MagSon Retail & Distribution: Gourmet Markets, Expansion Plans, and Financial Dynamics in India's Food Retail Sector

MagSon Retail & Distribution, founded in 2018, specializes in gourmet, frozen, and specialty foods in India. Pioneering frozen food retail in 2009, it now operates 26 stores, an e-commerce platform, and its brand RF Gourmet. Despite a vegetarian market, strategic meat department additions boosted sales. MagSon expanded during the pandemic, with top-performing stores in Ahmedabad and Surat. Planning 25 new stores by 2026, targeting a turnover of Rs. 120 crores, it faces competition from both organized and online retailers. IPO funds support working capital, new stores, and backward integration. Financially, revenue rose from INR 32.4 crores in FY2020 to INR 62.2 crores in FY2023, with declining RoCE and debt/equity ratio. Investors must monitor MagSon's ability to navigate premium competition and expansion risks.

About the company

MagSon Retail & Distribution Private Limited, incorporated on December 10, 2018, is active in the retail and distribution sectors, focusing on gourmet, frozen food, and specialty foods. The corporate office is situated in Ahmedabad, Gujarat.

The promoter began his career by opening a restaurant and frozen food joint in 2005 in Ahmedabad. From 2005 to 2009, the focus was on the restaurant business and the retail and distribution of frozen food.

After five years in the restaurant and frozen food business, the promoter found that retail and distribution of frozen food were more profitable than the restaurant business. This realization led to the decision to close the restaurant, Hot Frozen, in 2009 and fully commit to the frozen food retail and distribution business and he Started Magson. Initially, Promoter Mr.Francis targeted non-Gujarati, affluent immigrants in the city who appreciated non-vegetarian cuisine. The store, being the first of its kind in the city, offered a unique combination of frozen and gourmet food.

Venturing into selling frozen and gourmet foods in a predominantly vegetarian city like Ahmedabad was a bold move. Given the city's predominantly vegetarian population, the potential customer base for meat-focused frozen and gourmet food was considerably smaller, posing challenges in generating sufficient sales and revenue to cover operating costs. Despite the risk, the decision was made on the belief that non-Gujaratis settled in Ahmedabad would constitute a sizable customer base for the unique offerings.

MagSon's inaugural store quickly established its business, leading to the launch of a second store in a different locality just over a year later, on 23rd September 2010. This new store, spanning 500 sq.ft. and located 5 km away from the first, introduced a butchery section based on the founders' experience with the initial store. The addition of a meat department on Day One proved to be a retailing masterstroke, attracting meat lovers and increasing customer traffic.

In retail, MagSon operates 26 stores, with 16 under company management, 7 run by franchise owners, and 3 through joint ventures. These stores, branded as "MagSon," span Western India, including prominent cities like Thane, Udaipur, Gandhinagar, and Ahmedabad. The total retail space exceeds 30,000 sq.ft., offering over 3000 product units. MagSon also has an e-commerce presence through a mobile app for online orders, customer updates, and relationship building. The Company also runs a separate chocolate store which is operated under brand name “My Chocolate World”.  

The company launched its own brand, RF Gourmet, in December 2021, featuring premium products sourced from top vendors. MagSon's distribution business, managed from a 14,000 sq.ft. warehouse in Ahmedabad, involves direct procurement from manufacturers (75%) and other distributors/wholesalers (25%).

MagSon's product range includes frozen food, premium cheese, exotic vegetables, ambient products, imported/luxury chocolates, and two white label brands — RF Gourmet and My FAV. The fastest-selling categories for the company are savouries, chocolates, and imported cheeses.Despite varying store sizes (360 sq.ft. to 3,300 sq.ft.), MagSon maintains a uniform design across locations for consistent brand identity. The company emphasizes direct sourcing (80%) from manufacturers to ensure product freshness and competitive pricing.

Amidst the challenges posed by the COVID-19 pandemic, MagSon opened seven new stores and expanded existing ones. The company's top-performing stores are in Ahmedabad, followed by Surat. MagSon plans to add 25 new stores in Gujarat, Madhya Pradesh, Rajasthan, and Maharashtra by 2026, primarily under the franchise/shareholder model. The company anticipates a turnover of approximately Rs. 120 crore in the next two years.

The company started online sales via website and mobile app in 2022, sales from this channel contributed ~2% of the total sales

Strategy

Under the expansion plan, the company will be packing RF Gourmet products in its own godown as part of backward integration and start more stores under franchise agreemenant, they have plans to open new store in Indore by Dec 2023 and later expand to Bhopal and new stores in different parts of Gujarat, Madhya Pradesh, Rajasthan, and Maharashtra, where the brandis already currently operational and has existing stores. The company has plans to add 25 stores by 2026 and target a revenue of 120 Cr. by FY 2025.  

Industry Overview

The Indian retail sector's most significant segments, food and grocery, present a $570 billion opportunity, constituting 66% of the nation's total retail expenditure, as indicated by an Invest India forum report. The organized food and grocery retail market is projected to reach $60 billion by 2025, with an anticipated 8% CAGR, driven by factors like increasing per capita income, urbanization, and the prevalence of nuclear families. Drivers at the segment level include the shift from unpackaged to packaged goods, premiumization, and a demand for convenience.

Changing lifestyles and purchasing patterns have led consumers to favour modern retail stores, opting for grocery stock-ups over frequent trips to neighbourhood Kirana stores. Urban clusters have witnessed the popularity of convenience stores, catering to the growing demand for time-efficient shopping in increasingly busy lifestyles.

While traditional categories like Staples and Fresh constitute around 80% of total food retail spend, emerging categories such as packaged snacks, confectionery, and beverages are experiencing a compounded growth rate of 15%. Growing awareness of health and wellness is expected to significantly influence consumer preferences across categories.

Highlights of the Indian Gourmet and Food Industry:

• The Food market's revenue in 2023 amounts to US$963.60 billion, with an anticipated annual growth of 7.23% (CAGR 2023-2027).
  
  

• The largest segment, Bread and cereal Products, has a market volume of US$173.90 billion in 2023.
  
  

• In global comparison, China generates the highest revenue (US$1,386.00 billion in 2023).
  
  

• Per person revenues of US$678.70 are expected in 2023 relative to total population figures.
  
  

• Online sales are projected to contribute 1.2% of total revenue in the Food market by 2023.
  
  

• The Food market's volume is expected to reach 663.70 billion kg by 2027, showing a growth of 6.0% in 2024.
  
  

• The average volume per person in the Food market is anticipated to be 419.30 kg in 2023.

Competitors

The company competes with organized retail players like D-Mart, Big Bazaar, Reliance Retail, and Star Bazaar, as well as unorganized retail outlets such as Kirana and gourmet shops. Additionally, it faces challenges from firms like Big Basket, Amazon Pantry, Blinkit, Jio Mart, and Swiggy Instamart, owing to its online sales and promotional initiatives.

Promoters 

Mr. Rajesh Emmanuel Francis And Mr. Manish Shivnarayan Pancholi

Management

Related Party transactions

No

Valuation

MagSon currently trades at a P/E ratio of 36.9. Factoring in management's FY 2025 revenue guidance of 120 Cr. (2x FY 23 revenue) and a 4-year average PAT margin of 4.15%, the projected FY 2025 earnings of ~5 Cr. result in a forward P/E of 20.

In P/S term the stock is currently trading at a multiple of 1.48 which is much lower than peer like 5.5 Avenue Supermarts.

Findings and Preliminary Conclusions & Risks

Unlike D-Mart, Reliance Fresh, and other online grocery options that focus on low prices in the price-sensitive Indian market, Magson stands out by selling slightly more premium gourmet, frozen, and speciality foods. Whether Magson can match their low prices and compete effectively remains to be seen.

The company is holding comparatively large stock of Raw Material as on October 31, 2022 as compared to Total Sales. The management is claiming that they have adopted this policy to keep stock uninterrupted for ready delivery as a retailer & take advantage of bulk buying discount.   

The company did the IPO to fund working capital and to start new stores, storage facilities & backward integration of business by food processing & packing under its own brand, as the AR for FY 2023 does not have a Management Discussion & Analysis section, one can’t track the progress on new store opening and any of the proposed projects.

The management has guided that they will reach a turnover of 120 Cr. in 2 years in (unofficial channel) and that they will add 25 new stores by FY 2026. The sales growth and progress on new stores opened need to be tracked.

The Sales growth in HY FY 24 is up 2.9% from the last HY results and 14.14% YoY for the same period.

Historically, retail players like Future's Group, Spencer(merged), and Subhiksha faced insolvency because of debt funded store expansions. One need to track this in MagSon.
MagSon operates in the premium gourmet category,no listed players operate in this category, Nature's Basket which is a comparable peer is not listed.

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