DMart's Business Model: Key Strategies Behind Its Retail Success

Over the decades, we have come across different kinds of businesses. Every industrial revolution has given us new economics of doing business, like the manufacturing sector, the Internet boom, and many more. With this evolution of business models from time to time, we have encountered some broad B2B (Business to Business) and B2C (Business to Customer) business models.

Retail business is among many others that have gained popularity in the consumer industry. In this business, consumer goods and services are sold via large distribution channels to earn profits.

Where some old players are enjoying their large market share and huge returns due to an early movers advantage and their scalability, some new ones like DMart have made an excellent debut in the industry with their unique business models, giving fierce competition to the existing players.

I recommend that you click here to access and review the research report on DMart created by Team Finology Recipe.

A Brief History of 'DMart'

'DMart' is a supermarket chain across India owned by 'Avenue Supermarkets.' None other than 'Radhakishan Damani,' one of India's famous value investors founded the company in the year 2002. Mr Damani's journey from a successful value investor to the founder of DMart has been an inspiration.

DMart started its journey from 2 stores in the state of Maharashtra and has 330 stores across 14 states in India by FY23. 'Avenue Supermarts,' the owner company of DMart supermarkets, was a privately held company till 2016.

In the year 2017, the company came up with an IPO of ₹1,870 Cr., which was opened with a bang. The company's shares were listed at almost a 114% premium, which reflects the positive sentiment for the company among investors. The company was listed at the price of ₹632, and the CMP (Current Market Price) stands at ₹3802, implying that the shares of the company have given a whopping 516.40% growth since then.

RK Damani, being an investor himself very well understands the market and its players, which gives him an added advantage for running the company in parallel with maintaining a positive and healthy sentiment among the investors towards the company, like maintaining a healthy ROE (Return on Equity), adopting a strategically strong business model, etc. In FY23, the company had a market capitalisation of ₹2.47 trillion.

DMart's Business Model

A successful business model is the crucial element for any business to flourish, grow and beat its competition. DMart's business model has made the company grow exponentially and become the most profitable supermarket chain in India. The company's mission is to be a low-priced retailer in its area of operation.

Product-Mix:

The company comprises everyday use products for its customers, which are categorized as Foods, Non-foods and General Merchandise and apparel. The chain operates on a B2C (Business to Consumer) model, where goods are directly sold from the manufacturer to the end-user.

The demand for these goods is ongoing as they comply with the basic day-to-day needs, thereby creating a demand throughout the year. This eliminates the risk of high demand fluctuations and provides consistency to the business.

Customer Centricity:

DMart prioritizes customer satisfaction by offering everyday essentials at consistently low prices. This strategy, called Everyday Low Prices (EDLP), builds trust and loyalty with their target audience.

Cost Control: 

DMart achieves its low-price strategy through meticulous cost control across operations. This includes:

a. Efficient Supply Chain: They manage their supply chain effectively, minimising wastage and maximizing efficiency.

b. Store Ownership: DMart owns most of its stores, eliminating rental expenses that eat into profits. They strategically locate stores in suburban areas with lower rents.

c. Limited Promotions: DMart avoids excessive advertising and promotional campaigns, focusing instead on maintaining consistently low prices.

d. In-house Operations: They manage a significant portion of their operations in-house, ensuring better control over costs and quality.

e. Product Selection: DMart offers a wide range of everyday products across categories like groceries, apparel, and homeware. They strategically mix popular national brands with their own private label brands, ensuring quality at competitive prices.

f. Employee Focus: While DMart prioritizes cost control, they invest in employee training and development to ensure a competent workforce that delivers a positive customer experience.

Revenue Drivers (DMart's Revenue Model)

As of 2023, DMart's revenue was trailing along ₹41,800 crore. Apart from the primary revenue stream, where DMart earn income by selling a wide variety of everyday products across FMCG (Fast Moving Consumer Goods), apparel, and homeware categories, here are some more revenue drivers:

a. Slotting Fees

It is a payment that is made by the manufacturer of goods to the superstore to keep its products on the shelf for sale. Also called an entry fee for the products which are held in the supermarket. Being a supermarket chain, DMart also charges a 'Slotting Fee.'

The store attracts a high volume of customers, making it an attractive and opportunistic place for manufacturers to keep their products. This attracts more and more manufacturers who are willing to put their products in the store.

A slotting fee indirectly reduces the product's purchasing price for the retailer, thereby allowing it to offer the products at discounted prices, i.e., less than the MRP (Maximum Retail Price), hence attracting large buyers.

b. Reduce Expenses

A low-cost business model with high profits is one of the most attractive and successful forms of running a business. As simple, it sounds like it is not that easy to achieve.

However, DMart has successfully achieved it. How? DMart operates on a low-interior-cost concept, and it has tried to reduce the company's operational expenses. These low operating expenses are a result of- efficient space utilization by putting more products in less space, thereby creating space for more products; fewer billing counters reduce the requirement of more workforce and systems, thereby reducing employee cost; a very basic and low-maintenance interior of the store, are some of the ways through which DMart has controlled its expenses.

c. Low Purchase Price for the Products

The credit cycle of DMart, i.e., the time in which it returns the payment to the manufacturers for the goods purchased from them is quite less than other retail operators. This allows the company to avail massive cash discounts from the manufacturers, thereby cutting the purchase price of the goods.

d. Volume Sales

Being a low-priced retailer gives an edge to DMart. Low price leads to high footfall in the store leading to high sales volume, thereby attracting more and more manufacturers to keep their products in DMart. This is a cycle created by DMart, which keeps the loop ongoing. Further, due to high volume sales, manufacturers also extend a volume discount, reducing the purchasing price. This supports the low-cost business model and makes it stronger.

e. Regional Goods

India, being a diverse country, has various regional-specific goods. DMart grabbed this opportunity by stocking its stores with area-specific products. People across different states have unique lifestyle habits, which leads to slightly different consumption habits.

DMart pooled the popular local brands of a particular region in one place, making it more convenient for the buyers to avoid going to the local Kirana shops. This helps DMart to cut the competition from general Kirana stores gaining more market share. 

f. Self-Owned Stores

The company operates self-owned stores, which allows it to be a low or no-debt company, making it stronger financially. Further, no rental cost helps create positive cash flows, which are used to open more stores. Although the expansion and growth in self-owned stores are slow, they have their own advantages. Of all the existing stores to date, almost 80% are self-owned. 

g. Target Audience

DMart's target customers are low-income groups who are looking for low-cost goods. Thus, by providing excellent quality and branded products at a lower cost, DMart attracts a more extensive customer base than other retailers.

h. Eliminates Middlemen

Operating on a B2C model eliminates intermediaries and hence the added cost to the product's price. This further helps the company to sell goods at a lower price.

i. Consumers' Behavioural Patterns

Offering a variety of products at low prices creates psychology in customers to buy more, which is offered at a discount. This behavioural pattern among the consumers is evident when the 'Sales Period' of the year arrives in stores.

In essence, DMart's revenue model revolves around generating high sales volume through low prices and strategic product selection while maximizing profitability through efficient operations and additional income streams like slotting fees. This two-pronged approach has enabled them to become a retail leader in India.

The Bottom Line

DMart currently operates the majority of its business via brick-and-mortar stores. However, the entry of online e-tailers has started to disrupt the market share of existing brick-and-mortar stores. These e-tailers are highly cost-efficient and are more widely accepted due to the simple concept of shopping at the tip of their fingers.

Avenue Supermarts has launched 'Avenue E-Commerce Ltd.,' its online shopping portal, to keep up with the competition and the industry. But competing in this space calls for challenges and new players like 'Amazon,' which is a giant whale in itself. So whether DMart will be able to keep up with the changing market scenario or not is food for thought.

Next Read: The Success Story of Radhakishan Damani