Flying High in a Competitive Zone: The DMart Way

The case has been written by Dr. Rohit Prabhudesai, Dr. Shantanu Prasad, Dr. Mahima
Mishra, and Prathamesh Gadgil for academic purposes. The contents may not be distributed
or copied in any form without the authors’ permission.

Background:

DMart has made impressive gains in the cut-throat Indian retail industry, managing to take its
market capitalization to over 3 Trillion Rupees, with its share price more than doubling since
the onset of the Covid-19 pandemic. Its growth speed could be realized from the fact that of
the 284 stores across it had in the country, the most, 50, were added in the financial year (FY)
2021-22. Its founder, Mr. Radhakishan Damani, was ranked 63rd in the Bloomberg Billionaires
Index, with an estimated wealth of $21.5 Billion.

However, while DMart has seemingly cracked the code in the brick-and-mortar business, its
online retail arm, DMart Ready, in the fifth year of its operations, has registered a loss of 142
Crore Rupees, an increase of 62 Crore Rupees from the previous financial year. The question
going ahead was if DMart would be able to maintain its momentum going ahead in the
conventional retail business, and how could it turn profitable in the newest segment on the
block – the online retail business. [1] [2] [3] [4]

DMart history:

DMart was started as a value-for-money retail store chain by Avenue Supermarts Limited
(ASL) company in the year 2002, with the first store launched in Powai, Mumbai. In 2007,
DMart started its first store in Gujarat. By 2011, the total store count had gone up to 25, while
in 2012, the number went up to 50 stores and in 2016 it was 110, with an increased revenue of
Rs. 7500 crore rupees netted by the company. The company’s initial public offering (IPO)
debuted in 2017 with a price band of Rs. 295 to Rs. 299 per share and the issue got subscribed
almost 73 times. The shares were listed on Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE) on 21st March 2017. The share price has grown more than 14 times since
then. [5] [6]

About the Founder:

DMart was founded by Radhakishan Damani, an Indian stock market investor and
entrepreneur. He was born in an Indian Marwari family in Bikaner, Rajasthan. Damani had
dropped out of his Bachelor of Commerce course in the University of Mumbai and started his
first stockbroking business. He made a huge profit from the stock market trading and in 2002,
he launched DMart retail store chain, under the aegis of ASL. [6]

Damani then entered the retail business with a view to “create something other than stocks to
leave behind for the next generation,” says Mr. Ramakant Beheti, Chief Financial Officer of
DMart. Initially he ran two franchises for Apna Bazar, a retail chain, where he had carefully
understood the behaviors of the customers in the retail stores, which greatly helped him in
planning for DMart’s approach and launch. After having successfully established the brand in
the market, post the IPO he has served as the chairman of ASL. [7]

Competitive Landscape:

Indian retail industry is forecasted to grow at 10% a year, reaching $2 Trillion by the year 2032.
Its contribution to the gross domestic product (GDP) is 10%, indicating the critical the role it
plays in the country’s rapid economic growth.

In the organized general retail segment that stocks and sells merchandise across categories, six
main competitors exist – DMart, Big Bazaar (operated by Future Group), Reliance Smart and
Reliance Fresh (operated by Reliance Retail), Star Bazaar (Trend Limited), and More Retail
(backed by Amazon). In the Financial Year 2021-22, only Reliance Retail and DMart had
managed to post profits. Key issues that hit rivals badly were the low margins in the industry,
low switching costs for the consumers, and the emergence of online retail segment that had
become a credible alternative for consumers. [8]

How DMart operates in the retail segment?

In the retail industry, DMart has segmented the products it offers into three segments: foods,
non-foods, and general merchandise. Groceries, frozen and processed foods, dairy products,
beverages, fruits and vegetables are clubbed under its foods Segment. Non-foods Segment has
products like homecare, personal care, toiletries etc. The general merchandise segment has
products like toys, plastic goods, utensils, garments, footwears, and many other home
appliances. Products from own brands such as DMart minimax, DMart premia, DMart homes,
are also retailed in its stores. [9]

DMart has successfully and religiously practiced the ‘everyday lower price’ (EDLP) tactic
since its inception, which had been pioneered to great success by WalMart in the United States
of America (USA). It keeps a lesser product variety (limited stock keeping units (SKUs) that
are fast selling) than competitors in its stores, which helps it maintain a better inventory
turnover ratio than competitors. The SKUs are priced at heavily discounted rates to attract
customers. [8] [10]

A better supplier payment policy also helps in keeping costs low – estimates indicate that 2-
3% costs are saved by paying them upfront within 48 hours of delivery, whereas competitors
often take up anything between 30-60 days for the same. Presence of own private label products
across the three segments also helps to circumvent suppliers’ bargaining power. Similarly,
intermediaries are eliminated from negotiations with suppliers, again helping save costs. [10]

DMart owns almost all the stores it runs (few are acquired on a long-term lease of more than
30 years), opting for it rather than the rent model chosen by the competitors (rental expense as
a percentage of sales has fallen from 32% a few years back to less than 1% in FY 22). Some of
these properties were bought during economic downturns, which helped save substantial store
operation costs. The usually attractive locations for setting up retail operations, such as malls,
are shunned in favor of locations where property acquisitions are possible without much capital
expenditure. The layout in the store, too, is simple rather than flashy with presence of only the
minimum amenities required, such as basic air conditioning. DMart’s average size per store
(Sq. Ft) was the lowest compared to their competitors. Also, it employed the fewest people per
square feet as compared to rivals. [10]

There are no fancy advertisements or marketing plans. DMart’s marketing cost-to-sales ratio
was the lowest in the industry as it relies more on its ability to offer lower prices than rivals
and the consequent word-of-mouth as the pull factors for its strategic success. [10-11]

Facing the future:

DMart’s phenomenal implementation of low-cost approach has seen it make big gains in the
last five years, as its profits have steadily increased over time. However, currently, it only
operates in 11 out of the country’s 28 states, with the untapped ones consisting mainly India’s
Tier-II, III, and IV cities, which would, on first look at least, seem to be perfect fit for DMart’s
low-price model of operation. The future plan seems to be in the same direction as the Chief
Executive Officer (CEO), Mr. Neville Noronha mentioned the intention of taking the store
count to 1500 in the coming period, a fivefold increase from the current numbers. Large players
can happily operate without worrying about each other,” Noronha said. “There’s no need to
worry about that for another 20 years -- the headroom for growth is awesome.” [12]
However, in the online retail segment, DMart’s subsidiary - DMart Ready, has failed to turn a
profit. Facing intense competition from five rivals for a share of the emerging segment, DMart
has its work cut out if it wants to emerge victorious in the latest battle it fights on a new
battlefield.

Exhibit 1: Number of stores of each retail chain

Competitors Stores
Reliance Retail 10,145
More Retail 918
Future Retail 1511
Spencers Retail 155
DMart 280
Star Bazaar 48

Exhibit 2:

TOTAL SALES
Name of the company 2017 2018 2019 2020 2021 2022
Avenue Supermarts 1,28,320.1 1,65,587.8 2,19,320.7 2,70,962.6 2,60,672.4 N.A.
More Retail 38,395.7 41,014.3 44,077.6 48,347.2 47,712.1 N.A.
Future Retail 1,79,804.6 2,01,061.4 2,20,569.5 2,20,284.2 68,219.3 N.A.
Spencer Retail 11,613.5 24,272.7 26,242.6 22,799.4
Reliance Retail 2,68,619.4 5,83,370.2 11,58,011.3 14,67,242.5 14,99,248.9 N.A.

Exhibit 3:

OPERATING EXPENSES (COGS + SG&A EXPENSES)

Name of the company 2017 2018 2019 2020 2021 2022
Avenue Supermarts 1,21,235.3 1,54,286.5 2,07,128.3 2,52,991.8 2,45,645.5 N.A.
More Retail 39,109.6 40,840.6 44,701.4 46,107.4 46,434.6 N.A.
Future Retail 1,77,051.1 1,98,803.2 2,15,740.7 2,00,314.9 61,098.0 N.A.
Spencer Retail 11,666.4 24,394.5 24,957.9 22,539.6 N.A.
Reliance Retail 2,52,153.2 6,11,701.4 10,96,882.8 13,55,522.4 14,47,066.5 N.A.
 Exhibit 4:

OPERATING EXPENSES (COGS + SG&A EXPENSES)

Name of the company 2017 2018 2019 2020 2021 2022
Avenue Supermarts 1,21,235.3 1,54,286.5 2,07,128.3 2,52,991.8 2,45,645.5 N.A.
More Retail 39,109.6 40,840.6 44,701.4 46,107.4 46,434.6 N.A.
Future Retail 1,77,051.1 1,98,803.2 2,15,740.7 2,00,314.9 61,098.0 N.A.
Spencer Retail 11,666.4 24,394.5 24,957.9 22,539.6 N.A.
Reliance Retail 2,52,153.2 6,11,701.4 10,96,882.8 13,55,522.4 14,47,066.5 N.A.

Source: CMIE Prowess database

Sources:

[1] https://www.bloomberg.com/quote/DMART:IN

[2] https://www.businesstoday.in/business/story/dmart-ready-fy22-revenue-sees-2-fold-rise-
at-rs-166721-cr-loss-widens-to-rs-14207-cr-342746-2022-07-26

[3] https://www.businessinsider.in/retail/news/this-indian-billionaire-is-racing-towards-the-
worlds-top-50-adding-nearly-10-billion-to-his-net-worth-in-the-last-10-
months/articleshow/86991638.cms

[4] https://economictimes.indiatimes.com/markets/stocks/earnings/avenue-supermarts-online-
business-more-than-double-in-fy22-but-loss-widens/articleshow/93133424.cms

[5] https://www.business-standard.com/company/avenue-super-40942/information/company-
history

[6] https://www.dmartindia.com/about-us

[7] https://www.forbesindia.com/article/boardroom/dmart-the-juggernaut-continues-to-roll-
for-indias-value-shop/48457/1

[8] https://www.business-standard.com/article/economy-policy/retail-industry-to-grow-10-a-
year-reach-2-trn-by-2032-bcg-rai-report-122042700564_1.html

[9] https://www.livemint.com/companies/company-results/dmarts-e-commerce-business-live-
in-12-cities-11652622244612.html
[10] Pawar, A., & Sangvikar, B. V. (2019). Strategy and Success of DMart: The Case of
Retail Chain in India. In NIDA International Conference for Case Studies on Development
Administration.

[11] DMart: Financial Information. CMIE Prowess.

[12] https://www.business-standard.com/article/companies/radhakishan-damani-budget-
grocery-chain-dmart-eyes-fivefold-growth-in-heated-market-122081800121_1.html
SUPPLEMENTARY MATERIAL

Current Ratio
2018 2019 2020 2021 2022
Avenue Supermarts 2.8 1.7 3.1 3.6 3.0
Reliance Retail 1.4 0.9 0.9 0.8 1.0
Shoppers Stop 0.6 0.8 0.8 0.7 0.7
Trent Ltd. 0.8 1.3 3.3 1.7 2.6
Future Retail Ltd. 1.1 1.1 1.1 0.7 0.5
V-mart Retail 1.9 2.0 1.6 3.3 2.2
Aditya Birla Fashion & Retail 0.8 0.8 0.7 0.8 0.8

Debt to Equity Ratio

2018 2019 2020 2021 2022
Avenue Supermarts 0.10 0.12 0.03 0.02 0.03
Reliance Retail 0.06 0.47 1.17 0.32 0.66
Shoppers Stop 0.09 0.05 16.11 11.35 21.30
Trent Ltd. 0.24 0.29 1.01 1.19 1.75
Future Retail Ltd. 0.49 0.42 0.69 2.60 10.79
V-mart Retail 0.00 0.05 1.13 0.69 1.06
Aditya Birla Fashion & Retail 1.70 1.19 4.84 1.31 1.33

PAT as % of Total Income

2018 2019 2020 2021 2022
Avenue Supermarts 4.72 4.26 4.97 4.44 4.84
Reliance Retail 1.65 2.13 2.71 3.77 3.05
Shoppers Stop 0.24 1.61 -2.99 -10.43 -2.97
Trent Ltd. 5.1 4.55 4.29 -2.11 5.58
Future Retail Ltd. 2.05 0.06 3.32 0.15 -45.41
V-mart Retail 6.33 4.28 2.96 -0.56 0.69
Aditya Birla Fashion & Retail 1.63 3.93 -1.65 -12.37 -1.02

*Source: Calculated by authors from CMIE Prowess Database information

 Debtors Turnover
2018 2019 2020 2021 2022
Avenue Supermarts 609.2 402.9 436.9 432.2 219.6
Reliance Retail 56.7 39.6 35.4 43.0 35.2
Shoppers Stop 121.7 109.5 116.1 67.8 66.7
Trent Ltd. 220.9 180.9 230.5 126.7 216.6
Future Retail Ltd. 104.4 85.5 78.3 43.2 12.2
V-mart Retail
Aditya Birla Fashion & Retail 14.1 12.0 10.6 7.0 11.1

Creditors Turnover
2018 2019 2020 2021 2022
Avenue Supermarts 45.9 46.6 49.0 42.4 49.9
Reliance Retail 6.6 8.3 14.3 22.5 18.9
Shoppers Stop 6.0 3.3 1.6 0.6 1.3
Trent Ltd. 6.0 6.8 7.2 3.8 9.1
Future Retail Ltd. 5.4 4.7 4.5 3.4 0.8
V-mart Retail 5.6 6.6 7.7 3.7 5.8
Aditya Birla Fashion & Retail 2.4 2.1 2.2 1.1 1.9

Rent Expenses as % of Total Expenses

2018 2019 2020 2021 2022
Avenue Supermarts 0.30 0.31 0.00 0.00 0.00
Reliance Retail 2.34 1.04 2.55 3.46 3.11
Shoppers Stop 7.41 6.99 1.12 0.77 1.84
Trent Ltd. 12.05 11.28 5.88 7.99 7.88
Future Retail Ltd. 7.55 6.76 6.76 0.49 0.37
V-mart Retail 4.38 4.80 0.67 0.00 0.47
Aditya Birla Fashion & Retail 14.37 13.73 5.23 0.20 4.40