The DMART story

BY : SHUBHAM MOONDHARA

About DMART
An Entrepreneurs journey
MISSION
To be the lowest price retailer In the area of operation/region/city

Started in the year 2000 by renowned stock

broker and investor RK Damani
Owned and operated by Avenue Supermarts Ltd
where Damani owns a 52% stake
Operates stores in over 75 locations in india
Store size varying from 5000 to 40000 Sqft
Seeks to be a one-stop shopping destination for
the entire family, meeting all their daily
household needs
Only Organized retailer in India to post profits
YoY since inception
Not shut any store till date

Source: Probe report & ET

Network
Geographical Presence
Predominant in Western and South-Western
India
Present in 77 locations across Maharashtra,
Gujarat, Andhra Pradesh and Karnataka
Maharashtra
(45)
Mumbai

Gujarat(18)
Ahmedabad

Navi Mumbai

Rajkot

Thane

Baroda

Pune

Surat

Solapur

Anand

Sangli

Gandhinagar

Kolhapur

Valsad

Amravati

Andhra
Pradesh(6)
Hyderabad

Karnatak
a(4)
Bengaluru

Source: Company
website

Understanding the DMART Strategy

Real
Estate
Merchan
dising

People

DMART
Pricing &
Promotio
n

Marketin
g
Store
Operatio
ns

Real Estate Strategy

Ownership of Real Estate
DMART owns more than 85%
of its stores ( Only 7 out of 62
stores on lease in FY13)

Location
None of the stores in Malls
Locations surrounded by
residential societies
Supported by the fact
that DMART owns the
expensive real estate

No Rental Cost
For retailers, rent cost is 5-8%
of the total sales.
Hence, bottom line is shielded
from this cost burden
CAM charges and Catchment
Savings on high maintenance
charges and exorbitant rents
Easy access to dense
catchment

Source: Probe report & ET

Merchandising
Product Depth

Vendor Management( Terms of

Trade)

SKU count(units)
SKU Type

DMART

Spencers

FMCG Food

2300

2200

FMCG Non Food

2100

2700

Fresh & Bakery

1800

4500

Apparel

4500

15000

GM

3500

5000

~15000

~30000

Total

* DMART doesnt hold Fresh( Meat, Sea Food etc. )

and Bakery
Source: MIS and field estimates

Payments to vendors in 11-21 days( much

lower than normal payment cycles for other
retailers)
FMCG/F&D- 24 hours payment by RTGS
No return to vendor concept, damages and
dump are covered in the terms of trade
Inventory holding period is only 28 days
SKU depth carried by DMART is less
and its strategy is to provide limited
variety and hence stock the fastest
selling SKUs only
Faster payment to vendors helps
negotiating much higher margins which
it can pass on to consumers as discounts
Prevents stock outs( empty shelves) as
vendors prefer supplying to DMART due to

Pricing
DMARTs USP
Blanket store off policy
Depending on competition in each catchment: Minimum X% discount on all SKUs in
store

FMCG/Stapl
es

General
Merchandise
Apparels

Category wise blanket off policy

For e.g. All biscuit SKUs will have minimum X% off in one store, All juices
will have minimum Y% off in another store
Top SKUs bucket
This is analogous to our KVIs and the SKUs are anywhere between 275400.These need to be the cheapest for that catchment and become clear
competition killers.
Entry/Medium level range of SKUs are displayed. Lowest Prices among
competition or match it
Entry price across categories to be the lowest amongst competition for that
catchment
All in-house brands (No external brands) and sold at price on the tags (and
store blanket discount policy applied at POS)

Source: Field
estimates

Store Operations

Strategy

Impact

Down to earth stores

Check on Expenses

DMART operates no frill stores

Inexpensive fixtures and low expenditure on

lighting helps DMART saves cost and improve
profitability.
Customers are attracted by the low prices
which are clearly projected to them

Other Important Observations

Very narrow aisles , No travellators (Lifts can take at max one
trolley), Poor directional signage and Poor store hygiene
No structured planogramming: Top three shelves of all retail floor
bays are used for warehousing & Very poor merchandising when
compared to all retail players in India
Single row checkouts
Free parking (but not adequate parking)

Marketing Communication

No promotion cycles/ theme festivals calendar

Very ad hoc newspaper ads
Aggressive on hoardings in crowded places (Bus stops/Circle junctions)
Simple yet functional in-store SEL signage, floor stack signages
DMART has cut its promotion spend by 30-40% in the last couple of years

Festive
Promotions
School
Stationery
Promotions

People
Pillars of DMARTs strength
People
No Educational Qualification bar on
store staff at any level
No structured employee development
program in place
Low attrition because of lower
employability owing to poor
educational qualifications
Average CSA salary : Rs 6600
Cashiers get Rs. 20 bonus per day (for
zero shortages) and shortages are
debited off from respective bonus
pool itself

Store Personnel- Hierarchy

Store
Manager
Assistant
store
manager
Floor
Manager

CSA

CSA

Floor
Manager

CSA

CSA

CSA

CSA

Source: Field observations and

interviews

Inside DMART
Apparel Placement

Apparel section is cluttered

with stocks piled up basis the
price points ( DMART does
heavy volumes in apparel )
The look and feel of the entire
space is very sub standard
and does not gel well with a
customer that values
Quality or Experience
However, a price sensitive
customers purchase decision
is based solely on the
extremely low price of the
apparel

Inside DMART
GM Placement
Merchandise is stacked
without any specific allocation
or location.
Dumped on the floor and the
customer would need to pick
them up from there
Cartons placed on the top of
racks. Tarnishes the look and
feel of the store which looks
like a godown
Customers have to skim
through the merchandise to
find out the best in shape
products
Damaged/Old looking
merchandise is sold at deep
discounts

Inside DMART
FMCG & Staples

Trays not used to stack FMCG

products like Ketchups,
Breakfast SKUs, Aata etc.
Saves cost and impacts the
overall look of the store
FMCG stacked up in a more
organized fashion as
compared to GM or Apparel

Inside DMART
Pricing

Value
Proposition
delivery
Clear Price Off/ MRP
Reduction
communicated to
the customer

SWOT Analysis
STRENGTHS
Strong Image as a discount retail store
Strong Value proposition of Lowest Prices
Better Vendor negotiation and margin terms
Ownership of Real estate- Strong cost advantage
Located in prime residential localities in cities
Low debt on the books and hence immense scope
to leverage

OPPORTUNITIES
6-7% Organized retail Penetration in India:
Immense scope of scaling up and building a large
network
Joint Venture with a global retail giant to further
improve the backend supply chain structure
Entry into categories like consumer durables and IT
Brand Extension: Target high premium segment by
opening DMART premium outlets

WEAKNESS

SWO
T

Current model poses a challenge in scaling

up and aiming for a pan India presenceCapital availability
Lesser range of SKUs
Smaller stores are not tidy with poor
planogramming and store layouts

THREATS
Super competitive landscape with
competition from local kirana shops on one
side and national retailers like Big Bazaar,
Reliance , MORE, Spencers etc
Many players fighting on price and this
might not serve to be a USP going forward
Increasing Potential compliance norms
E retail penetration to increase

Financials( DMART)
Figures in Rs crore
Gross Sales

FY14

FY13
100.0%

4996

100.0%

3558

Less VAT

326

6.5%

232

6.5%

160

6.6%

Net Sales
Other Op Income

4670
11

93.5%
0.2%

3326
8

93.5%
0.2%

2249
5

93.4%
0.2%

Revenue from operations

4681

93.7%

3334

93.7%

2254

93.6%

Total Commercial Income

Store Expenses
Rent
Repairs & Maintenance
Utilities
Store Manpower Cost
Miscellaneous expenses

681

13.6%

467

13.1%

313

13.0%

7
31
43
91
58

0.1%
0.6%
0.9%
1.8%
1.2%

6
22
33
59
41

0.2%
0.6%
0.9%
1.7%
1.2%

4
7
24
38
47

0.2%
0.3%
1.0%
1.6%
2.0%

Total Store Overheads

230

4.6%

161

4.5%

120

5.0%

Store Contribution
Employees & Other Expenses

451
85

9.0%
1.7%

306
68

8.6%
1.9%

193
39

8.0%
1.6%

Other Format Expenses

13

0.3%

10

0.3%

19

0.8%

EBITDA

353

7.1%

228

6.4%

135

5.6%

2409

FY12
100.0%

Source: MCA
Filing

Financials( Comparison with Spencers)

FY14
Figures in Rs crore
Gross Sales
Less VAT
Net Sales
Other Op Income
Revenue from operations
Rupee Gross Margin
Rent
Repairs & Maintenance
Utilities
Store Manpower Cost
Miscellaneous expenses#
Total Store Overheads
Store Contribution
Store Contribution( without rent)
Marketing & VM Costs Costs*
DC Expenses*
Employees & Other Expenses
Other Format Expenses( RO Cost)
CORPORATE EBITDA

DMART
FY14
4996
326
4670
11
4681
681
7
31
43
91
21
193
488
495
37
0
85
13
353

100.0%
6.5%
93.5%
0.2%
93.7%
13.6%
0.1%
0.6%
0.9%
1.8%
0.4%
3.9%
9.8%
9.9%
0.7%
0.0%
1.7%
0.3%
7.1%

Spencers(HM)
FY14
1020
100.0%
77
7.5%
945
92.6%
38
3.7%
1059
103.8%
205
20.1%
52
5.1%
2
0.2%
21
2.1%
34
3.3%
54
5.3%
150
14.7%
55
5.4%
107
10.5%
18
1.8%
13
1.3%
35
3.4%
20
2.0%
-31
-3.0%

*Marketing , DC, Employee and Other format expenses have been taken in proportion of sales (67%)
#Misc expenses includes stationery, travel, communication etc.

Financials
Comparative View with Spencers(FY14)

Gross Sales
Net Sales
Total COGS
Gross Margin
Operating Income
Rupee Gross Margin

RGM %

DMART
Rs Cr.
4999
4670
4000
670
10.7
680.7

FY14
Spencers(HM)
Rs Cr.
1020
945
807
138
68
205.6

13.62
%

20.2%

Expenses

DMART

Rs Cr.
205.6
5
0.7
8.3
7.2
1.4

%Gr.
Sales

20.16%
0.49%
0.07%
0.81%
0.71%
0.14%

Rs Cr.
680.7
0
0
0
0
0

Adjusted RGM

681

Operational Costs
Store Man power*
Rent
Utilities
Security charges
Repairs & Maintenance
Misc^

Rs Cr.
91
6.9
43.2
22
30.3
0

13.6%

183

17.9%

1.8%
0.1%
0.9%
0.4%
0.6%
0.0%

Rs Cr.
33.6
51.7
21.3
6.2
1.6
13.2

3.30%
5.10%
2.10%
0.60%
0.20%
1.30%

Spencers HM

RGM
Adjusted RGM

Operational Costs

FY14 ( Per Sq Ft Comparison)

DMART
Spencers(HM)
13.6%
20.2%
13.6%
17.9%

Rs/sqft/month
Rs/sqft/month

Store Man Power

Rent

40.6
3.1

41.43
63.80

Electricity charges

19.3

26.31

9.8

7.70

13.5
0.0
86.3

2.02
16.25
158

83.2

94

16.6

22.51

0.0

15.74

Security charges

FY14

% Gr.
Sales

13.6%

RGM %
Shrinkage
Warehouse/freight out
House keeping charges
Finance charges
Consumables

Repairs & Maintenance

Misc^
Total Operating Costs
Total Operating
costs(without rent)
Marketing & VM Expenses
SCM Expenses

Costs as % NSV should not be compared as the top line

is almost 5 times. Right metric for comparison would be
psf costs
Operating Costs/Sqft(without rent) are at par
with Spencers Hyper
DMART has lower utility cost owing to lesser use of
chillers and Bakery equipment

Financials- Discussion
Parameter

NSV( Rs Cr.)
Adjusted RGM
%

Operational
Costs without
rent (Rs/Sqft)

Back end
employee
cost (%NSV)

Estimated
SPSF(Rs/mont

DMAR
T(FY1
4)
4670

13.6%

83

Spencers
Hyper
(FY14)

Comments

Primarily due to scale. While DMART

operates more than 70 stores, Spencers
HM runs 34

One of the lowest Gross Margins among

competitors due to deep discounts in line
with the lowest price proposition

Rental Cost of Rs 3.4 psf driven by their

policy of owning real
estate( SpencersHM rental cost is Rs
63.8 psf)
Store man power cost of Rs 41 is at par
witH Spencers Hypers
Lower utility costs of Rs 19.3 psf probably
on account of inferior store ambience and
storage

1019

17.9%

94

1.7%

2168

On absolute cost basis, DMARTs backend

employee expense is ~2.4 times
Spencers HMs cost. This impact is toned
down due to a much higher NSV

Top line is ~4.6 times Spencers HM . This

is primarily due to lowest price
proposition and superior location of

3.4%

1258

Suggested Reasons for Strong

Performance
Offers Clear Value Proposition
Strategic Locations
Real Estate strategy
Localised Supply chain
Vendor Management

Sustainable
bottomline

Robust topline

Optimized cost
structure

Financials- Conclusions
Parameter

Adjusted RGM(%)*
SPSF( Rs psf)

Operational Costs(Rs psf)without rent

Store Contribution%
(without rent)

DMART

13.6%
2168

Spencers
HM

17.9%

Remarks

DMARTs RGM% is 14.6% net of VAT on sales

This is the major driving factor for:

Higher turnover
Lower % costs and resultant profitability

Comparable operation costs psf ( barring Marketing

and SCM costs)
Once Spencers HM gains scale, these will reduce as
a % of saleS

1258

83

94

9.9%

10.5%

Non-Operational Costs

2.7%

8.4%

Corporate EBITDA%
(without rent)

7.2%

2%

Higher Costs as %NSV due to Significantly lower

topline

Achieving scale is the only way to reduce these

largely fixed costs
DMART gets a ~6% advantage which bolsters its
bottomline

Superior Top line, Very high SPSF and tight cost

structure contribute to DMARTs bottomline
Absolute bad

* Adjusted RGM is adjusted for costs like consumables, shrinkage, housekeeping etc as these items seem to be accounted for in
DMARTs RGM

Parity

Catchment type and Performance

Mumbai
Powai(2)
Malad west
Chandivali
Mulund west
Thane
Kandivali west
Kharghar
Seawoods
Panvel
Versova
Kandivali East
Andheri W
Mira Road
Dahisar
Kalyan
Kanjurmarg W
Nalsopara E
Bhayandar W
Virar W
Kopar Khairane
Vasai W
Nerul
Sanpada
Airoli
Kalamboli
Ghansoli
Kasarvadavali
Dombivili E

Catchm Estimat
ent type ed SPSF

Estimate
d
rent/sqft

Source: Field observations and estimates

Estimat Estimate
Catchme
ed
d
Pune
nt type SPSF rent/sqft
Baner

Kalyani Nagar

Chinchwad

Satara Road

Aundh

Hinjewadi

Nigdi

Kalewadi

Rest of
Maharashtra

Solapur

Sangli

Kolhapur

Amravati

Jalgaon

Ichalkaranji

karad

Gujarat

Ahmedabad

Baroda

Surat

Rajkot

Valsad

Gandhinagar

Anand

Bangalore

Hyderabad

Legend

Catchment
Sec B + and
above

SPSF
>1500
800 to
1500

Rent /
Sqft
< 40

Sec B
40 to 75
Sec C and
Out of the
14 locations(~20
below
<800
> 75

stores) with estimated SPSF

greater than 1500, 10 locations
have an estimated rent of more
than Rs 75 psf

These 20 stores contribute

~55% of DMARTs top line

High rentals are a big

challenge for Spencers to
open stores in those locations
and hence unrealistic to
target to achieve SPSF>2000

Spencers stated intent to not go

in tier 2 or 3 towns( saturate

Going Forward: Road Map

We are not looking at any numbers play. We do not look too
far into the horizon to generate this much or more revenues.
What we are, however, very clear about is that the business
has to be profitable R.K Damani

Expansion

Business
Model
Joint
Venture/Ac
quisition

DMART has gone through a very careful expansion till now

( keeping itself in a tight geographical footprint)
Going forward , it plans to open 12-14 stores a year , all in the
existing regions
It does not intend to expand rapidly to gain a pan India
presence
As per current business model, DMART owns > 85% of the
stores. In the future it might tweak the model to open stores on
lease( rent)
DMART doesnt intend to enter into any partnership or joint
venture with any global retail giant

2 Different Players in same eco space

Will Coexist
Parameter

DMART

Spencers

Remarks

Unique selling
Proposition

Lowest Price

Makes fine living

affordable
( Food first retailer)

DMART and Spencers target different segment of

customers.
One those who just need the lowest prices and other
who shop for the experience and look for competitive
prices.
While lowest price philosophy can be matched,
Experience needs to be built over time and is
not replicable easily

Rent cost eliminated for DMART

No hassle of dealing with the landlords
Owning real estate can limit scalability of
DMART

Real Estate

Ownership

Lease agreements(615 years), Rent

escalations

People

No minimum
requirement

Minimum requirement
of class 12th Pass

Ensures uniformity and is reflected in customer

feedback about store CSAs

Merchandisin
g

Select SKUs

Wide and deep range

of SKUs

Spencers provides its customers with wide variety and

does not constrain them for choice

Best in class fixtures

and lighting

Store Interiors

Low frill
stores

In Line with our philosophy, Spencers is here to

provide a unique shopping experience and offer
competitive( but need not be lowest) prices.

THANK YOU