Focus on core business helps D-Mart emerge as top retailer

Since the launch of its first store in 2000, the retail chain has just focused on expanding in food and grocery


Neville Noronha, chief executive officer, Avenue Supermarts, says the company’s focus is on competing in the basics needs space and focus on efficiencies akin to what the global retailers have done. Photo: Aniruddha Chowdhury/Mint
Neville Noronha, chief executive officer, Avenue Supermarts, says the company’s focus is on competing in the basics needs space and focus on efficiencies akin to what the global retailers have done. Photo: Aniruddha Chowdhury/Mint

Mumbai: India’s most profitable and fastest growing large modern retailer isn’t an arm of one of the big-name conglomerates.

It is Avenue Supermarts Ltd, which owns and operates hypermarkets and supermarkets retail chain D-Mart, which returned a profit of Rs.211 crore in 2014-15, higher than Reliance Retail’s Rs.159 crore and Future Retail’s Rs.153 crore.

Its revenue in the same period was Rs.6,450 crore, 37.23% more than the previous year’s. Reliance Retail’s revenue grew 21% in the same period. The Tata Group’s Trent Hypermarkets Ltd saw a decline in revenue as did Future Retail.

D-Mart’s secret sauce would appear to be focus.

Owned by investor Radhakishan Damani, it is a pure food and grocery retailer. Both Reliance and Future have multiple formats in categories like digital, home, apparel and footwear besides food and groceries. Damani is counted among India’s 100 richest people, according to the 2015 Forbes listing.

It launched its first store in 2000 and has since just focused on expanding its hypermarket retail chain. In contrast, most food and grocery retailers in the country run multiple formats, expanded quickly in the initial years, ran up losses and then rethought their models.

“The guiding philosophy was that we will do just this and nothing else right from the beginning. We have stayed committed to it,” says Neville Noronha, chief executive officer, Avenue Supermarts.

“There is so much opportunity in just doing this.”

There are several ways in which D-Mart is different.

For one, D-Mart stores tend to do more business than those of its rivals. There are 91 D-Mart hyper market stores spread across 26 cities. Reliance’s value retail business (which sells food and groceries) has 616 stores spread across Reliance Fresh and Reliance Marts. These accounted for 54% of Reliance Retail’s total revenue of Rs.17,640 crore in 2014-15. Future Retail has multiple formats which include 198 Big Bazaar hypermarkets, 50 stores of apparel and lifestyle chain FBB, 11 stores of Food Bazaar and 115 of speciality formats HomeTown and eZone. In May, Future Retail acquired Bharti Enterprises’ retail business, Easyday, which added 188 Easyday supermarkets and 16 Easyday Hypermarkets to its retail footprint.

D-Mart stores have the best inventory turnover ratio in the country, said Ravishankar W.S, founder of Probe Equity Research. Inventory turnover is the term used for the number of days a company takes to convert its inventory into sales.

The quick inventory turnover allows the retailer to also negotiate better prices for itself, as it pays its suppliers early. It then passes on these low prices to its consumers.

“D-Mart is known to have more deals than the other retailers,” said Pankaj Jaju, head, strategic alliances, Axis Capital Ltd, explaining that the company works on lower margins, but higher volumes as compared to its rivals.

For another, unlike most retail firms which are burdened by the high cost of rentals, 90% of D-Mart stores are located in properties owned by the firm.

Finally, most D-Mart stores are in the suburbs in the metros and in tier II and tier III cities which keeps the operational costs low. “D-Mart is the first retailer to cross the billion dollar mark profitably,” said Santosh Verma, managing director, investment banking, IDFC Capital Ltd.

D-Mart’s business model is similar to international retailers such as Wal-Mart Stores Inc, Swedish furniture retail giant Ikea, Lidl, a German-based discount chain, and even speciality retailers like Zara and Uniqlo.

The company’s focus is on competing in the “basics needs space and focus on efficiencies similar to what the largest retailers globally have done,” said Noronha.

The company, which recently hired Uday Bhaskar, who has worked for over two decades with Cincinnati-headquartered Procter and Gamble Co. in various roles across India, South East Asia and Europe as chief operating officer-retail is now in the midst of a rebranding exercise and planning its omni-channel strategy.

The retailer has a web presence, but is looking at other options that will offer an e-commerce experience across channels such as stores, web and mobile which will be available by mid next year, said Noronha who believes in following the customers and not pre-empting them or placing bets on the future.

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