D Mart has been one of the most destructive companies in the food retail industry in India.
Ever since it went IPO in 2017, in Just Four years,d mart's share price shot up by 580 percent going from just 616 rupees to more than 4200 rupees in 2021 and most astonishing thing about the smart is that it is 19 years of existence, it had not closed a single store until it had pandemic and fight with the Giants competitors like future retail and the reliance retail, its profit has skyrocketed by 1700 percent going from just 60 crores in 2012 to more than 1000 crores in 2021.
What are the lessons that we need to learn from retail masterminds like RADHA KISHAN DAMANI?
The first and perhaps most important element of demand growth is nothing but price. if you are visited a demand store, you will not see that the shop is so fancy or decorated. our parents have gone out of the way just to shop at smart, our moms would schedule all of their work just to make time to go to the Dmart and despite having a Kirana store right outside if something is out of stock, they will tell you to note it down and we will go and buy it from the Dmart.
Now, this extraordinary level of effort that they take is because d Mart prices are lower than the MRP. Up to 6 percent to 15 percent. this is the state of more than 80% of our population and now if I am bringing a 15% Dmart discount on groceries you will see that the savings shoot up to 243 rupees, which means that merely by visiting the demanding store four times a month. a lower-middle-class family's savings could increase by 30% and this is a big big difference. this is the reason why Dmart commands an extraordinary level of brand loyalty from Indian middle-class consumers.
The smart Business strategy by Dmart is the Deep Discounts strategy. Let's take the example of one liter of ghee now Govardhan ghee sells at 579 MRP rupees per liter so if 1000 packets get sold for 579 rupees each with a profit of 87 rupees assuming that 15% profit margin for the retailer then the total profit is about 87000 rupees, but if the same key is sold at the 529 rupees although the profit is the only 37 rupees, due to discount the volume of the sales is expected to shoot up to 1500 packet giving a profit of 55,500. Now although this might look like less profit, it has some incredible benefits that very few retailers understood back then.
1. its results in more volume in sales which means more people came to the store to buy ghee and since the demand has tonnes of other products also it's more likely that people will buy something else also along with the ghee and this is what we call as the product assortment strategy.
2. the inventory starts moving at a flash speed so if you're a retailer, like smart, you will quickly sell your ghee and you will get fresh stock on the shelf. this means that there will be no expired products, very less wastage and customers would love to buy from you because you only sell fresh stock most importantly you as a retailer get a better bargaining power with your sellers if your inventory moves faster.
Now How is it competing against the giants like big bazaar and reliance on retailers, Now next strategy of smart is Smart's competitive strategy against the giant and this strategy could be described in just three words care-full, nonfancy, and ownership. now Mr. Damani has been extremely careful about the expansion of the smart store and you will see that despite being in the market for 19 years, they have only 220 stores whereas the big bazaar has 284 stores, reliance retail has more than 11000 stores, and even more retail has 645 stores across in India.
Ultimately, all these factors together turn smart into a dominating force in the Indian retail space.
The case study and the important observation that you need to make before you invest in smart or similar companies.
The first lesson of this case study is discounting is a superpower that turned Dmart into a legend but most of us think that Mr.Damani was able to do it only because he was rich. we miss out on the fact that this concept of discounting came from the legend sam Walton who was not even close to being a millionaire. so like Dhirubhai Ambani once said, ideas are nobody's monopoly so one can't do it alone build a cooperative society acquire capital, and then do it but the one thing that you should never do is shying away from ideas just because they look difficult.
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