D-Mart: Walmart of India

I have been recently shifted to Bengaluru, India and I found that D-Mart is very popular Supermarket in Bengaluru and the goods, even the branded products are cheap compared to the other supermarket like Vishal Mega Mart, Big Bazaar or Reliance Retail. This becomes curious for me to know and understand the reasons of cheapness and the business model and how do they sustain as a Business?

Some Key Facts:

1. Founded by Radhakishan Damani who is an investor and started in 2002.
2. Owned by Avenue Supermarts Ltd and did an IPO in 2017.
3. Market Capitalization of around Rs. 95000 Crore.
4. Rs. 784 Crore of Net Profit in 2018 with a growth rate of 63%.

In the beginning, I was thinking that they are just creating customer base and burning money to give discounts but after seeing their financial statements, I realized that it is not true as they earning a huge profit. So, I did a research about their business model and I come to know that their main idea is “Everyday Low Cost, Everyday Low Price”. This means that buy everything at low cost and sell them at low price. It’s like you sell 100 Kg Mango in 1 day at a profit of Rs. 2 or 20 Kg Mango at a profit of Rs. 6. In the former case, they are earning a profit of Rs. 200 and in the later case they are making a profit of around Rs. 120. That’s the same thing D-Mart is doing and sell all the products at low price and bulk quantity and in this case they have a negotiation power with the manufacturers because they are buying a B2B deal for all of their stores. They are getting Bulk Quantity Discounts for purchasing such a large quantity. Apart from that, other important things are:

1. Ownership/Long-Term Lease Model: Most of the D-Mart stores have their own building and land which basically have large upfront cost but they are cheap in the long run. This makes them competitive in the market because other supermarkets have to pay rent which increase their fixed cost and they can’t sell the products cheap. This could be seen that the initial growth of D-Mart is very slow and there were very few stores even after 10 years in the market. But recently, they have got a huge push because of the cumulative effect of the profit. It can be easily be understood by an example: Let’s say, First store is constructed with a cost of 1 crore(including debt interest and land cost) and we are making a net profit of 25 Lakhs each year then it takes us 4 years to open next store but then we will have 2 running stores which are now making Rs. 50 Lakhs of net profit each year which will help us to open our next store in 2 years. This time of opening a new store keeps on decreasing and the growth of the company will keep on increasing. This proves the slow growth of D-Mart initially and fast growth in the later years.
2. Slotting Fees: D-Mart charges a product entry fees because they have established a huge customer base and company is paying D-Mart to keep their product in the shelves. This further increases the profit of the D-Mart.
3. Less staff and decoration: They believe that decision of people don’t change based on the lifestyle and fashion. So, they usually don’t hire much staff and decoration in the stores. This keeps the running or operating cost of the D-Mart low and makes them competitive.
4. Regional Products: They keep the regional products in their shelves which gives the consumer a feeling that they are going to a local kirana shop and not to any other national supermarket.
5. Small Credit Cycle: They purchase most of the goods in Cash or short term credit that helps them to get additional discount which is not the case of other super markets which usually have a credit cycle of around 40–50 days.

These are the factors which makes them profitable, competitive and sustainable business and every business should learned from their success story. Decreasing the credit cycle and margin per product, and increases the inventory churn rate is helping them to grow.