Dmart = DiscountMart?

The one name that almost inevitably comes up when talking about the stock market is Rakesh Jhunjhunwala, the stalwart of the stock market who has made his fortunes trading, and for good reason. His acumen and trading insights have been admired by many. But only some know of who this tycoon considers his mentor to be.

You're sure to have gone grocery shopping or ordered online in this lockdown. You may not have shopped at or ordered from D-Mart but you couldn't possibly not have heard of it.

This new chain of supply stores may not overtly raise curiosity, but it masks an elaborate and well thought of business idea that can potentially outperform the long-time contenders in this game. The brain-child of one man.

Radhakishan Damani, the mentor of Rakesh Jhunjhunwala and founder of D-Mart came from a humble background. His father's business was that of ball-bearings and so after dropping out of college while pursuing B. Com he too got into his father's business.

However, after his father's death, he started as a broker in the stock market at the age of 32. He succeeded tremendously in the stock market and made a significant amount of money in the years that followed. He adopted an assortment of techniques, but settled to a large extent on long-term value investing.

RK Damani had been interested in consumer retail for a long time and although D-Mart is gaining recognition more recently, its inception dates back to 2002, when he opened the first store in Powai, a suburb in Mumbai.

In 2017, the parent company- 'Avenue Supermarkets' went public, and how. Avenue Supermart offered its shares to the public at a price of Rs 299 and got listed at Rs 604 after over-subscription.

Okay but what is so note-worthy about D-Mart?

Well, I’m glad you asked.

D-Mart as a super market comes off as nothing out of the ordinary but what’s intriguing about it is its business plan that has been the driving force to its profitability.

The vast majority of us love discounts and sales, and quite often look to buy what we need during those periods, but unfortunately, they aren’t year-round.

Or are they?

D-Mart is one of the few super markets that offers discounted prices on their goods year-round.

Here’s the secret recipe behind the low prices of products at D-Mart:

We’ve all been through the time when we lent money to someone and they didn’t pay us back on time. Don’t be that guy. Be like D-Mart.

What other stores usually do is buy goods from the suppliers on credit. D-Mart on the other hand pays them almost instantly thereby getting the goods at reduced prices and also earning the trust of the suppliers.

Moreover, D-Mart assures the constant purchase of goods from its suppliers and suppliers are mutually interested in wanting to sell to D-Mart because of the demand and timely payment. This makes it possible for D-Mart to ask for a further reduction in prices from its suppliers for high volume of goods. These reduced prices are what reflect on the final price at which they sell their products at in their stores.

We all like to shop from malls from time to time, but you won’t be finding a D-Mart in any mall you go to. Another part of its business plan is to strategically place its stores away from malls and in middle and lower-middle class residential areas. This does two things. It saves them the cost of having a store in the mall and also increases sales since D-Mart stores become more accessible as compared to malls for the people in the area.

Now ordinarily, a typical business plan would include renting of properties for their stores. But not with D-Mart. D-Mart does not rent property but buys them. And this aspect is well thought out too. One of the biggest advantages with buying instead of renting is that it eliminates the monthly rent and therefore reduces the monthly operational costs to further be able to provide products at reduced prices. This method is slower in terms of expansion and requires a higher initial cost but proves to be highly effective in the long-run. Due to its tactical approach, D-Mart also boasts of not having shut down any of its stores till date…. unlike its competitors.

I’m sure a lot of us sometimes enter a store because of how visually appealing it looks from the outside. With the way D-Mart positions itself, you wouldn’t enter it for those reasons. D-Mart intentionally positions itself as a store that aims at reducing prices rather than providing a lavish customer experience. This also applies in their store setting in which they don’t bother categorizing products strictly based on sections. If you enter a D-Mart store you will find a wide variety of products all arranged close to each other and not particularly placed in different areas. This too contributes at bringing the functional costs down.

Another interesting factor that augments the business model is the fact that D-Mart also keeps popular local brands in their stores. They know that some local products sell better in some areas and so they capitalize on that to add to their repertoire of products.

Having created an impressive customer base and running stores across multiple states highly profitably, they get to demand a fee that’s termed as ‘slotting fees’ which they charge companies for having their products being placed on the shelves of D-Mart stores. So essentially, D-Mart is able to use the slotting fees for product ‘X’, to reduce the price of product ‘X’ itself and give it at a discount. This makes the local kirana stores’ prices no match for D-Marts reduced prices since local stores don’t enjoy the additional benefit of charging slotting fees.

These strategic and well thought out business moves by D-Mart have changed the way we purchase our everyday items. Will the local kirana stores sustain this threat or is this a check-mate situation for them? Will the lower prices of D-Mart prove to be costly for the local stores?

One thing is for sure, D-Mart’s game has just begun, and slowly but surely, it’s going to shift the paradigm of the market. What happens to the local vendors? Only time will tell.

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