venue Supermarts Ltd, which owns and operates retail chain D-Mart, on Saturday said it is having an

"adverse and severe impact" on its revenues due to "significant disruptions" of its store operations
from March 2021 onwards.

Besides, D-Mart may also have to face a challenge of "excess inventory" as with the receding threat
of the pandemic and sales surge in the last two quarters, it had optimistically made plans.

According to the company, in general, more than 80 per cent of its stores are operating for a
significantly lower number of hours (not exceeding four hours per day) or are even shut for
operations for one-two weeks or shut on weekends.

"These shutdowns are having an adverse and severe impact on its revenues," said Avenue
Supermarts while updating impact of the second wave of COVID-19.

The restrictions and local-level enforcement, imposed after a substantial surge in cases in COVID-19
cases, have become much stricter and vary from store closures on certain days or for extended
periods, to restricted store operating hours and selling only essential goods in most cities and towns.

Interestingly, the company which is receiving normal supply may face a situation of excess inventory
due to a limited number of hours of sales.

"We currently continue to receive a regular supply of goods from our suppliers. However, this time,
we may have a problem of excess inventory an issue larger than the first wave," it said.

The receding threat of the pandemic and consequent sales surge in the third quarter and most of the
fourth quarter, followed by the oncoming summer and back-to-school season, made us plan more
optimistically.

"This could have a longer-term impact on our inventory to sales ratio as we could take comparatively
longer time to liquidate the excess inventory," it added.

While comparing the second wave of the pandemic with the previous year, D-Mart said a key
difference is that the healthcare fraternity and government authorities have better knowledge to
tackle the pandemic. "Additionally, we now have the benefit of multiple vaccines being available for
all adults in the country."
It, however, added that more frequent lockdowns are expected across cities and towns. "This trend
is likely to continue until a large part of the population is vaccinated and new infections reduce
significantly and remain like that for a long period of time."

Avenue Supermarts has also expanded DMart Ready, its e-commerce operations adding more cities
to the network.

In 2020-21, it has opened 22 stores and also converted two of its existing stores into fulfilment
centres for its e-commerce services.

"We continued the expansion of our e-commerce business and increased our presence across the
MMR (Mumbai Metropolitan Region). In addition, we commenced servicing in four new cities during
the last year Ahmedabad, Pune, Bengaluru and Hyderabad," it said

As of March 31, 2021, Avenue Supermarts was operating 234 operating stores with a total retail
business area of 8.82 mn sq ft.

On Saturday, Avenue Supermarts has reported a 15.5 per cent decline in its consolidated net profit
to Rs 1,099.43 crore. It was Rs 1,300.98 crore in the previous year.

Its revenue from operations in the fiscal was down 2.92 per cent to Rs 24,143.06 crore. It was Rs
24,870.20 crore in 2019-20.

However, for the January-March quarter, it had reported an increase of 52.56 per cent in its
consolidated net profit at Rs 413.87 crore. Its revenue from operations in the fourth quarter of 2020-
21 was up 18.47 per cent to Rs 7,411.68 crore, against Rs 6,255.93 crore a year ago.

However, most of its stores are in Maharashtra. The state, which is the
home to country’s financial capital Mumbai, accounts for 35.5% of all
DMart stores in the country. The retailer has bought more land in
Maharashtra to invest more in the state
However, with Maharashtra being the worst affected state during the
COVID-19 pandemic and now having entered a partial lockdown, it’s also
hurting DMart’s business.
Even as DMart emerges from the pandemic, it will face tougher competition from Mukesh Ambani’s
Reliance Retail (combined, possibly, with its proposed acquisition of Future Retail’s Big Bazaar),
Tata’s entry in grocery with BigBasket as well as e-commerce giants like Amazon, Flipkart.
whether he goes for more online sales or more offline stores, a wider reach
maybe necessary to reduce the concentration risk. Expanding into poorer
states is also an opportunity to grow the business given DMart’s proven
expertise as a low-priced retailer pushing high volumes. Even the cost of
real estate would be lower than Maharashtra in many parts and that is
important for DMart which prefers to own its outlets than to rent.

DMart witnessed weak footfalls as well as negligible sales of general

merchandise because of restrictions on sale of such goods, both during the
first and second waves of the pandemic. Store operations in Maharashtra
are yet normalise as restrictions continue. Store operation of at least 10-12
hours per day (especially in afternoons and evenings) is essential for sales
to normalise to pre-Covid l

DMart's Business Model

A successful business model is the crucial element of any business to flourish, grow
and beat its competition. DMart's business model has made the company grow
exponentially and become the most profitable supermarket chain in India. The
company's mission is to be the low-priced retailer in its area of operation.

Characteristics of DMart's Business Model

Product-Mix

The company comprises everyday use products for its customers, which are
categorized as Foods, Non-foods and General Merchandise & Apparel. The chain
operates on a B2C (Business to Consumer) model, where goods are directly sold from
the manufacturer to the end-user.

The demand for these goods is on-going as they comply with the basic day-to-day
needs, thereby creating a demand throughout the year. This eliminates the risk of
high demand fluctuations and provides consistency to the business.

Revenue Drivers (DMart's Revenue Model)

Slotting Fees

It is a payment that is made by the manufacturer of goods to the superstore to keep

its products on the shelf for sale. Also called an entry fee for the products, which are
held in the supermarket. Being a supermarket chain DMart also charges a 'Slotting
Fee.'

The store attracts high volumes of customers, making it an attractive and

opportunistic place for the manufacturers to keep their products. This attracts more
and more manufacturers willing to put their products in the store.

A slotting fee indirectly reduces the product's purchasing price for the retailer,
thereby allowing it to offer the products at discounted prices, i.e., less than the MRP
(Maximum Retail Price), hence attracting large buyers.

Reduce Expenses

A low-cost business model with high profits is one of the most attractive and
successful forms of running a business. As simple, it sounds like it is not that easy to
achieve.

However, DMart has successfully achieved it. How? DMart operates on a low-
interior-cost concept where it has tried to reduce the operational expenses for the
company. These low operating expenses are a result of- efficient space utilization by
putting more products in less space thereby creating space for more products; less
number of billing counters reduces the requirement of more workforce and systems
thereby reducing employee cost; a very basic and low-maintenance interior of the
store, are some of the ways through which DMart has controlled its expenses.

Low Purchase Price for the Products

The credit cycle of DMart, i.e., the time in which it returns the payment to the
manufacturers for the goods purchased from them is quite less than other retail
operators. This allows the company to avail massive cash discounts from the
manufacturers, thereby cutting the purchase price of the goods.

Volume Sales

Being a low-priced retailer gives an edge to DMart. Low price leads to high footfall in
the store leading to high sales volume, thereby attracting more and more
manufacturers to keep their products in DMart. This is a cycle created by DMart,
which keeps the loop ongoing.  Further, due to high volume sales, manufacturers also
extend a volume discount, reducing the purchasing price. This supports the low-cost
business model and makes it stronger.

Regional Goods

India being a diverse country has various regional specific goods. DMart grabbed this
opportunity by stocking its stores with area-specific products. People across different
states have unique lifestyles habits and hence lead to slightly different consumption
habits.
DMart pooled the popular local brands of a particular region in one place, making it
more convenient for the buyers to avoid going to the local Kirana shops. This helps
DMart to cut the competition from general Kirana stores gaining more market share. 

Self-Owned Stores

The Company operates on self-owned stores, which allows it to be a low or no debt

company making it stronger financially.  Further, no rental cost helps in high positive
cash flows, which are used for opening more stores. Although the expansion and
growth in self-owned stores are slow, it has its own advantages. Of all the existing
stores to date, almost 80% are self-owned. 

Target Audience

DMart’s target customers are low-income groups who are looking for low-cost goods.
Thus by providing excellent quality and branded products at a lower cost, DMart
attracts a more extensive customer base than other retailers.

Eliminates Middlemen

Operating on a B2C model eliminates intermediaries and hence the added cost to the
product's price. This further helps the company to sell goods at a lower price.

Advantage of Consumers Behavioural Patterns

Offering a variety of products at low-prices creates psychology in customers to buy

more, which is offered at a discount. This behavioral pattern among the consumers
has been evident when the 'Sales Period' of the year arrives in stores.

Food For Thought!

DMart currently operates the majority of its business via brick and mortar stores. But
the entry of online e-tailers has started to disrupt the market share of existing brick
and mortar stores. These e-tailers are highly cost-efficient and are more widely
accepted due to a simple concept of shopping at the tip of their fingers.

Avenue Supermarts have launched 'Avenue E-Commerce Ltd.,' its online shopping
portal, to keep up with the competition and the industry. But competing in this space
calls for its challenges and new players like 'Amazon,' which is a giant whale in itself.
So whether DMart will be able to keep up with the changing market scenario or not is
food for thought.