And in its 15 years of operations, it has never closed, moved or shut down a store.
In this case by India Brand Review, we try to look at factors that contributed to its marketing success.
In the retailing business, it is famously said that success depends on 3 factors: Location, Location, and Location. However, closer to reality are 3 alternative approaches to success: Lowest Prices, Best Quality, and Widest Range. As markets grow, players tend to gravitate towards one of these 3 options, because going after 2 or all 3 factors makes them vulnerable in many ways.
Price is where D-Mart operates. Consumers are offered a minimum 3% discount on every product off its shelf, and in some cases the discount is as much as 10% off MRP. As we will see, it influences all decision-making for the chain.
Product:
Profitability in retail is driven by a combination of profit margins and inventory turnover. With price as the differentiator, profit margins on individual items will be squeezed (its gross margin is only about half of its competitors). Hence, D-Mart operates in limited product segments – mainly food and groceries. Most other retail chains have expanded into high-end segments too, but D-Mart has stayed away from them to keep inventories low and inventory turnover high (during 2012-2016, inventory turnover was about 11.6 times in a year i.e. its stock was bought and sold an average of 11.6 times every year).
Similarly, contrary to other chains, it does not have private labels, nor does it offer a wide choice of brands in each segment. The focus is clear: daily consumption goods + known brands only + limited options = ultra-fast turnover.
Behind the scenes, this fast turnover is what it uses to negotiate with wholesalers and companies for better prices. This doesn’t mean arm-twisting suppliers though. In fact, payment to most suppliers are arranged fortnightly. This is among the shortest credit periods in any industry.
Promotion:
Like the neighbourhood grocery store rarely needs to advertise beyond just announcing its presence, D-Mart advertises mainly about its store openings, and occasionally about the prices. Also, because the combination of product lines and prices offered by the store will build habitual visits, promotion has a limited role.
Distribution:
Since location is the most expensive and critical decision in retail, D-Mart ensures it doesn’t burn money by following 2 rules: a compact supply chain and staying away from malls.
The concentrated supply chain means not spreading their footprint far and wide. In fact, until 2014, it was present only in 4 states. It follows a policy of opening 75% of its new stores in existing states or markets. In terms of formats too, it has limited itself just to 2 size formats, and choosing between them is based on location and shopper density.
The second rule of not being in malls helps the chain to keep retail costs low. It also believes in owning the retail space so that rental costs are low. In places where owning is not possible, the store is on 30-year leases.
Results
So how has this strategy worked for D-Mart? Pretty well!
It continues to have a net profit margin of 3.5%. Its IPO was over-subscribed and then it got listed at more than 100% premium of its subscription price. And it has also made its promoter R.K. Damani the wealthiest retailer in India. According to Forbes, Damani’s stake in D-Mart is valued at $5.03 billion, much ahead of India’s previous ‘rajah of retail’ Kishore Biyani’s net wealth estimate of $1.7 billion.
My sources:
- The Wire
- Investing Acumen on Wordpress
Recommended reading:
“10 secrets behind the stunning success of D-Mart's Radhakishan Damani”
Economic Times
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