Mom & Pop investors chased other Mom & Pop’s MM shares after “dark grocery” unveiled, “dark grocery” could be a cash burner

Ahead of the announcement by MerryMart Consumer Corp. (MM) that it had signed an agreement with FoodPanda Philippines to operate and pioneer the “dark grocery” store concept in the Philippines with the aim of becoming the first 15-minute grocery delivery service in the country, MM was traded heavily. At the September 23, 2020 trading, MM volume was at 58,510,000 well above its 65-day average of 50,639,739. The heavy trading allow MM to surge by 4.67% closing at 3.14, although it went as high as 3.18.

A closer look at the details of the September 23, 2020 MM trade, shows that MM shares were passed from one Mom & Pop to another Mom & Pop. Leading broker for both buyers and sellers of the MM trade was COL Financial (COL). COL Financial is one of the biggest (if not the biggest) retail stock brokerage in the country.

The spike in MM share price provides Mom & Pop investors the chance to exit their positions and passed it to other Mom & Pop investors who feared to be left out of the MM bandwagon.

It could not be ascertain whether the “dark grocery” concept would work. Grocery stores operate on a slim profit margin per item. Generally, profit margins are between 1 percent and 3 percent, depending on the item. It’s not unusual for a grocery store to make just a few cents per item. Grocery stores make money on volume. They’re counting on customers to buy many items per shopping trip, so the store’s profits will add up.

The “dark grocery”concept could burn cash. If you add the costs of the dark facilities, incremental personel costs, storage costs and the transportation costs, the very slim margin could easily be consumed and in the end burns the company’s cash.

The arrangement allowed MM to ride the tech start-up bandwagon or allowed it to fashion itself as a tech start-up. Tech start-ups are not necessarily profitable but commands higher valuations in the hope that they be the dominant companies in the industries they are operating in in the future.

No one knows what the future holds for MM but for now investors believed that MM is the grocer of the future. And for now mom and pop investors are passing it to each other hoping that the next mom and pop will pay higher than what they have paid from the previous mom and pop.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.