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D-Mart’s basic business model that led to a blockbuster IPO

Pubali Neogy
D-Mart’s simple strategies have helped it up the ante against formidable competitors

Businesses succeed by following a viable modus operandi that helps control costs and rake in profits. Profits enable them to fund expansions and capture greater market share. Following this simple and logical strategy, home grown retail chain D-Mart has quietly stolen a march over all its formidable competitors over the years to taste phenomenal success. On the back of it, Avenue Supermarts Limited – its holding company – debuted in the stock market in India on 21 March.

The initial public offering (IPO) rocked the stock market like no other. On day one, share prices doubled and by the time the initial public offering (IPO) closed, it was oversubscribed by over 100 times. Spearheaded by large fund houses, there has been no let-up in the demand for Avenue Supermarts’ stocks since then. Radhakishan Damani, founder and promoter of Avenue Supermarts, is now one of the 20-most richest persons in India and the company’s stock the most expensive among retail stocks in the world!

Here’s a look at Damani’s no frills business formula that has paid off so well and made the retail chain numero uno in the country.

USP: fast-moving basic products at knockdown prices

The idea behind launching D-Mart stores was simple – cater to the growing middle-class’s daily household needs by purveying groceries, vegetables, electronics and apparel at ultra-competitive prices. On the lines of global retail giant Wal-Mart’s everyday low prices, D-Mart also started offering Every Day Low Price and Every Day Low Cost. It proved to be its biggest unique selling point (USP) and till date is the sole reason behind housewives and other bargain hunters making a beeline for its stores.

This has resulted in high inventory turnover, particularly in the food segment which sees over half the demand, and thus even with low profit margins, the retail chain has managed to flourish. Further, D-Mart’s tight and a relatively small assortment has also helped it arrest losses from wastage.

Cost control and effective utilisation of resources

Cost control has been another key focus area of D-Mart. Unlike its peers in the retail space, D’Mart has steered clear of exuberant spending on marketing and advertising. It has simple store plans and has never set up fancy stores in malls or launched multiple formats and categories. Instead, it moved forward taking measured steps. It owns most of its stores or has them on 30-year long-term leases. This has brought down costs further as real estate dents revenues to some degree.

Besides avoiding swift and costly expansion strategies to gain market share, D-Mart has also avoided forking out astronomical pay packages to top honchos. In fact, it does not hire high profile executives like its competitors.

Following such risk-averse strategies, D-Mart has clocked profits all the way. In 2016 fiscal, for example, the firm made a profit of Rs300.21 crore on a revenue of nearly Rs8,600 crore. Compare this with Mukesh Ambani’s Reliance Retail (it entered the arena after D-Mart) that made a net profit of Rs306.54 crore in the same fiscal with revenues double that of D-Mart. Kishore Biyani-led Future Retail, another key player in the market, had a comparatively smaller profit too compared to revenues earned.

At present, D-Mart operates 118 stores across Maharashtra, Chhattisgarh, Gujarat, Madhya Pradesh, Telangana, NCR, Andhra Pradesh, and Karnataka after the unveiling of its first in Powai in 2002. It is known to pay vendors swiftly as a result of which most suppliers flock to it. It is said the chain pays vendors in 11 days while most of the industry does so in 12 to 21 days.

Damani, the man credited with shaping D-Mart’s successful trajectory and making it profitable throughout, was earlier a stock market investor. With hundreds of millions of dollars accumulated from trading in stocks, Damani forayed into the retail sector post liberalisation of the Indian economy to tap into the nascent market.

Just like in the stock market, where his intuition never failed him and made him strike gold, it didn’t fail him in the domain of retail business either where he created a consumer-facing model that has fostered stupendous customer engagement and retention. Avenue Supermart’s IPO bears ample proof of the fact. Interestingly, only 10 percent of stake was diluted in the IPO. Damani and other promoters hold around 82 per cent of the company’s shares and another eight percent is held by pre-IPO investors. With the funds generated by the IPO, Damani envisages to pay off debts and build more stores.