EQUITY RESEARCH –

AVENUE SUPERMARTS

Group 2
PGPF/01/001 Akash Srivastav
PGPF/01/005 Amit Shakya
PGPF/01/017 Keshav Rathi
PGPF/01/039 Vishal Raj

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Table of Contents
1. Company Overview ............................................................................................................................... 2
2. Industry Overview ................................................................................................................................. 4
3. Comparitive Analysis………………………………………………………………………………………………………………………..5

4. Business Model – Avenue Supermarts – The reason of sustainable growth ........................................ 9

5. Sustainable Competitive Analysis…………………………………………………………………………………………………….

6. What is the future? ............................................................................................................................. 11

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 1. Company Overview

The only retailer in India to grow regularly and economically is Avenue Supermarts, which owns and
manages the DMart supermarket chain. Our good opinion of this company is based on its industry-
leading asset turnover, high throughput due to its core offering of 'Every Day Low Price,' which drives
high customer footfalls, conversion, and loyalty, as well as its industry-leading asset turnover. It has an
advantage over competitors due to best-in-class retail economics, aggressive store expansion, the
proper product mix, and short inventory days.

DMart is a one-stop supermarket chain that aims to offer customers a wide range of basic home and
personal products under one roof. Each DMart store stocks home utility products - including food,
toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and more -
available at competitive prices that our customers appreciate. Our core objective is to offer customers
good products at great value.

DMart was started by Mr. Radhakishan Damani and his family to address the growing needs of the
Indian family. From the launch of its first store in Powai in 2002, DMart today has a well-established
presence in 238 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka,
Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab and Rajasthan. With our mission to be the lowest
priced retailer in the regions we operate, our business continues to grow with new locations planned in
more cities. The supermarket chain of DMart stores is owned and operated by Avenue Supermarts Ltd.
(ASL). The company has its headquarters in Mumbai.

The company has 3 main verticals:

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The company has a presence in 230+ outlets, with a consistent growth using cluster based growth

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 2. Industry Analysis
Size and segments

In the previous ten years, India's retail market has seen a huge transition and has experienced
tremendous growth.

The Indian retail sector is expected to grow to $1.5 trillion by 2030, up from $0.793 trillion in
2020, representing a $700 billion increase in market size in this decade.

India currently boasts the world's fourth largest retail market.

India's e-commerce business is expected to increase by 84 percent by 2024, making it one of

the finest countries in which to invest in retail. The world's second-largest population, a middle-
income class of 158 homes, increasing urbanization, rising household incomes, connected rural
consumers, and increased consumer expenditure are all factors that make India so appealing.

Growth

India's retail market is heavily unorganised. However, between 2012 and 2020, the organised
retail market has been growing by 50%, hitting a present value of approximately 12% of total
retail. By 2025, modern retail is estimated to increase at a 15 % compound annual growth rate
(CAGR) to reach 18 %. Apparel and accessories (18%), consumer electronics (6%), and home &
living (6%), among other major retail categories (by percent organised retail penetration), will
drive the growth in organised retail this decade.

Urbanization, income growth, and the rise in nuclear families are expected to propel India's
retail industry to $1.5 trillion by 2030, up from $0.793 trillion in 2020. The Indian e-commerce
market, on the other hand, is anticipated to reach $350 billion by 2030, with a CAGR of 23%.

• Increasing earnings
India will add 140 million medium-income households and 21 million high-income
households by 2030, resulting in a massive growing middle class.

• Increased spending on the internet

India's online consumers are predicted to increase to 500 million by 2030, up from 150
million in 2020.

• Rural consumption is increasing

By 2030, per capita consumption in rural areas will have increased by 4.3 times,
compared to 3.5 times in metropolitan areas.

• Households with young millennials

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 Millennials, who were born into a liberalized India, will make up almost 90 million new
families in India. By 2025, the country's average age will be 29, and it will have the
world's greatest skilled workforce pool of 600 million or more.

Challenges

• Supply chain management has severely disrupted, and merchants need to rethink their
strategy in order to satisfy customer demands. Until businesses return to normalcy, inventory
and logistics must be plan in a streamlined manner.
• Now is the time for retailers to make the most of technology and solutions to help them
recover from the pandemic.
• With changing customer behavior, it's more crucial than ever for merchants to give what their
customers want, and to do so, they need access to significant data insights. This is where the
application of analytics may help. Retailers can use analytics to learn what their customers
want and meet those expectations.

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 3. Business Model
DMART leads in online retailing space by offering highest discount

o DMART ready stores are strongly positioned to capture fast growing online grocery retailing
market in India and is primarily targeted towards customers who are looking for convenience
(customers can order online > choose a convenient time slot for pick-up from nearest DMART
ready pick-up point, instead of waiting in a long que at DMART offline stores) or those who
cannot be serviced by DMART’s existing stores (due to high real estate cost).
o Based on survey of 23,000 SKUs we note that Pricing of DMART ready store is far superior
(cheaper) compared to other online retailers viz; Groffers, Big Basket and Star Quik. Grofers is
the only online retailer which competes head-on with DMART on pricing.

Increase in discounting intensity narrowed down pricing gap between DMART ready and competition

o During last three months we note that due to increase in discounting intensity by other online
retailers, led by new round of fund raising (Groffers raised USD 200mn in May 2019, Big Basket
raised USD 150mn in March 2019)
o Further, discount offered by DMART ready stores are now higher (by around 40bp) as compared
to discount offered at DMART offline stores. Price differential is highest in home care products
(like detergents) by 130bp to 8.2%. Around 2-3 months earlier discount offered at DMART online
portal was lower compared to discount at DMART offline stores.

DMART’s business model is superior to other grocery retailers in the online space

We note that, despite giving higher discount, DMART ready is relatively better placed in terms of
breaking even quickly compared to competition as (i) unlike other online retailers, cost of last mile
delivery is not borne by DMART (delivery is chargeable to DMART online customers at the rate of RS 49
or 3% of order value whichever is higher)

(ii) distribution cost is much lower compared to competition due to proximity of DMART ready stores to
DMART stores, and (iii) DMART ready retails high margin general merchandise and apparels at their pick-
up points which are more offline driven category than online.

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 SWOT Analysis: DMART

Strengths are defined as what each business does best in its gamut of operations which can give
it an upper hand over its competitors. The following are the strengths of DMart :

• Focus on long-term: Damani, the founder of D Mart is an investor and thus the
company has been focused entirely on long-term gains. This has made the
company maximise its returns through a value is driven pricing strategy.
• Slow scaling up : D Mart started off on a very low key note and slowly took its
time to move up the ladder. This gave the company a better control and deeper
understanding of its supply chain and also helped them manage the bottom line
better.
• People-centric management style : D Mart has a very good employee policy in
place and is very transparent in its employee relations. They also have a good
relationship with vendors and suppliers and the stakeholders are happy.
• Discount Policy: One factor that delineates D Mart from its competitor is its huge
discount policy. The retailer sells essential goods at a flat discount price which
most competitors cannot match and this helped them penetrate the market.
• Clear price based differentiation : D Mart never followed the trends set by other
competing retail brands but believed in setting their own trends. They captured
the market through a clear price based differentiation and priced their goods at
significantly lower prices than competitors.

Weaknesses in the SWOT analysis of D mart :

Weaknesses are used to refer to areas where the business or the brand needs improvement.
Some of the key weaknesses of D Mart are:

• Focus on certain places: Quite unlike their competitors, who are present
everywhere, D Mart has focused more on the Western States and has a very low
presence in the South. This has restricted them from gaining market prominence.
• Slow growth : D Mart has established almost 16 years ago much before the retail
boom set a fire in India. However, it has not been able to capture the market even
as much as many of the later entrants primarily because of its long-term focus.
• Sustainability of low pricing: The company has a zero credit policy and thus
vendors and suppliers give them a much better price which is how the company is
able to afford the low prices that the competitors cannot imagine.
• No frills : D Mart follows a no-frills approach where the focus in to cut costs
wherever possible. Their facilities are basic and lack the frills of most upmarket
retailers. The customers who come here essentially look at the low prices of
products on offer. So thus the sustainability of this differentiator is questionable.

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Opportunities in the SWOT analysis of D mart :

Opportunities refer to those avenues in the environment that surrounds the business on which
it can capitalize to increase its returns. Some of the opportunities include:

• Technology: Technology has a lot to offer to retailers in terms of in-store

experiences and retailer can use IoT, artificial intelligence etc to create value-
adding services to their customers for which a premium can be charged.
• Personalization of services: Customers are looking for personalized services for
which they are willing to pay extra. Retailers should capitalize on this propensity
to pay more and increase the quality of their services.

4. Comparative Analysis

Size and segments

The Indian paint industry is estimated to be worth INR 500 bn of 75% belongs to the decorative paint
category. The decorative paint market includes multiple products depending on the nature of the
surface like exterior wall paints, interior wall paints, wood finishes, enamels as well as ancillary products
like primers, putties etc.

Amongst Indian decorative paint segment, the two largest players Asian Paints and Berger Paints are the
contribute more than 70% of overall market share.Automotive coatings, marine coatings, packaging
coatings, powder coatings, protective coatings, and other general industrial coatings all fall into the
industrial paint category, which accounts for the remaining 25% of the paint market

Growth

Rising disposable income of the middle class, urbanization, growth of rural market, shortening of repaint
cycle, and increase in demand of premium-end products are the major drivers that are responsible the
growth of the organized paint industry in the decorative sector.

In FY19, India's per capita paint usage is 4.1 kilogram. Despite the enormous scale of the market, India's
per capita consumption of paints is considerably behind the global average of 13-15 kg per capita. As a
result, the domestic market has a lot of space to grow in the long run.

On the strength of solid expansion in the Indian economy, the Indian paints sector is predicted to rise
steadily in the near and medium term. During the forecast period of 2019–2024, the Indian paints and
coatings market is estimated to grow at a CAGR of 8.6%.

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Smaller cities and towns have been rising at a quicker rate than metro and tier I cities in recent years.
The paint industry's expansion in these areas will be fueled by an increase in disposable income,
incremental consumption expenditure, and the development of rural markets in the future.

Challenges

High inflation in the raw material and transport has led to the absorption as well as transfer of cost
prices in the paint industry which is dragging the demand as well as the margins.

The bulk of Indian paints contain significant amounts of lead, mercury, and chromium. These elements
are extremely dangerous in nature and can endanger human health. Now that the policies are getting
more stringent, businesses are being forced to develop newer manufacturing techniques in order to
manufacture paints with low VOC (volatile organic compound) and low aromatic content. In addition,
the amount of lead, chromium, and mercury in the paint should be very low, making it environmentally
friendly.

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5. What led to the consistent performance of the company
EDLP(Every Day low price) is offered with right product assortment and DMART uses
EDLC(Everyday low cost) as one of the most important ingredient which is attained by the
following:

Right product assortment:

DMART focuses on the most popular SKUs, this is based on monthly purchase basket of its
customers in each product category. This stattegy helps in making sales velocity higher,
lower pilferage and ensure fresh products on the shelf. DMART enjoys one of the best
revenue per square foot among its competitors.

Owned stores model:

DMART’s tactics of expanding through owned stores model enables savings in rent costs
and protects it from escalation in rentals. DMART believes that RoCE i.e. return on capital
employed of owned stores is low for the first nine years, but is substantially higher
thereafter.

Sourcing efficiency:
DMART purchases directly from manufacturers and primary vendors, this enables saving on
distributor and dealer margins. Upfront payments to suppliers(lowest payables among its
peers) help it to avail cash discounts, which it passes on to end consumers.

Centralized sourcing:
Approximate 40 percentage of DMART’s total sourcing is centralized, this offer greater
bargaining power. It keeps faster moving products like food and grocery in inventory closer
to its stores and slower moving products like apparel away, this strategy helps in optimizing
storage costs.

Lower employee cost:

DMART works on a variable employee model, which ensures low employee costs – below
2% of sales.

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6. What is the future?

Slow and steady approach towards online stores:

As the online grocery category penetration continues to be in single digit as percentage of
the total grocery market, Dmart’s tactics of expanding to bigger cities and towns would
definitely be fruitful.

Leased, cluster-based approach for store opening will bring benefits:

❑ DMart is expected to open around 126 stores over the next three years (FY22-24)
compared to the total of 103 stores opened over FY18-21.
❑ The company is moving towards very controlled aggression in store openings – it is
now looking for leased properties as compared to its earlier complete ownership
model, this is because it has aggressive store-opening ambitions in coming future.

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