Av­enue Supermarts is the most ef­fi­cient In­dian gro­cery re­tailer, but sus­tain­ing the growth mo­men­tum would be a chal­lenge.

Business Today - - AVENUE SUPERMARTS - By Ajita Shashid­har

Rad­hakr­ishna Da­mani is a die-hard fan of Wal­mart founder Sam Wal­ton. Da­mani had made at least five trips to the US be­tween 2000 and 2002 prior to set­ting up the first D-Mart store in Thane. In­deed, he made it a point to travel across the US to ob­serve the day-to-day func­tion­ing of the Wal­mart stores. Wal­ton’s win­ning for­mula of a 'low cost and low price' model has ev­i­dently worked for D-Mart too, mak­ing it not just the most ef­fi­ciently run, prof­itable In­dian re­tail busi­ness, but also the high­est val­ued.

D-Mart listed ear­lier this year and has since been on a tear, grow­ing al­most four-fold over its is­sue price of ` 299 and its mar­ket cap­i­tal­i­sa­tion now is al­most ` 69,000 crore. It has al­ready en­tered the top 50 in the BT-500 (ranked 49). Just as

Wal­mart fol­lowed a clus­tered ex­pan­sion ap­proach dur­ing its ini­tial years, D-Mart too is present only in four out of the 29 In­dian states (Ma­ha­rash­tra, Gu­jarat, Andhra Pradesh and Kar­nataka). And, like Wal­mart, it also owns the real es­tate of over 85 per cent of its stores.

How­ever, with a rev­enue of ` 11,988 crore (it grew by 38 per cent over the pre­vi­ous year) and barely 136-odd stores, D-Mart is cer­tainly miles away from the $485.9 bil­lion (rev­enue) Wal­mart, in terms of scale. But just as Wal­mart is the pre­ferred gro­cery re­tailer across the US, D-Mart is also a hot favourite in the states it op­er­ates in, for a va­ri­ety of rea­sons. The most ob­vi­ous rea­son is un­doubt­edly the 5-6 per cent dis­counts it of­fers across all prod­uct cat­e­gories and In­di­ans love value. Da­mani, in the ini­tial years of D-Mart, per­son­ally su­per­vised all the buy­ing ac­tiv­i­ties. Un­like other re­tail­ers he never be­lieved in longer credit cy­cles and paid his sup­pli­ers im­me­di­ately, who have been more than happy to give him higher mar­gins that has been passed on to the con­sumers. “In most cases it was cash on de­liv­ery,” re­mem­bers Ashok Ma­hesh­wari, for­mer ex­ec­u­tive direc­tor at D-Mart, who is now CEO of in­fra­struc­ture com­pany, Av­enue Group.

Brands, de­spite be­ing sold at lesser than MRP (max­i­mum re­tail price) are happy to as­so­ciate with D-Mart. “Da­mani de­liv­ers what he prom­ises. He says give me your prod­ucts at a par­tic­u­lar price and I will give you stag­ger­ing vol­umes, which he does. Most im­por­tantly, he pays on time,” points out the MD of a lead­ing FMCG com­pany, who looks at D-Mart as a great plat­form to get con­sumers to sam­ple his prod­ucts. “In­stead of run­ning pro­mos with other re­tail­ers to sam­ple my prod­ucts, I sell my prod­ucts at a lower price through D-Mart. Af­ter all, when peo­ple mi­grate from tra­di­tional trade to mod­ern re­tail, they go to D-Mart and not Hyper­city,” he fur­ther ex­plains.

Da­mani’s big­gest chal­lenge is sus­tain­ing D-Mart’s high growth rates. The com­pany added about 23 ad­di­tional stores dur­ing the last fis­cal. The big­gest chal­lenge now will be to get re­tail space at a price it man­aged ear­lier. “Now that they are well­known, they won't be able to bar­gain as hard for space. The real es­tate guy won't suc­cumb eas­ily,” points out stock mar­ket in­vestor Arun Ke­jri­wal. “If they pay more for real es­tate, their mar­gins would be com­pro­mised which they cer­tainly can't af­ford,” adds Arvind Sing­hal, Chair­man, Technopak Ad­vi­sors. While open­ing new stores is a fo­cus area, the com­pany has re­cently launched 41 pick-up points in Mumbai (around 200 sq.ft to 500 sq.ft of re­tail space), D-Mart Ready, where cus­tomers can pick up their prod­ucts af­ter or­der­ing it on­line. They could also get their prod­ucts home de­liv­ered, but at an ad­di­tional cost. “D-Mart Ready, though at a nascent stage now, could be­come an in­stru­ment to pick up num­bers in the long run,” re­marks Ke­jri­wal.

The re­tail com­pany's growth could also be im­pacted as it moves to newer ge­ogra­phies. “As you go pan-In­dia, your sup­ply chain re­quire­ment in­creases. In food, one also needs to cater to lo­cal tastes, which need a lot of ef­fort and in­vest­ment,” says Sing­hal.

D-Mart is over-val­ued by the mar­ket, say some an­a­lysts, as Da­mani may not be chas­ing high oc­tane growth. The as­tute in­vestor is known for his long-term, well thought out bets. Will he choose to grow at the ex­pense of prof­itabil­ity? “D-Mart and Da­mani have never de­manded such val­u­a­tions, it is the in­vestors who have val­ued them,” says Ke­jri­wal.

Da­mani in all like­li­hood will opt for a con­ser­va­tive growth path where he won't com­pro­mise with prof­itabil­ity. As of now, Da­mani has ev­ery­thing go­ing for him.

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