Good morning [%first_name |Dear Reader%],

Every three months, investors look forward to DMart’s financial results for two reasons:

• The supermarket chain is India’s second-largest retailer and also its biggest listed one
• And because of that, DMart’s numbers serve as a barometer for the average Indian household’s consumption patterns

But when DMart announced its results for the quarter ended March 2023 a week ago, its shareholders were not impressed. The company’s topline had grown 20%, but what really stuck out like a sore thumb was how its profits fared. DMart’s Ebitda, or earnings before interest, taxes, depreciation, and amortisation, rose less than 5%. This was the slowest expansion since DMart’s storied listing in March 2017.

As expected, investors voted with their feet and sent DMart shares down.

What’s surprising, though, is that the business we all primarily identify DMart with is doing well. Grocery—both foods and other products—accounts for two-thirds of DMart’s revenue, and its share is rising. The problem lies with general merchandise and apparel, which is DMart’s other big business, and its contribution to DMart’s sales is on the decline.

It’s quite tempting to lay the blame at inflation’s door. When prices go up, non-essentials are what people start cutting down on.

But there may be another reason, and that’s competition from a somewhat unlikely quarter: the Tata Group-owned value-clothing chain Zudio.

Zudio wanted DMart’s apparel shoppers. DMart is now hurting

A lot of you have probably seen a Zudio store, even if you haven’t walked into one. It’s a smaller and cheaper cousin to Westside, the Trent Ltd-owned apparel retailer that’s one of Tata Group’s most prominent retail brands.

This is what I wrote about Zudio in August 2022:

That bit about the internal tagline at the end is important, and here’s why: Star is a discount grocer that competes with DMart. So, in effect, Zudio is selling clothes at similar price points as DMart, with three in every four items priced below Rs 600 (US$7.2).