How did DMart become India’s most profitable retail grocery store?

DMart Retail Grocery: For price conscious customers, the brand that has always appealed has been DMart. If you go to a DMart store on a Sunday afternoon, you’ll see a huge store filled with customers buying household goods. DMart has emerged as the preferred shopping destination for many households in North and North West India. Extremely affordable prices, a fully stocked range of products and a wide range of products ranging from non-food FMCG to food and groceries and general merchandise have made it the go-to shopping destination for many households in India.

How DMart Retail Grocery dominates the food and grocery market? How can you sell your products at a low price and make a profit? Well, let’s find out. Mr. Radhakrishnan Damani founded DMart in the late 1990s. He is one of the most successful and well-known value investors in the Indian stock market. After several years of research, he started a grocery retail chain. He wanted to focus primarily on the value segment.

In 2000, Mr. Damani founded a retail chain called DMart. About eight years after DMart Retail Grocery was established, it had only 10 stores. DMart’s early days were humble. For several years since its founding, DMart has operated its corporate offices in a small area that was originally one of the company’s first stores.

But Damani was very clear on some aspects. He wanted to replicate Wal-Mart’s model: mass production, low margins. He wanted his company to operate with positive unit economics. It entered the IPO in 2017 with an IPO size of ₹1870 crore. Currently, DMart Retail Grocery has a market capitalization of ₹2,49,166 crore.

DMart Retail Grocery Store

Main product categories

DMart offers customers a wide range of everyday necessities with a thoughtful product mix. Products sold in stores are broadly divided into three categories: food, non-food, general merchandise, and clothing.

food – Grocery staples, processed foods, dairy products, frozen foods, beverages and confectionery, fruits and vegetables. The revenue contribution of this category in FY2022 and FY2023 is 56.86% and 56.03%, respectively.

Non-food (FMCG) – Home care products, personal care products, toiletries, and other over-the-counter medications. The revenue contribution of this category in FY2022 and FY2023 is 19.74% and 20.93%, respectively.

General merchandise and clothing – Beds and baths, toys and games, dishes, plastic items, clothing, shoes, appliances and appliances. The revenue contribution of this category in FY2022 and FY2023 is 23.4% and 23.04%, respectively.

D’Mart’s business model – low prices!

Damani understood what it took to capture the attention of Indian consumers: deeply discounted products. Therefore, the business model “Every Day Low Cost / Everyday Low Price” was in line with this.

Own rather than rent

One of the key features that distinguishes DMart Retail Grocery from other retail stores in India is that it owns its stores rather than renting them. We usually operate stores in larger spaces than our competitors. The average area per store is approximately 41,358 square feet.

If you have noticed, stores like Big Bazaar and Reliance Retail will be located in malls, shopping complexes and residential areas. DMart’s locality, on the other hand, usually has a different angle.

DMart Retail Grocery plans to build stores in densely populated areas with high foot traffic. For less populated areas, DMart will purchase cheap land on the outskirts of the city and build huge retail spaces that can offer a variety of products. In both cases, the DMart Retail Grocery stores are stand-alone single-storey structures.

The idea behind this strategy is to build large warehouse-like stores, giving you the flexibility to effectively manage your inventory and supply chain. Moreover, it is to reduce rent. A typical retail store’s rent accounts for 5 to 7 percent of sales. For DMart, this is a one-time cost.

Cluster scaling model

Another thing that separates DMart Retail Grocery from its peers is its cluster expansion model. For example, if you choose Reliance, it will not be able to make the same profit margins as DMart and it will not be able to handle such a huge number of customers in a single store. So you have to expand your stores quickly to increase sales.

Now let’s look at DMart Retail Grocery’s cluster scaling model the way Walmart does. DMart Retail Grocery only expands stores within the cluster. First, a distribution center will be built in a new location, and then stores will be built around the distribution center. In this way, you can effectively manage your supply chain and inventory.

low price

Because DMart has a high number of customers in its stores, brands pay DMart Retail Grocery a fee to display their products to increase sales. We call this fee the slot fee. Slotting fees contribute to DMart’s revenue, allowing it to offer larger than customary discounts.

Additionally, unlike other retailers, DMart pays its suppliers and manufacturers as quickly as possible. While the industry standard typically takes approximately 30 to 40 days for payments to clear, DMart Retail Grocery completes payments in just 7 days. Moreover, the DMart Retail Grocery store looks like a shabby warehouse. That way, DMart can save more money than it would spend on ambience or customer experience.

Lastly, rather than offering a variety of products, DMart Retail Grocery focuses on stocking and understanding only the best-selling items in a particular region. This can help you save significantly on inventory costs while maintaining high sales numbers.

DMart and Reliance Retail

To understand where both companies stand, let’s look at the FY23 numbers.

DMart Retail Grocery has less revenue than Reliance Retail, but its EBIT margins are superior. Even though Reliance Retial’s sales are more than five times that of DMart, the fact that DMart’s operating profit per square foot is higher than Reliance Retail shows that DMart is a superior business model. Therefore, we can conclude that DMart Retail Grocery is much more profitable and efficient than Reliance.

conclusion

India’s household spending is expected to exceed $3 trillion and disposable income is expected to grow at a CAGR of 14.6% until 2027, according to Fitch Solutions’ BMI. Therefore, it appears that there will be many avenues for retailers in the future. The industry has also set a new standard: online retail. These online stores could steal market share from DMart. So, to compete with them, DMart has come up with its own online retail store, DMart Retail Grocery Ready. But can DMart’s online business model really make a profit? Let us know in the comments below.

A work written by Nalin Surya S.

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