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