Foundations of Strategic

Consulting Report on
Avenue Supermarts

Submitted By –
GROUP 7

Aditi Jain (C20 – 007)

Submitted To–
Ayushi Fatwani (C20 –045)

Chinmay Bindal (C20 – 052)

Prof. GR Chandrashekhar
Jyotiranjan Mahakul (C20 – 072)

Manthan Panchal (C20 –088)

Pritish Phadnis (C20 – 112)

Shreya Tripathi (C20 – 145)

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EXECUTIVE SUMMARY

In this project we try to analyse the strategies and success of Avenue Supermarts Limited. The

overall strategic analysis has been done by studying the business model. Post analysing the

business model, the financial analysis of the company and key financial ratios are analysed.

The environmental analysis is done through PESTLE. Its strategy is analysed using Balanced

score card. Its internal and external analysis is carried out in this report. The report also provides

the overview of what strategies the company follows as per their business model, what are

some challenges faced by the company as well as it contains the suggestions that the company

can follow to make their business model more successful.

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Table of Contents

ABOUT AVENUE SUPERMARTS LIMITED..................................................................... 4

VISION & MISSION STATEMENT .................................................................................... 4
DMART BUSINESS MODEL .............................................................................................. 5
VALUE PROPOSITION ...................................................................................................... 7
REVENUE STREAM ........................................................................................................... 8
INANCIAL ANALYSIS OF LAST FIVE YEARS ............................................................... 9
FINANCIAL RATIOS ANALYSIS .................................................................................... 11
COMPETITOR ANALYSIS ............................................................................................... 14
EXTERNAL ANALYSIS OF DMART .............................................................................. 15
EFE MATRIX ANALYSIS................................................................................................. 16
IFE MATRIX ANALYSIS.................................................................................................. 16
EXISTING STRATEGY..................................................................................................... 17
BALANCED SCORECARD .............................................................................................. 19
ANSOFF MATRIX............................................................................................................. 19
BCG MATRIX ................................................................................................................... 20
CHALLENGES FACED BY DMART................................................................................ 21
FUTURE STRATEGIES FOR DMART ............................................................................. 22
REFERENCES ................................................................................................................... 23

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ABOUT AVENUE SUPERMARTS LIMITED

DMart is owned and operated by Avenue Supermarts Ltd. (ASL) which was founded by Mr.

Radhakishan Damani. The first ever DMart store was launched in Powai in the year 2002.

Today, DMart has significant presence in 168 locations pan India across Maharashtra,

Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil

Nadu, Punjab and Rajasthan – 11 States and 1 Union Territory. The objective of DMart is to

“offer customers good products at great value”. It is a one stop retail supermarket chain

offering a wide range of home utility products under one roof ranging from vegetables,

processed food to home appliances and what not. It serves to address the growing needs of

a typical Indian household at very competitive prices offering more value for money than its

competitors in the market.

VISION & MISSION STATEMENT

“At DMart, we continuously research, identify and make available new products and categories

to fulfil our customers’ everyday needs at the best value. Our mission is to be the lowest priced

retailer in our area of operation.”

Core Values

▪ Action

Focus: To be focused about what I do.

Motivated: To be clear of achieving my goal.

Enthusiastic: To love what I do.

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▪ Care

Respect: To respect every individual in the organisation and provide her/him with the

dignity and attention to make her/him believe that she/he makes a difference to the

organisation.

Listen: To listen and resolve any employee/ partner/ customer grievance quickly and

fairly

▪ Truth

Integrity: By being open, honest and fair in all our relationships and being respectful

and trustful to others.

DMART BUSINESS MODEL

DMart retail chain focuses on catering to the needs of the growing middle-class households.

Providing them with day-to-day consumables like vegetables, groceries, apparels and

electronics, covering almost all components of the monthly shopping cart of a normal

household at a competitive low price. DMart started its operations in the year 2000 with Mr.

Radhakishan Damani at its helm, operating a single store in Maharashtra with a strong focus

on value retailing. The retail store proposed to be the lowest priced retailer in its area of

operation. The store grew steadily over the years and now operates 168 stores in 11 States and

1 Union Territory of India.

DMart’s retail chain’s success can be attributed to the business model followed by DMart. The

retail chain aims to generate a huge revenue stream by focusing on selling huge volumes rather

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than focusing on the price of the goods that are sold – High Volume accompanied by Low

Price.

Most of the stores might start on a leased property but eventually the property is bought saving

them rental costs. Initially renting the store might seem as a good option as the initial

investment is less, but it becomes a huge fixed operational cost month on month. Buying out

the property instead helps in saving this chunk of operational cost. This helps in keeping the

rental expenses under a check.

The chain maintains good control over its supply chain. Most of the vendors and the suppliers

are paid within a short period in contrast to the existing norms of the industry. The suppliers

and vendors in turn provide the goods a cheaper price in lieu of the early payments. This cost

benefit is further passed to the customers, providing the goods at lowest price possible. This

ensures a heavy footfall in the stores. Furthermore, the stores rely on a local supply chain and

not so much on an elaborate one. Company operates distribution centers and packing centers,

which form the backbone of DMart supply chain to support the retail store network. As of 31st

March, 2018, company had 24 distribution centers and 6 packing centers in Maharashtra,

Gujarat, Telangana and Karnataka.

DMart follows a cluster-based expansion approach. Wherein the company focuses on

deepening their penetration and presence in the areas where they are already present, before

expanding to newer regions. Following a cluster-based approach, the retail chain increases its

presence in one particular area and becomes more competitive. By implementing this strategy,

Company added 24 stores in FY 2017-18, thus ending the year with 155 stores spread across

11 states and 1 union territory.

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VALUE PROPOSITION

The only focus of DMart is to provide its customers the lowest price possible for the

products offered by them. The product range offered is targeted to the daily requirements

of the lower-middle, middle and aspiring upper-middle income consumers. Majority of

products stocked at the shelves of retail chain are everyday products forming part of basic

rather than discretionary spending of the household. DMart offers low prices on an

everyday basis by achieving low procurement and operations cost. It helps in maintaining

the relationship with customers and acquiring more customers over the time. The revenue

streams are all volume driven. In spite of the strong competition and low margins in the

retail, DMart’s revenue streams have increased and the market share is on the rise because

of the simple value proposition, it focuses on – delivering merchandise at the lowest price

possible. One of the biggest USPs of DMart till date are the offers under Every Day Low Price

and Everyday Low Cost, these acted as major reasons why the stores are being flocked by

housewives and other bargain hunters. The food sections in DMart sees over half of the

demand and has a high inventory turnover, which helps DMart to flourish in spite of the low

margins on the products offered.

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REVENUE STREAM

Sales(%)

General
Merchandise &
Appriasal Foods
28% Foods
52% Non-Foods
Non-Foods
20%
General Merchandise &
Appriasal

Fig - Key product categories contributing to Revenue

D-mart offerings is classified in 3 categories

o Non-Foods

o General Merchandise

o Appraisal

Out of which FMCG products contributes >50% of sales to the company.

Company sales are heavily dependent on FMCG product. Consumer usually buy daily

consumables from DMart.

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INANCIAL ANALYSIS OF LAST FIVE YEARS

Revenue from operations

Revenue from operations (in Crores)

19,916.25

15,008.89

11,881.12

8,575.18
6,433.52

2019 2018 2017 2016 2015

▪ Revenue from operations for the year 2018-19 was 19916 Cr from 15009 Cr in the year

2018. Growth in last 5 year is 310%

▪ CAGR for last 5 year is 25.36%

EBITDA

EBITDA (In Crores)

1,692.32

1,409.44

995.73

676.96
474.06

2019 2018 2017 2016 2015

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▪ Company had an EBITDA of 1692 Crores which is continuously increasing.

▪ EBIDTA in the year 2015 was 474 Cr and in the year 2019 it went up to 1992 Cr.

▪ YOY growth is 30%

Profit after Tax

PAT (In Crores)

936.35

784.66

482.64

317.91
210.67

2019 2018 2017 2016 2015

▪ PAT in the 2015 was 210 Cr went up to 936 Cr in the year 2019.

▪ Growth in 2019 as compare to 2015 is 444.47%

▪ The growth is 34.76% YOY.

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Cash Flow

Net Cashflow from Net cashflow from

Net Cash Flow from
investment Activities Financing Activities
Operating Activities
Rs (1000.72) Crores Rs 204.04 Crores
Rs 852.78 Crores

▪ Company has positive cash flow in operating and financing activities. Positive cash

flow from operating activities means company is making profit from its core business.

▪ Negative cash flow from investing means they are investing money in other activities.

▪ Cash flow from financing activities are negative as company has issued long-term debt.

FINANCIAL RATIOS ANALYSIS

Profitability Ratios

Ratios 2019 2018 Trend

Return on Assets (ROA) 13.38% 13.98% -4.29%

Return on Equity (ROE) 16.73% 16.90% -1.00%

Return on Capital Employed 25.83% 25.43% +1.50%

Operating Profit (EBIT) Margin 7.50% 8.36% -10.28%

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• ROA and EBIT margin has been decreased due to higher investment in assets

which required higher capital.

• Operating profit margin has decreased from previous financial year because the

expenses for the year 2019 has increased by a significant amount as compared

to increase in the sales.

Activity Ratios

Ratios 2019 2018 Trend

Inventory Turnover 12.64 13.08 +3.36%

Trade Receivable Turnover 289.03 493 -41.37%

Fixed Asset Turnover 4.73 4.16 +13.73%

Total Asset Turnover 3.11 3.07 +1.30%

• The trade receivable turnover days has drastically decreased implying the

efficiency in collecting the receivables from its debtors.

• Fixed asset turnover has increased showing the greater efficiency in utilizing its

fixed assets and converting it to sales.

Investment Ratios

Ratios 2019 2018

Operating Profit Per Share 23.95 21.43

Net operating income per share 319.13 240.49

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• Operating profit per share has increased due to increase in operating profit for

the year 2019.

• Net operating income per share has also increased due to a significant increase

in operating income for the year.

Liquidity Ratios

Ratios 2019 2018

Current Ratio 1.67 2.77

Quick Ratio 0.37 1.23

Debt Equity Ratio 0.08 0.05

• Current Ratio has decreased by a significant amount due to a significant increase

in unsecured loans and contingent liabilities.

• Quick Ratio is decreased because of increase in contingent liabilities and

increase in inventory.

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COMPETITOR ANALYSIS

2019 Financial ratios

Ratios DMart Future Retail

Return on Assets 13.38% 6.96%

Return on Capital Employed 25.83% 21.63%

Operating Profit (EBIT) Margin 7.50% 4.74%

Inventory Turnover 12.64 3.98

Trade Receivable Turnover (Days) 289.03 67.26

Total Asset Turnover 3.11 2.02

Operating Profit Per Share 23.95 14.58

As a business goal is to provide higher return to the stock holder and also, we should be ahead

of our competitor. Our sales, Market Share, Returns on Investment, Profitability should be

greater than our competitor. Better performance from our ratios means we are ahead of our

competitors in financial language.

• Future retail is the biggest competitor of DMart.

• Return on Asset is greater than future retail that means efficiency of utilizing assets is

greater by DMart.

• EBIT margin is comparatively high than Future Retail. This means DMart is more

profitable than Future Retail.

• Tarde Receivables Turnover ratio is very high for DMart as compared to future Retail

Which implies that DMart does not efficiently collect receivables from its debtors.

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• Return on Capital Employed is greater for DMart than Future Retail. This implies that

DMart if using its capital efficiently to generate greater profit.

• Operating Profit per share is very high for DMart when comparing with Future Retail.

Higher the ratio better company and higher return of their investment.

EXTERNAL ANALYSIS OF DMART

PESTLE Analysis

Political factors:

Profitability and revenue of retail store are affected by government policies. The food sold by

retail stores are governed by hygiene and health guidelines of the government. They also

determine which products can be imported and sold in the store. Government is stable.

Government policy towards investment is liberal. Restriction for MNC’s by keeping upper

limit for FDI.

Economic factors:

Economy is growing and disposable income for middle class is hugely increasing thus boosting

organized retail sector and stores like D-Mart.

Socio-cultural factors:

Indians buy groceries for 1 month and food for 1 week thus promoting bulk purchase would be

beneficial.

Technology:

Harnessing rapid changes in IT to provide hassle free experience to customers such as

streamlining customer service. At the same time e-commerce retail is huge threat.

Environmental factors:

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The conditions in the store effect the quality of the perishable products.

EFE MATRIX ANALYSIS

As weighted score in strengths is 3.52 which is greater than 2.5, D-mart is doing well in its strengths.

Its weakness score is 2.8 which means its handling its weaknesses well.

IFE MATRIX ANALYSIS

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As weighted score in threats is 1.95 which is less than 2.5, it means D-Mart is not well prepared

for the threats handling.

Its score in opportunities is 2.94 which is greater than 2.5 which indicates that D-mart is well

equipped to handle opportunities.

EXISTING STRATEGY

Best value for money strategy to attract customers

D-mart wants to be the retail store that offers products at lowest prices compared to its

competitors. It focuses on price differentiating strategy. It always offers a discount on all most

all items especially on grocery and food items. It offers at least 3% on MRP to as high as 10%

on MRP on any day.

High Inventory turnover strategy

The gross margin gets highly effected due to low prices of products, so to keep profitability D-

mart aims at a very high inventory turnover (13.08 as of 2018) by focusing on few product

segments like food and grocery and have restrained to enter high-end segments like watches,

jewellery etc unlike its competitors. It also keeps away from brands, to keep inventory low

even though they provide with higher profit margins. It also doesn’t offer many brands in each

product segment.

Value proposition to suppliers

It uses the high inventory turnover (13.08 as of 2018) to strike a deal with suppliers for lower

price, but also attracts its suppliers by maintaining very short credit period in industry.

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Promotions

It doesn’t spend much on advertisements or promotions of discounts unlike its competitors like

sabse sasta din, exchange offers by big bazaar. As it mostly as daily consumption food and as

customers know that any day D-mart will be offering some discount on MRP as opposed to

offers only during festive seasons by competitors, D-mart does have to promote much.

Store ownership strategy

D-mart until recently has opened stores which it either owned or leased for 30 years. It also

kept away from opening in any malls thus ensuring not to waste money on renting expensive

locations.

Sustained growth

Until 2014, only in 4 states its stores were there and in existing markets and states they opened

75% of their stores. In maintained standardization across locations by maintaining only two

sizes and location and footfall determined which size format to choose. Since 2014 it has

opened stores in 5 other states as well but is absent in states like Tamil Nadu, Delhi in spite of

them being high consumer spending states.

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BALANCED SCORECARD

•Growth in Revenue from operations by 26.33%

•Growth in EBT by 40.2%
Financial •Growth in Net Income by 62.2%.
•Growth in Return on Capital Employed by 8.03%

•Discount policy to attract customers

Customer •Low cost strategy for Customer retention
•Availability to satiate

•High Inventory Turnover

Internal Business •Cluster based approach
•Store Ownership Model
Process •Everyday low price and everyday low cost

Learning and •Training employees for better customer

experience.
Growth

ANSOFF MATRIX

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Ansoff Matrix helps to govern the growth strategy of a company. It helps to determine whether

the company should market the existing or new products to existing market or new market.

Avenue Supermarts Ltd. Should focus on Market Development in rural areas. This is due to

the fact that rural areas are still untapped by organized sector. So, there is an opportunity for

DMart to explore rural areas. It is represented by solid pink circle.

The company should go for Market Penetration in the existing states. This is represented by a

solid black circle.

BCG MATRIX

Market capitalisation of D-mart is equal to market capitalisation of next two competitors put

together. Hence, D-Mart is in star category as its market share percentage is high along with

high growth rate retail industry in India, whereas Future retail's Big Bazaar is in question mark

category as, though it is in high growth rate retail industry it is second competitor hence its

percentage market share is lower.

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CHALLENGES FACED BY DMART

• Reach: DMart, on the basis of the business model of cheaper prices and local supplies, is

confined to a limited number of states, the question that lies is that whether DMart would

be able to compete with the other retail giants such as Reliance retail which operates in

nearly 500 Reliance Fresh stores across 80 cities. Until now DMart has been successfully

beating its competitors as it hasn’t scaled up its level and has been keeping its prices very

low but in future Smart will have to face all the constraints that its competitors are facing.

• Online retailers: People in this era are quite lethargic, so they prefer online shopping

which is more convenient in all aspects, the retail giants such as, amazon and Flipkart are

major threat to DMart which prove to be more convenient option for the masses.

• Managing Footfalls: DMart has certainly been the best deal for the huge number of people

but has been a failure when it comes to managing footfalls. The buyers have issues such as

long queues, difficulty of parking, shelves not being filled promptly so as to suffice

customer-demand.

• Land Acquisition: The acquisition of same size of land has become a major challenge for

DMart as earlier all the land was owned by them.

• Online Reach: The online reach of the DMart stores has to be vamped as it’d be very

difficult for the company to compete with Amazon, Flipkart.

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FUTURE STRATEGIES FOR DMART

• Expanding aggressively in India opening around 30 stores per annum as compared to

10 to 15 stores per annum historically to increase profit.

• To accelerate growth, DMart will move from company owned and operated store to

leased store model at prime locations in different cities.

• DMart is also likely to focus more on its e-commerce and apart from click and connect

model will also focus on home delivery of groceries.

• Expanding to north as it is a new market and needs to be understood well. Not looking

to expand to east.

• Do not have aspiration to become a pan India player. Likely to open more stores in

states in which they are already present.

• To compete in this highly competitive industry with competitors like Big Bazaar,

Hypercity etc, the company is willing to cut reduce margins and increase discounts.

• Planning to increase the reach of D-mart ready, which is a series of small 350-400

square feet outlets from where consumers can collect products that they ordered online.

• Expansion to be done in a clustered format where new stores will be located 100-200

Kms from the current ones. The consequent logistical benefits will reduce the costs.

• The money collected from the IPO launch in 2017 will be used to repay the long-term

debt to boost the profitability.

• Consolidating the supply chain procuring consumables (fruits, vegetables, dairy)

directly from the source and paying suppliers quickly, the company will continue to

optimize its working capital cycle.

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REFERENCES

https://dmartindia.com/files/investor_relationship/annual_report_2017-

18_&_agm_notice/Annual%20Report%202017-

18%20&%20AGM%20Notice02_08_2018_03_50_23.pdf

https://mail.google.com/mail/u/0/#inbox?projector=1

https://www.moneycontrol.com/india/financials/avenuesupermarts/balance-sheet/AS19

https://ghanatalksbusiness.com/wp-

content/uploads/2016/02/0dab4f73f8e74db8e0ccfc58e81bacd1.jpg

https://www.livemint.com/Companies/SXKP9ZP6AAdCSkj5TbFoEJ/Chasing-growth-D-Mart-rethinks-

store-strategy.html

GROUP 7: Report on Avenue Supermarts Strategy