Spencers caters to a different segment and he won’t be able to make the margins like DMart. The rental itself is huge since they are mostly inside the city and shall face stiff competition from the likes of Mores, Nilgiris and Reliance
My point was Mr Damani has been acquiring shares in Spencers. The share rises every time he does so, as the market feels that it is a creeping acquisition. Otherwise, as you have observed, Spencers does not seem to be a profitable venture as such.
Of course, even after acquiring the Spencers (suppose it does), Avenue will be no match in size to Reliance Retail.
2 Likes
Why do you think so?
Competition was always there, initially it was from Future Group and now Reliance.
What exactly has changed?
Dmart and Spencer has vastly different operating model.
Dmart stores are usually 30000 sqft while Spencer stores are 4000 to 8000 max.
So they won’t be able to stock all the product categories.
Dmart sells fmcg / daily need (essential products) at cheaper price and get better margin at apparels & footwear (discretionary products). Thus achieving a healthy gross margin.
If they can’t stock all the products then the current model won’t work.
From start / initial days, Reliance always had far more than Dmart because they operate on different strategy.
Dmart has choosen hypermarket model (going wide) where it offers limited variety in almost all the categories (10 shampoos / 10 soaps / 10 hand wash etc etc)
While Reliance has chosen to become specialist in every segment (going depths / deep).
That’s why they have sperate stores for apparel, footwear, jewellery etc.
So number of Reliance stores will always be multiples of Dmart.
I don’t see how peer to peer comaprision is possible between Reliance and Dmart.
17 Likes
Well argued. I agree with what you have mentioned, I had not checked this part.
One more point: what about Smart Bazars and the Jio Mart? I suppose they form part of the Reliance Retail.
Dated ( PUBLISHED: Oct 24, 2017) but a good read :
My takeaway: What’s in the DNA of the business? And, Who are their real competitors? Snippets from the article -
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Unlike its rivals who, for the most part, focused on achieving scale, DMart worked on keeping costs to a minimum and getting the per unit economics right.
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organised retailers at a big disadvantage compared to the kirana or mom-and-pop stores that run out of owned premises bought many years ago, with no rentals to pay. They typically have a far lower cost structure (they often use child labour or don’t have to pay employment taxes like provident fund).
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the local kirana will deliver whenever you want, in the smallest possible quantity and offer credit.
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Ramakant Baheti, the chief financial officer of Avenue Supermarts and a Damani hand for the last two decades, says his boss entered the business “with a view to create something other than stocks to leave behind for the next generation
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He earned his spurs over the next decade during which he ran two franchises for Apna Bazar. He’d spend time in the 7,000 square feet Nerul store and observe which items moved, how customers behaved and what level of discomfort they would put up with (unlike other retailers he eschewed air conditioning).
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The first thing Noronha realised was that price was a differentiator in India, particularly for groceries and fast-moving consumer categories like toiletries and personal care. The whole operation had to be geared towards offering an everyday low price. But since margins in this business are wafer thin, inventory turns are the key. “The trick lies in driving footfalls through grocery and then selling higher margin items such as toys, crockery, garments, home appliances and footwear,” says Noronha. “It’s the groceries that get shoppers in, but the general merchandise that drives our profits,” adds Baheti.
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Investments in an ERP platform and distribution centre allowed the company to have a far more efficient supply chain than competition, who did the same only when they achieved scale.
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The air conditioning was turned down, the aisles were not too widely spaced. Store employees were hired by an agency—“we later hired the better ones,” says Noronha —to cut costs and deal better with peak demand. DMart employs only half the number of employees per square feet as rivals
14 Likes
I was happy with the Q4 revenue increase, 20% up YonY is not bad in this inflationary mkt not sure why mkt didn’t like it. may be a kneejerk reaction.
I think it is because of revenue per store fall,
2022 December quarter - 11,569 revenue for 306 stores
2023 March quarter - 10,337 for 324 stores.
Is quality of stores deteriorating?
According to company management, it takes 24 months for a store to reach its potential. It is very early to come to this conclusion.
Second reason: Interest rate increase and high price of the stock.
2 Likes
I recently visited a DMart store and am not really impressed with the quality of the household materials. It looked more like cheap Chinese made quality. Regarding groceries and consumables, the discounts are also not comparable to that of Reliance fresh. I am not sure if DMart can still demand a premium PE since Reliance is rapidly expanding within city centers.
Disc: Not invested in both
4 Likes
I can’t comment about Dmart share price but here’s what I think Dmart as a business.
Dmart moat will increase with time & opening of new stores.
How?
Other than obvious reasons like purchasing power and bargaining power with supplier is directly proportional to number of stores, there are few more reasons -
- Advertisement & promotional expense
Dmart will need lesser advertisement expenses as brand become well known and spread evenly across India.
This is similar to Bata or Good Day biscuits etc.
How?
Eg. Bata
Since Bata has been presence for such a long time and it has always been been successful with core formal wear strategy, every time one thinks of formal footwear, Bata name cross the our mind.
Similarly, since Dmart has been successful with almost all the category it has present, whenever anyone wants to purchase household items, the name Dmart will automatically appears.
Now, I know Dmart don’t spend heavily on advertisement but initially they used to put hoarding and use very promotional schemes. Now with brand firmly place in customer mind, they don’t need to spend that money.
Also, once it enter new town, it will less far less time for store to operate at 100% or full efficiency as customer knows they get best value for money at Dmart and these is no 2nd guessing
This will ensure Dmart will be first choice for shopping whenever customer plans for shop
So it bounds to get higher share of customer wallet and thus even if reliance or any other 2nd player will get similar walking, avg bill value will be far lower (40% minimum)
Thus this will be like hybrid Toyota car which charges itself when running on petrol
Regarding growth -
Many members in forum has already mentioned that Dmart has barely scratched the surface and it has opportunity to spread all over India. So it has long way to go.
Growth will be slow and organic but will continue for longer time (10 to 25 years).
Problem will arises when existing store gets Olds (which require significant capital investment) / location get outdated (need to acquire land and build new store which will again require significant capital investment). This will be 20 years later as store avg life span is 20 years while building span is 35 to 40 years.
3 Likes
Commenting on the performance of the company Mr. Neville Noronha, CEO & Managing Director, Avenue Supermarts Limited, said: “DMart (Brick and Mortar) Business Overview We ended FY 2023 with growth across our key financial parameters of Revenue, EBITDA and PAT. Revenue growth of FMCG and staples continues to outperform General Merchandise and Apparel. Lower consumer spending in General Merchandise and Apparel continues and has impacted the margin mix downwards.
Two years and older DMart stores grew by 24.2% during FY 2023 as compared to FY 2022. These same stores grew at 11.0% in the second half of FY 2023 vis-a-vis second half of FY 2022. We have 234 stores that are 2 years or older. We continued to expand our store footprint and opened 40 new stores during the year taking our cumulative total to 324 stores.
DMart Ready Our E-Commerce business continued its expansion in our existing 22 cities. We cumulatively expanded our operations in 10 new cities during FY 2023.
Pharmacy Shop-in-shop We have commenced operations of our pharmacy shop-in-shop through one of our subsidiaries (Reflect Healthcare and Retail Private Limited) during the quarter through the launch of our first outlet in the Mumbai Metropolitan Region.”
9 Likes
Concern
- Q to Q reduction in revenue in last qtr/ slower rev pace for new store
- when one visits Dmart, savings are guaranteed but shopping pleasure/experience is missing. Doubt GenZ or little affluent will like to visit store frequently, which may put pressure on margin as lower middle class shopping will always be very price sensitive and on cheaper products, which will further drive away little affluent or say higher middle class (non ac store, noisy, cramped shop flr, not so presentable reck storage, feels like mass bazar, quality n storage style of general merchandise of very poor quality, but yes cheap)
Opportunity
- bigger stores gives opportunity to introduce canteen n pharma outlet
2.self funding model still on correct path
Disc: invested
5 Likes
Market is only trying to shake out the weak hands before a rally starts.
The business is growing at a scorching pace.
This QoQ is bound to relax, cuz YoY it’s rev has jumped 40%
Margins are relaxing as well, by a small factor. As vol scales, margin will relax. Besides, Dmart isn’t a margin business, it’s a vol business.
I believe all the metrics are properly being managed. The stock will rally in due time. Fundamentals are great.
YoY rev is up 40%
Eps is up 59%
That to me is phenomenal.
13 Likes
Little scuttlebutt about Dmart -
Last 3 days, I spent in Jaipur and met various bedsheet manufacturers for my own business (I am in apparel / Clothing / Handloom business)
Out of these, 3 were supplying directly to Dmart, Vmart, Reliance Retail and many other chain stores. One has big online presence as well.
When we spoke about Dmart, they were all irritated. They said Dmart is selling very cheap, mark-up of 15 to 17% only.
This has lead to complaint from other trade channel (wholesale).
But they said they have no option than supplying to Dmart because if they don’t, someone else will.
This is because Dmart is paying them within a week of raising invoice and thus everyone want to work with them.
They mentioned, Reliance is working on heavy margin (>35%) and usually pays within 45 days of raising invoice.
They also said Dmart focus is not as good as before (lot of new members were bought in because stores are opening rapidly) but they still got industry’s best process and there is a very good chance that they will continue to grow for years to come.
They also emphasized that Dmart is willing to try a lot of new things and they are not afraid of loss.
38 Likes
Let’s understand implications of Dmart operating on low margin -
Before Dmart started operating -
Most of the retail trade is done through multiple layers of retail channel.
Considering the case of typical bedsheet manufacturer abc ltd -
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Abc Ltd will purchase grey cloth (raw cloth in simple terms) from erode / Ichalkaranji / similar hubs
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Abc Ltd will create multiple designs and specifications. They will give these specifications to printers (people who actually own the factory and do the dirty work)
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Printers will then supply printed bedsheet to abc Ltd. Abc Ltd will do quality checking and then package these bedsheet in attractive format. The process of branding and printing of mrp is done at this stage.
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Assuming abc Ltd makes roughly 10000 bedsheet every month under 10 different brand names.
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Abc Ltd will now contact various distributors spread all over India and try to sell them this finished products. They need to offer credit to these distributors so that they can make bulk purchase. So normally they keep margin of 15% - 20%.
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Normally a big state like Maharashtra has 2 / 3 distributor while a small state like kerla has only one.
Distributor then sells these bedsheet at mark-up of 20-30% to various wholesaler. (a typical wholesaler caters couple of districts). Distributor offers wholesaler margin of 2 month. -
Now wholesalers sell these bessheet to retailer for mark-up of another 20-25%. They also offer credit to retailer for upto 3 months.
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Retailer sell these bessheet to customer with mark-up of 40-60%. This is necessary because it has to service every individual customer and product might take 6 months to finish.
So now if you calculate, from start to end, difference between manufacturer price and retail price becomes very big.
Eg. Manufacturer sell bedsheet for Rs 100 to distributors.
Distribuor will charge 25% and sell it to wholesaler.
Now price becomes Rs 125.
Wholesaler add his 25% over this price and sells it to retailer.
Now price becomes Rs 125 + 125*25% = Rs 156
Now retailer add his margin of 40% and put final price to the product as - Rs 220 (Rs 218)
Difference between manufacturer and end customer price becomes more than double.
Dmart tries to reduce this gap and charges only 15-20%.
They will try to sell this Bedsheet for Rs 120 or Rs 125.
So customer get huge benefit.
That’s why I belive customers are willing to ignore various inconvenience like -
- Congested stores
- Narrow shopping lanes
- Parking issues
- Stores located outside city market
- No service
- No customer shopping experience
- Etc etc etc
As long as this difference remain prominent, Dmart or any retailer working with low margin and direct buying will continue to gain market share.
26 Likes
Just to add we are forgetting their return policy. Their return policy is too good. With other shops they wont accept certain items returned but with dmart it is not the case. By this customer will keep dmart as their first choice instead of other shops.
1 Like
Anyone recently checked if there is price difference between DMart B&M stores and DMart Ready? I sometimes wonder if DMart Ready has higher margins.
I have checked in between. What i found is some.items are less costly in Dmart ready while some are more costly. But more in depth research is to be done
1 Like
As per latest exchange filing,multiple designated person of company sold large chunk of shares in open market. Total Disposal of 146,629 equity shares worth Rs 5022.74 lacs by designated persons. Any information on that? Are those recently issued ESOP shares?
Reliance JioMart fires 1,000 employees; it is expected to lay off 15,000 people in the wholesale segment. Going towards snapdeal way ? Retail is indeed very tough business
8 Likes
Motilal Oswal upgrades Dmart to BUY
TARGET AT 4200
Stock will recover from FY24 on:
- Lower Inflation
- Change in store strategy
- Online Biz Dmart ready has the lowest prices compared to peers, still not burning as much cash
News came out on 9th June,after that stock rallied 14%.
Is there any other news behind this rally?
1 Like