Refer to the post here for your query:
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I fully agree to that no Company has done it in the past and D Mart has done an exemplary work and it deserves the premium valuation for its achievement, but my simple querry is what is so special in D Mart that it cannot be replicated by other…
I feel that the only moat because of which Customers are attracted to is it the Cheap price it offers. There is no other secret recipe or a bigger moat that it cannot be replicated by Reliance.
I also believe that it does not seems likely that any Company can challenge D Mart for next couple of years except Reliance which poses a big challenge to it as it has all the financial powers and expertise… and I think we should discuss and debate in this forum why Reliance cannot replicate D Mart for justifying valuations of D Mart.
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Simple answer will be growth with profitability with minimum Debt - This is/was not possible even in E-commerce players, till they attain certain scale.
Agree.
Till that time someone like say Reliance replicates the format / process in which DMart has shown its strength in the past, DMart may carry a high valuation…for example even after the recent fall…
However, it is not a magic formula that no one can replicate…it is not an IP or Patented trade practice that no one can replicate…
And past performance is no guarantee that it will perform in the same way in future…
I would have appreciated the dynamism of the management if they would have ramped up their “DMart ready” or “DMart on wheels” during the ongoing pandemic to tap the pent up demand and thereby protect their business to a great extent… They did not and could not sell… But someone else sold…
A great leader is one who would foresee the risk and act in advance to mitigate the risk…
They seem to be still wating for its customer to return to its stores…
Discl: I was so obsessed with its past performance that I had a major holding… Thank God, I could smell a Rat , when they stopped DMart ready and DMart on wheels and liquidated my position with a profit well before Q1 result…
I still have a minor holding… Will wait to see their Strategy. . I may change my view later…
How abour inverting the problem and the question and asking - If it is so easy and simple to replicate the buisness model of Dmart, why hasnt anyone done it yet ?
my thinking on that is though it looks simple in theory and on the face of it, it is difficult to execute. One cannot execute it without meticulous planning and a focussed aporoach.
In Mumbai, i have seen people thronging to dmart, and buying car loads of stuff aftee waiting in the queue.
my take on this is - Someone from a rich or upper middle class family might think that going to shop and pick up stuff is a pain, while the target customer of dmart who is normally to lower middle class strata thinks this as an ‘experience’.
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I think it has been revealed in this forum earlier that D mart ready business had higher costs even after reduction of discounts /raising SP. The moot question is whether company should go out of its current model to serve customers even with incurring losses while there are e commerce companies serving the segment with losses .Second point to consider is that the situation from March end 2020 till date, a period of less than 4 months has been too dynamic ,prohibitive and with various constraint and expecting a brick and mortar store to start e commerce in such a short time , planning and developing infra, recruiting manpower for physical delivery is a wishful thinking and practically impossible .As a shareholder, I would allow them more time to situation to be more predictable and then think of online booking and physical delivery with retaining profitability.
Let me also add that we too ordered through online and noted that the private label items were v high priced and poor in quality. Therefore the quality and cost conscious customers would again flock to physical stores once the situation gets normal, only the time is the key to it.
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I fully agree to that no body has yet been able to replicate the model and have also acknowledged that in my earlier posts and that is why I have requested and suggested in my last post that
“We should discuss and debate in this forum why Reliance cannot replicate D Mart for justifying valuations of D Mart.”
Can we give 5 reasons why Reliance cannot replicate the model in future…
I will share my personal experience that there are stores of D Mart and Reliance Retail hardly 100 mts apart in my city. I see rush in D Mart as compared to Reliance Retail. Some products are cheaper in D Mart and some in Reliance retail.
I personally prefer to buy products from where they are cheaper either in D Mart or Reliance Retail… I do not have any brand loyalty to either of them except for cheaper product. (Presently 60 % from D Mart, 30% from Relaince and 10% from local Kirana Shop)
I will also not hesitate to shift my entire shopping from Relaince to D Mart or from D Mart to Reliance depending on value proposition I get.
Is there any body in this forum who will not shift his/her shopping to Reliance from D Mart , if they (Reliance) start offering cheaper products.
D MArt has been successful in making its customer to show their loyalty towards cheaper products rather than to brand D Mart and people will therefore continue to show their loyalty towards cheaper products only.
The question is more pertinent today than ever before for valuation of D mart because now Reliance is ready with a war chest and with investors like FB, Google and other value investors they will not allow Reliance to let D Mart grow in the way it had been growing.
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Basically in simple terms - If you want to understand future of D-mart , please study history of Walmart in USA
Regards,
Vikas
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Why just history? We can compare walmart earnings last quarter with Dmart. Did Walmart post steep decline in bottomline?
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The quoted investments are in Jio platforms and not in Reliance Industries. Both are seperate subsidiaries. i am not sure if the funds available through the latest investments in jio platforms can be used in retail ?
the investee companies are all tech companies and donot have any interest in retail buisnesses
Additionally the investee company has bought a stake in Reliance does not mean that they would bare their technologies to Reliance/jio. They may
work together for synergies, but it would be at a cost to Reliance. Moreover, if we look at Reliance several AGMs, there have been a no. Of announcement earlier too and there r always gaps in announcement and execution. In my personal opinion, this the worst time for Reliance industries standalone as it’s refining margins, investors losses and reduction in demand of petroleum products would impact it v badly for at least few quarters as it’s majorly a refining company and till had it’s major marketing in India.
As far as announcements if technology platforms, mobile manufacturing, AI,ML , education, chemicals etc etc is concerned, we should wait to see the progress on ground .
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It is only reliance which will stop it from replicating a dmart. The dna of RIL will stop it. Not that it will loose anything from not being a dmart but that’s what will make it a different entity. If I am not wrong jiomart was at one go launched in 20 plus cities…now that’s a different beast all together and certainly with such tactics and vision, they can never become a dmart. It is another fact all together that that’s not what they want to become or are aiming for. Same goes for Trent. All three are for three different mindsets and here to stay.
Regarding your other question on the only moat of dmart being cheaper product…if we ask a retailer or any local kirana player if they can even dare to sell any product even one rupee cheaper and remain competitive and you will get your answer on how difficult it is to achieve this moat and more so remain profitable after attaining it. RIL, with all its financial might can launch free telecom and later introduce charges and still retain consumers but as you yourself said consumers are addicted to cheaper products so will a Jio model in retail make any economic and sustainable sense, I have my doubts.
Disc. Respect for Reliance and investment in Trent. Initiated small long term position in dmart recently after a very long wait. Keeping a close watch on whether to increase allocation at current price or not.
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Its a good article dated dated 27/05/2019, D Mart had efficiently been able to survive the competition. The article also discusses in details about threats from Reliance 
I agree that investment has been made in Jio Platform and not in Reliance Retail but when a such large group on a net basis becomes Debt free, it increases the financial flexibility of other group Companies to raise debt or Equity at a very competitive pricing/valuation.
a) Reliance hiring of Mr Damodar clearly shows what is running in their mind and what they want to achieve.
b) They have the financial flexibility.
c)They have established network larger then D Mart.
d) Revenues are higher then D Mart i.e their negotiating power with suppliers is good and they can negotiate the pricing from suppliers comparative to D Mart and may be even better.
e) They are technologically ahead of D Mart.
f) There is no dearth of talent and experience in India and they can a build team like D Mart.
WHAT THEY DONT HAVE IS DNA OF D MART
D Mart has been successfully able to beat the competition so far and that is why it is able to command such a valuation… I strongly believe that D Mart will continue doing the same for next many years also, but Reliance is making efforts from all direction to replicate it and the truth is that so far it has not been successful…but main question to ponder is… Will Reliance be able to do it in future ???
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If u take a look at US organised retail market - quite a few of them are co-existing as of now and performing well for last 5-10 yrs. business-wise e.g. - Walmart, Target, Kroger etc.
The market for organised retail is huge in large countries and a handful of players can thrive in the initial phase. Basically, these players start off by taking away share from small retailers first rather than a direct head-to-head.
Also, in this battle, keep in mind Spencer’s as a dark horse. RK Damani has a stake in dat too.
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I disagree to comments here that Dmart gives lowest prices at best quality. I often go to Vashi APMC market if I really want to do bulk shopping. These guys beat prices by atleast 10% in groceries compare to Dmart and high value items like dry fruits it is much more. Also variety and quality is awesome. It is matter of building right supply chains and distribution. Nothing is impossible in this era. In long term it eventuality that DMART model will be challenged
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Amazon in talks to buy 9.9% stake in Reliance Retail Arm.
https://m.economictimes.com/markets/stocks/news/amazon-in-talks-to-buy-9-9-stake-in-reliance-retail-arm/amp_articleshow/77127253.cms
RIL’s deal with Future Retail will also be something crucial to look out, given that we now know RIL-Amazon deal was bluff.
There’s massive potential for a turnaround available for Future Retail. However, I don’t think it will affect DMart significantly in the near term.
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The Indian consumer market is so huge that there is a business for every kind of player…
As we have 4 layers of consumers in our country … Upper class, middle class , lower middle class, lower class…
There are people who are tech savvy and there are many who are not…
Then … there are many many house hold goods / kitchen wares , ready made garments,. Shoes…
and many such items which people would like to physically see before buying… They would like to visit a brick and mortar stores…
But in brick and mortar stores, DMart is not the only player…there are many…Big Bazzar, Reliance network expansion … , kirana stores, malls,…
So whether DMart will be able to retain its Glorious past… only time can tell …depending upon the kind of strategy DMart adopts in the changed scenario…
I like your idea of debating based on objective reasons. Let me put down few points which i think has helped Dmart create a so-called MOAT in their segment which is a very low margin and volume game.
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We keep comparing all the retailers again and again, but the target segment for everyone is different. The assortment and wideness of range available in each one Big Bazaar, Reliance, Amazon Pantry, Big Basket etc is different.
How Dmart differentiates: Very carefully selected assortment (~50% less variety in each category compared to any other retailer). But, what is on offer is always at the best rate, good quality and mostly never out of stock in the store. -
Target Customer: Dmart has a very strong Lower Middle class target zone which has few characteristics. You can understand this segment by going to at-least 10 different Dmart stores and observe.
- They are not very tech savvy who keep comparing across multilple players, apps, credit/ debit/ wallet offers etc. before buying. Most likely they are not even eligible for those plethora of cards
- Salaried / Self employed - who always get money in first 10 days of the month, they come and stock their entire needs for the entire month at once. They buy only once a month whether it is grocery, discretionary, household needs or even clothes/etc. For all other purchase its the local kirana store then.
- There is a trust already built in the mind that, they will save money always at a a basket level, when they buy from Dmart. Hence, no need for card disocunts, loyalty etc.
- Store operations: compare any other retail chain ( employee/ sqft ratio), avg time to checkout at the POS and clarity in terms of offers/ discounts. I have been there almost 100+ times by now, not even once have i had to clarify or haggle on discounts/offers. Its either a yes / no.
These are few of the qualitative parameters, there will be many more data driven points as well. So, yes, Jiomart is a real threat, but i dont see the rest of players having any material impact on Dmart’s target segment.
PS: Holding and views are biased.
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I sold out of DMart couple of months back. I still believe it is a fantastic business and the management is terrific. In a free and fair competitve business environment, DMart will come out the winner. In fact we can assume the growth tragectory of DMart to align with that of Walmart of the USA. Obviously DMart will take a long time to get to a market cap of US$ 100B (Wlamart might be US$500B), I’d stick my neck out and say that in a free market environment unbridled by regulatory constraints, DMart will stay it growth course.
Having said that I’ve become a little jittery about regulatory constraints that could come up. The last few weeks where the government brought out regulations, primarily to curb competition from Amazon and Walmart, have actually made me a little fearful about investing in companies where the government has the capacity and motivation to put in regulatory hurdles. From about 10+ telecom companies we just have two profitable ones now and I feel government regulations have a lot to do with it. A more mature market like the US has more than 5 profitable telecom companies. So India could accommodate a few more telecom companies.
I personally think this might be the future of the retail industry. My opinion is that there is no point in being in an industry where Reliance operates. Not because they always have a better operating model. These days I have taken a more active interest in government regulations before investing. The general consenses is that where the government is involved like resource industries and PSUs the chances for minority shareholders making significant money is limited. I feel we need to expand the thinking to those industries where government has some motivation to regulate.
At this juncture I do not see much value in DMart. They might perform well despite all the competition and future government regulations. But it is too big a risk to take for a company which is valued to perfection. Historically in well managed companies people will make money over the long term even if we buy the stocks at high valuations. But many well managed companies have seen lot of pain due to government policies. In telecom we have seen wealth destruction in Airtel and Idea. Real Estate and NBFCs are also examples. Similarly we have seen short term pain in Titan a few years back when the RBI brought out policies against gold leasing.
So DMart is a toss up for now. Even with the best operating model and best management possible, regulatory policies can make an industry less investment worthy. Corona will be tamed in 6 months or one year, but regulations are here to stay and so the headwinds Dmart is facing are no longer temporary in nature.
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