Damani, who is known to have made multiple trips to the US prior to launching DMart in 2002 to study Walmart Founder Sam Walton’s retail philosophy, has religiously followed his strategy of offering EDLP and EDLC
At a time when retail companies are closing down stores and laying off employees, Avenue Supermarts that owns retail chain DMart touched a market cap of Rs 1.50 lakh crore. It indeed gives hope that the India consumption story is still alive. The company’s founder Radhakishan Damani may be among the richest Indian entrepreneurs, it is his conservative approach of sticking to the retail rulebook and buying and selling efficiently that has paid off.
Damani, who is known to have made multiple trips to the US prior to launching DMart in 2002 to study Walmart Founder Sam Walton’s retail philosophy, has religiously followed his strategy of offering EDLP (Everyday Low Price) and EDLC (Everyday Low Cost). Not only does DMart offer its customers discounts in the region of 6-7 per cent round the year, its procurement costs are also significantly lower than its peers, the benefits of which it passes on to the consumers. Here again, it is the company’s eye for perfection that has come in handy. DMart is known for paying its suppliers almost immediately as opposed to other retailers who take anywhere between a month to month-and-half to pay off their suppliers. The suppliers (mostly FMCG companies) don’t mind offering extra margins as they get paid immediately and a value conscious Indian consumer who loves discounts doesn’t have a reason not to frequent DMart month-on-month.
DMart is also fastidious about its inventory turnover time. It makes sure it doesn’t exceed over 30 days as opposed to its competitors which mostly have a turnaround time of 70 days. They also have a wider array of SKUs. The DMart shelves only have leading brands and their own private brands, which enable a faster turnaround. Damani has always believed that a plethora of brands adds to confusion and unnecessary inventory. He has also not been an advocate of aggressive store expansion. Reliance Retail came into being in 2006, four years after the launch of DMart, and has a network of over 11,000 stores across 7,600 cities. Damani, who has religiously toed Walton’s retail philosophy, has also adopted his cluster approach of expansion. DMart has just 200 stores across Maharashtra, Andhra, Telangana, Madhya Pradesh, Chhattisgarh, Rajasthan, NCR, Tamil Nadu, Karnataka, UP and Punjab. The company doesn’t want its presence on plush high-streets or malls either. Most of its retail space is in densely populated middle class residential localities where real estate costs aren’t high. In fact, till recently it preferred to fully own its retail space. The policy of owning stores does restrict the pace at which new stores can be opened but is much more profitable in the long run.
Despite the tough economic environment, in the third quarter of FY20, DMart clocked a 24.4 per cent YOY revenue growth and a 39.7 per cent YOY EBITDA growth. Its revenue in FY19 was Rs 19,991 crore and the net profit was Rs 936 crore. Future Retail, despite having close to 1,700 stores clocked a slightly higher revenue of Rs 20,165 crore and a net profit of Rs 733 crore. The latter has also been in the news for shutting down around 144 EasyDay stores and also scaling down its ambitious e-commerce plans.
Damani has extended the conservative approach to his e-commerce strategy too. His e-commerce platform, DMart Ready, doesn’t offer deep discounts and free home delivery. Most e-commerce players are bleeding due to discounts and high delivery costs. The only other retail company which has been reporting stellar growth in this difficult environment has been the Mukesh Ambani-owned Reliance Retail, which with a revenue of Rs 1,30,566 crore is among world’s most valuable retailers. Ambani’s strategy has been to foray into tier 2-3-4 towns where he too is offering his consumers EDLP. Unlike Damani, who has a frugal approach to his volume-driven business, Ambani’s retail business is all about huge scale and volumes. The latter’s prowess is obviously his deep pockets.
An oft-asked question is whether Ambani’s retail aggression would trample Damani. The retail gurus expect both of them and many others to survive, as the Indian economy is expected to be worth $4.6 trillion by 2025. “DMart is a well run business. There is enough room for another 100-200 DMart stores in India, and each of them will give a revenue of Rs 30-40 crore turnover. They can easily grow to a revenue of Rs 50,000-Rs 60,000 crore by just doing what they are doing,” says Arvind Singhal, Chairman, Technopak Advisors.
“DMart never stretches its legs beyond the size of its blanket, they know how to keep increasing the size of their blanket and therefore increase their stretch. They have a business model which has been a winner model for Walmart. It is using a model of expansion which is growth-oriented and there is guaranteed profit,” adds a senior retail industry observer.