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Must read: What makes D-Mart profitable?
Posted On: 20-02-2016 04:00:00 AM

As per an article in Mint :

Seven years after it opened shop in India, in 2014, Wal-Mart Stores Inc. made a loss of Rs.230 crore from its 20 outlets. Thirteen years after it opened its first store, Metro with 19 stores across the country reported a loss of Rs.140 crore in the year ended March 2014.

Carrefour SA came in 2010, opened five stores, and then left in 2014.
The Indian origin retailers have not fared much biter. Future Retail Ltd and Reliance Industries Ltd— the nation’s biggest supermarket chains—have expanded vigorously, opening 1,000 supermarkets combined – even as they piled on debt. In the fiscal year that ended in March 2015, Future’s interest payments exceeded its operating income, putting it among the ranks of Indian companies that aren’t making enough money to service their debt.

On the other hand India’s D-Mart supermarkets, have managed to turn a profit in each of the last 15 years, and are an example of how to do it right. The chain makes money from giving customers fewer choices of no-frills products, enabling it to negotiate better prices with vendors, and by refusing to spend money on analytics, loyalty programs, social media or any other new-fangled strategies. It just sells cheap stuff.

“We’ve been doing just one thing. No distractions,” said Neville Noronha, chief executive officer of D-Mart parent Avenue Supermarts Ltd. “On Sunday evenings, our stores are so crowded, it’s worse than a local train during peak hours, and I don’t know why people are shopping. It’s so uncomfortable.”

D-Mart has added stores at a sedate pace. Sales in the year that ended last March increased 38% to Rs.6,450 crore, and will likely show another 29% growth when this current year’s figures are calculated, Noronha said.

Margins also put D-Mart ahead of rivals. Ebit margins, or earnings before interest and taxes, which are used to assess operating income, were 6.1% for D-Mart in the last fiscal year, compared with 5.9% at Future with its 400 stores and 2.4% at Reliance with 3,000 outlets including supermarkets and clothing stores.

D-Mart, with Rs.8,300 crore of sales expected from its 94 stores mostly concentrated in states in western India near Mumbai, is able to squeeze more from its stores than rivals—an estimated Rs.24,000 worth of sales per square foot, compared with Rs.9,200 at Future and Rs.14,100 at Reliance.

D-Mart’s draw is its promise to sell goods below the MRP, some by as much as 12%; it sells groceries and has a wide assortment of cheap household items—from school bags to cooking utensils—akin to a dollar store. If you give cheap prices on basic and common products, the perception gets built that everything in the store is cheap. Customers come for the food but also buy a whole lot of other goods that have high margins. On any given day, a wide clientele ranging from taxi drivers to wealthy housewives can be found in the aisles.

A potential listing for the privately held retailer could end up valuing the company at 23 times to 26 times its full-year earnings, based on the multiples of its peers. That could value the company at almost $1 billion, making it the largest supermarket operator in the country.

Faced with an increasing number of people shopping online, Noronha said he’s looking for ways to offer customers more options, though he is wary of the trend.

Mumbai investor Radhakishan Damani started D-Mart in 2000 after making a fortune trading and speculating in India’s stock market. He was already investing in consumer-focused stocks and built D-Mart on the Wal-Mart model—keeping costs low and selling products cheaply.


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