did. Well to that, which among these startup founders holds more than 50% equity stakes in their own business? If you have such wonderful sustainable business prospects that you are touting to the world, why not finance all the growth through profits, own it for a very long time and get rich from the cashflows that business gives you without going to investors again and again to get cash. But no, that’s not what the Candyland is all about.