D-Mart

Retail markets & shops have a very ancient history. Over the centuries, retail shops were transformed from
little more than “rude booths” to the sophisticated shopping malls of the modern era. To understand the
business transformation of the Retail Industry, it becomes extremely important to know the potential of the
Industry. As per IBEF Report it is expected to grow to US$ 1,100 trillion by 2020 from US$ 672 billion in
2017. The expected growth is manifolds making it imperative to study it further
National players such as Reliance Retail & Future Retail have a greater influence on the retail market as they
are present in each and every state of the nation. But still in this cut-throat competition, D-Mart, the chain of
retail supermarkets, being a regional player in west & little in south, stands highly profitable than its
competitors. This case study‟s the progress of the D-Mart. Its challenges, strengths and potentials, which will
prove to be the best learning source for every company that finds key competitors in the market. Established
in the year 2002, D-Mart, though a valued brand has its own share of challenges. The case highlights the entry
and journey of D-Mart, its strategies & progress, challenges & corresponding strengths and the surrounding
dilemma.

RETAIL INDUSTRY IN INDIA

Retail industry is one of the largest and the fastest growing industries in the global economy. Retail industry
in India has been present through history. It is only in the recent past that it has witnessed so much dynamism.
It is slowly giving way to international formats of retailing. According to IBEF report (2017), retail sector in
India accounts for about 10% of countries GDP and is the world‟s 5th largest global destination in the retail
space. India‟s retail sector is experiencing exponential growth, with retail development taking place not just
in major cities and metros, but also in Tier-II and Tier-III cities. It is expected to grow to US$ 1,100 trillion
by 2020 from US$ 672 billion in 2017 as per IBEF Report.

CONSTRUCT OF THE CASE

Every Organisation is formed with definite objectives. This case revolves around the formation and
functioning of an unbeatable retail store operating mostly in the west and south in India. The pillars of the
organisation, the respective challenges, strengths & weaknesses, the dilemma associated with survival and
relevant recommendations are part of this case study. The case highlights the business model of the
organisation which makes it unbeatable by its competitors and also the SWOT analysis of the Organisation,
both leading to the construction of strong base towards understanding the functioning of the Organisation. The
attempt with this case has the scope of resolving inquisitiveness towards running a company in highly
competitive era. The complexity of Retail Industry, the preference of consumers towards supermarkets and
the market dilemma associated with such businesses signifies the rationale behind constructing the case.

OWNER’s PROFILE
Mr. Radhakishan Damani - Mr.WHITE & WHITE
Mr. Radhakishan Damani is an astute Stock market Investor, Stockbroker, Trader and the Founder & Promoter
of DMart. He is popularly known as Mr. White & White as he always dresses in white shirt & white trousers.
Much before D-Mart was established; Mr. Damani was known to be an ace investor in the stock market much
like Rakesh Jhunjhunwala. Due to his Midas touch, he has successfully earned the reputation of being one of
India‟s finest value investors, and as a matter of fact, he was a mentor to Rakesh Jhunjhunwala. At 98th
position on Forbes list of the wealthiest, he is valued at $1.1 Billion, which has been earned all from absolutely
almost no wealth.
Mr. Damani had begun his career as a trader in ball bearings, with no intentions to enter the stock market. But
fate had something else in store for him. Post his father‟s death, he was forced to close down that business and
had to join his brother in the stock broking business, which was inherited from their father. He had absolutely
no knowledge about that end of the world, or how that market functioned. So he began as a speculator at the
stock market. Within no time, he understood that watching was not the best way to make or grow capital, and
hence, taking inspiration from the legendary value investor Chandrakant Sampat, he started playing for the
long term. It took Mr. Damani some time to gain a foothold, & quite a few of his initial bets tanked too. But
since the time, he decided not to follow the strategies of the herd, he began to succeed and within the next
couple of years he was standing at par with the ranks of the biggies on Dalal Street.
After reaching such great heights, in 2001, he suddenly quits the markets and decided to enter the retail industry
& the journey of D-Mart begins. His retail chain is the 3rd biggest in the industry. He owns 52% stake in the
parent company of D-Mart called – Avenue Supermarts Ltd. and also Bright Star Investments – his investment
company, holds another 16% stake.
The company was started by Mr. Radhakishan Damani with the objective of offering value-based products to
families across the country at affordable rates. The company that is headquartered in Mumbai also sells a lot
of its private labels such as D-Mart Premia and D-Mart Minimax. Mr. Damani is widely known for maintaining
a low profile in media, and so very little is known of the man. He likes to let his work speak for itself, and it
indeed speaks volumes.

D-MART: THE UNBEATABLE RETAILER

Owned and operated by its parent company – Avenue Supermarts Ltd (ASL), D-Mart is a chain of hypermarket
and supermarkets in India which was first started in 2002 in Mumbai by Mr. Radhakishan Damani. The
company has 141 stores located across more than 40 cities in India and it operates and manages all of them.
The company also operates distribution and packing centres which form the backbone of the supply chain to
support its retail store network. It has 22 distribution centres and 7 packing centres in Maharashtra, Gujarat,
Telangana and Karnataka.
D-Mart is among the largest and the most profitable retailer in India. It is widely known to be a one-stop
shopping destination to meet all the household needs of a family. It offers a wide variety of products including
– Home utility products, Foods, Toiletries, Beauty products, Garments, Kitchenware, Bed and Bath linen,
Home appliances, Toys & Games, Stationery, Footwear, and a lot more these stores are designed keeping
customer convenience in mind.
D-Mart Success pillars:
Customers: Since D-Mart is targeting middle income households, all their stores are in, or close to, residential
areas and not in malls. Their idea is not to meet every consumer needs like other competitors, but instead, D-
Mart aspires to meet most regular consumer needs, while providing value for their money.
Vendors: Vendor relationship is the second pillar of the model. Since he comes from a trader background, his
vendor relationships have been his biggest strength. The FMCG industry has a payment norm of 30-60 days,
but D-Mart pays its vendors on 11th day itself. This helps it stay in the good books of the vendors and avoids
stock outs. Other than that, D-Mart also receives a good amount of discount by 2-3% from the vendors for
quick payments. Since D-Mart buys in bulk and pays its vendors well in time, they also get to earn higher
margins.
Employees: Human resource is the third pillar of the model. D-Mart offers good money, flexibility,
empowerment, and relaxed & efficient work culture. They prefer hiring raw talent, and then invest heavily in
training, to mould them as per their requirement. Employees are just told once about the value system and
policies at D-Mart and then are empowered by giving them the freedom to operate without somebody
constantly looking over at them. There is absolute clarity on what needs to be achieved & need not to fear
targets.

DATA FACTS
When most retail chains are struggling to make profit, D-Mart has impressed the market with its stellar
performance. In a market where most recognized and larger counterparts such as Spencer‟s, Reliance Retail,
Future Retail, Star Bazaar and Hypercity too are struggling for earning profit, D-Mart has successfully
managed to crack the code in just about a decade.
3 points The prices that D-Mart offers are 6-7% lower than its competitors. D-Mart saves a huge chunk of
money in lease and rental which is main cost in retail industry as already they run on paper thin margin so
saving on lease helps D-Mart to maintain margin with giving heavy discounts on products. Out of the all the
stores it runs, DMart owns majority of the properties, which helps them to save a huge chunk of money on
rent which could increase its operating cost on average 5.68%.

Retailers D-Mart Hyper City Spencer More Big Bazaar Future

Retail
Lease / 0.2% 5.5% 5.3% 5.3% 3.9% 8.4%
Rentals

Source: NNM SPL

They also avoid opening stores inside malls unlike other hypermarkets to avoid high CAM (Common Area
Maintenance) charges and highly inflated rents which is almost 6-10% of the operation cost. They have also
cut their advertising budget by 30-40% in the last couple of years to save costs and focuses on “Word of
Mouth” publicity. Unlike bigger retailers, costs are further kept low by keeping a basic and economical
layout without any flashy. D-Mart‟s average sales turnover per store is much higher than its competitors as
below: As per NNM SPL report, over the last five years, it has expanded its total area of operations at a
CAGR of 21% and grown its Sales and PAT at a CAGR of 40% and 51% respectively.
Moving on to 2015 – with revenues worth Rs. 6450 crores, D-Mart booked a profit of Rs. 211 crores in
FY14-15, which was higher than Reliance Retail‟s Rs. 159 crores and Future Retail‟s Rs. 153 crores. In just
a span of 13 years, D-Mart had also managed to achieve profitability, and was making around 4% in 2017.

Table No. 3: Average sales turnover per store

Retailer Sales (in Cr.) Stores (in India) Average Sales / store
(in Cr.)
Reliance Retail 26112 3634 7

Future Retail 13808 1315 11

D-Mart 11201 141 79

Source: Economic Times data

SWOT ANALYSIS:
D-Mart has positioned itself as a one-stop retail store chain, catering to value seeking retail customers,
largely from the lowermiddle, middle and aspiring upper middle income segments. It has gained its own
strength and has some areas to improve as follows:
Strengths of D-Mart
Strengths are defined as what each business does best in its gamut of operations which can give it an upper
hand over its competitors. The following are the strengths of D-Mart:
1) Focus on long-term: Mr. Damani, the founder of D-Mart, is an investor and thus the company has been
focused entirely on long-term gains. This has made the company maximise its returns through a value driven
pricing strategy.
2) Slow scaling up: D-Mart started off on a very low key note and slowly took its time to move up the
ladder. This gave the company a better control and deeper understanding of its supply chain and also helped
it manage the bottom line better.
3) People-centric management style: D-Mart has a very good employee policy in place and is very
transparent in its employee relations. They also have a good relationship with vendors and suppliers and the
stakeholders are happy.
4) Discount Policy: One factor that delineates D-Mart from its competitors is its huge discount policy. The
retailer sells essential goods at a flat discount price which most competitors cannot match and this helped it
penetrate the market.
5) Clear price based differentiation: D-Mart never followed the trends set by other competing retail
brands but believed in setting their own trends. They captured the market through a clear price based
differentiation and priced their goods at significantly lower prices than competitors.
Weaknesses of D-Mart
Weaknesses refer to the areas where the business or the brand needs improvement. Some of the key
weaknesses of D Mart are:
1) Focus on certain places: Quite unlike their competitors, who are present everywhere, D-Mart has
focused more on the Western States and has a very low presence in the South. This has restricted them from
gaining market prominence.
2) Sustainability of low pricing: The company has a zero credit policy and thus vendors and suppliers give
them at much better price which is how the company is able to afford the low prices that the competitors
cannot imagine.
3) No frills: D-Mart follows a nofrills approach where the focus is to cut costs wherever possible. Their
facilities are basic and lack the frills of most upmarket retailers. The customers who come here essentially
look at the low prices of products on offer. So thus the sustainability of this differentiator is questionable.
Opportunities for D-Mart
Opportunities refer to those avenues in the environment that surrounds the business on which it can
capitalize to increase its returns. Some of the opportunities for D-Mart include:
1) Technology: Technology has a lot to offer to retailers in terms of instore experiences and retailer can use
IoT, artificial intelligence, etc. to create value-adding services to their customers for which a premium can be
charged.
2) Personalization of services: Customers are looking for personalized services for which they are willing
to pay extra. Retailers should capitalize on this propensity to pay more and increase the quality of their
services.
Threats for D-Mart
Threats are those factors in the environment which can be detrimental to the growth of the business. Some of
the threats for D-Mart include:
1) Online retailers: People in cities especially are highly lethargic about leaving their homes and prefer to
shop online today. Companies like Amazon and Flipkart thus become major threats to most retailers.
2) Online Start-ups: The hottest trend in India is online start-ups. Many of them are aggregators who bring
together the supplier and the customer cost effectively. These companies are the emerging threats more so
because many new brands are cropping up in the aggregation market primarily because of lower barriers to
entry.
CHALLENGES
D-Mart is a huge brand in retail market. But it also faces certain challenges in the long run which are as
follows:
Competition: D-Mart is confined to a few states in west and south India and operates 141 stores. It has not
scaled up to the level of its other competitors, such as Reliance Retail, run by business tycoon Mr. Mukesh
Ambani which operates more than 3600 retail stores & Future Retail, run by Mr. Kishor Biyani which
operates more than 1315 retail stores. The challenge it might face is to keep up its model of local supplies
and cheaper prices working when it expands, as it has not yet scaled up to their level.
Technology: Future of retail does not seem to be the brick-and-mortar retail. And D-Mart‟s slow and steady
pace enterprise can run into formidable challenges brought in by fast evolving technology. India is
witnessing enormous usage of smart-phones. Cheaper devices and data, expanding telecom infrastructure
and the governments big push for digitization is not exactly conducive for the growth of retail stores.
According to the Global Payments Report by payments firm World pay, India will be the world‟s
secondlargest e-commerce market by 2034. This is a run for survival of offline retail stores in future if
technology is not adopted wisely.
Consumer behaviour: Total Retail Survey 2016 of PwC says online shoppers around the world are
fundamentally disrupting retail. In India, 55% consumers compares prices using mobile in store while 53%
were likely to buy from offshore online retailer for better prices.
Retail Store Bubble: While surveys point out a phenomenal growth in e-commerce in India, USA has
reported 'Retail Store „Bubble‟, once considered a competitive advantage, store footprints have now become
a burden for many chains as more shopping moves online. According to a Bloomberg report, chain store like
Bebe in the US is closing all 170 of its stores to focus on online sales. More than 3,500 stores are expected to
close in the next couple of months in the US, says a report in Business Insider. These include big names such
as JCPenney, Macy's, Sears, Kmart, Crocs, BCBG, Abercrombie & Fitch and Guess. The big reason for this
shutdown is growing e-commerce. What is happening to the brick-and-mortar retail in the US today might
happen in India too, sooner or later. Thus ecommerce is a big challenge in long run for offline retailers.
STRATEGIES
D-Mart has adopted Cost Leadership strategy under Generic strategy as its primary strategy to target that
group which is price sensitive. It has also adopted Expansion strategy under the umbrella of Grand strategy
in order to grow and spread its presence. D-Mart has set up its stores at very strategic points to gain
maximum advantage from its locations because easy accessibility and proper transportation facilities are
very important for the survival of any outlet. D-Mart never planned of opening a store in a mall and sticks to
what it knows best. It uses one of two formats of stores whose size is calculated based on location and
shopper density. This strategy pays off for the company. D-Mart has also consistently followed the
ownership model strategy, owning most of the stores or having them on 30-year long-term leases. Since real
estate leasing usually eats up 4-6 % of revenues, the ownership model has kept costs low. Basically, their
strategy is to “Buy it low, Stack it high and sell it cheap”!

D-Mart adopts following winning formula as its strategy towards cost leadership strategy
E. D. L. P.: A WINNING FORMULA Making products available at Every Day Low Price (EDLP) is D-
Mart‟s winning formula in value retailing. For EDLP, the company focuses on Every Day Low Cost
(EDLC), the key ingredients of which are:
1) Right product assortment: DMart focuses on the most popular SKU‟s (from the perspective of its target
customers monthly purchase basket) in each product category. This helps to improve sales velocity, lower
pilferage and ensure fresh products on the shelf. D-Mart enjoys revenue per square foot of Rs. 29,019
against less than Rs.17,500 (FY16 data) for peers.
2) Owned stores model: Its strategy of expanding through owned stores ensures savings in rent costs (5-6%
for peers) and protects it from escalation in rentals. D-Mart presently owns 85% of its total outlets which
helps it to keep well capitalised and debt-light, while its operations generate spare cash. All the money that is
saved using this strategy is eventually offered back to the customers in the form of discounts.
3) Sourcing efficiency: D-Mart purchases directly from manufacturers and primary vendors, thus saving on
intermediaries margins. Upfront payment to suppliers helps in availing cash discounts, which is passed to
end consumers. Its logistics partners earn lower revenue per km but the turnover offered is higher and
payment is immediate.
4) Centralized sourcing: 40% of DMart‟s total sourcing is centralized, giving it greater bargaining power. It
stocks faster moving products like food and grocery in warehouses closer to its stores and slower moving
products like apparel further away, thus optimizing storage costs.
5) Lower employee cost: D-Mart works on a variable employee model, which ensures low employee costs –
below 2% of sales. Only around 4,200 employees are on its direct payroll. The balance staffs are third-party
party hires.
6) Input metric focus: D-Mart rates its managers based on number of idle cash counters, empty shelves
(especially when stocks exist in warehouses), and level of pilferage. It allots ESOPs to deserving employees,
creating a sense of ownership amongst employees.
DILEMMA
Businesses face challenges in the environment which marks a set of dilemma surrounding its functioning.
DMart‟s cost efficiency model is achievable in short run but in long run along with scaling business, cost
burden also increases and that creates a dilemma for DMart. It is not possible for bigger chains to own stores
as it requires huge capital expenditure, which is why D-Mart is growing slowly.
Also, the future of retail does not seem to be the brick-and-mortar retail & D-Mart‟s slow and steady pace
enterprise is a dilemma as against the fast evolving technology. People in cities especially are highly
lethargic about leaving their homes and prefer to shop online today. Hence, DMart experiences the dilemma
of survival in future of technology.
CASE IMPLICATIONS
D-Mart‟s case study makes one aware about the techniques it uses especially for cost efficiency. Their
strategy has marked difference from nearly every other Indian retailer. Whereas other companies have
expanded quickly into multiple segments with differentiated retail chain, D Mart has restricted segmentation.
This makes Dmart more profitable than others. It has certain challenges but the founder is always prepared
with some out of box strategy & gives stellar performance. The inferences drawn from the case may lead to
possible understanding of a company‟s performance, the way it differentiates from its competitors. The
company is working on its dilemma by pilot testing some online services & home delivery services in metro
cities keeping in mind its cost efficiency.

KEY HIGHLIGHTS FY 2017-18

E15,009cr. E1,337cr. E785cr.

Revenue from Operations EBITDA Profit After Tax

155stores 24stores 4.9mn sq. ft.

In 11 Indian States & 1 New Stores Added Retail Business Area
Union Territory