EQUITY RESEARCH REPORT:

AVENUE SUPERMARTS-:

SWOT ANALYSIS:
STRENGTHS:

1)PRICING STRATEGY-:

● The company operates on the “ELP”(Everyday Low Price) Model.

● The products are cheaper at DMart because the company sources directly from the
manufacturer,which allows it to pass savings onto consumers.
● Dmart doesn't stock up much of the inventory they have select product categories
to order from the suppliers and they buy them at bulk,this itself gives them some
negotiating power.
● Dmart is not your usual brick and mortar retail store(selling products to the end
consumers face to face rather than online),It operates on the “Value” model that the
end consumer must be able to save as much as possible Dmart is able to offer a
product such as a normal “skin care face wash” for ₹162, which originally had an
MRP ceiling of around ₹320.

2) COST LEADERSHIP:

● In the D-Mart stores, the prices of the products are significantly lower than the
MRP.This pricing strategy helps them generate more volume in sales since people
who visit stores eventually end up buying multiple other products as well.
● It is able to execute such a strategy by:
● 1)Bulk Purchasing:Through buying limited products but at bulk Dmart is able to save
costs this gives them a bargaining power with the suppliers and also helps them to
negotiate on better deals,Dmart maintaints <7% operating expenditure compared
to 10%+ of its peers. Meaning, for the same margin, Dmart can offer 3% lower prices
to its customers.
 ● 2)Ownership of its Retail Stores:

Dmart Owns it's Own stores saving up on rental costs,Stores are located in low
profile areas where real estate is cheaper,Size of the store will be in the range of
30,000 to 35,000 sq.ft. Lately, D’mart is going for even bigger formats.In crowded,
densely populated localities, DMart builds stores where they'll witness heavy
footfall,In scarcely populated localities, DMart buys cheap land on the outskirts of a
city to buildd huge retail store space, so they can provide a larger variety of product
mix.

For example-:

Its 60k+ sq.ft Mega store in Faridabad

It's Rental expenses as a % of Total expenses always lies below 2% as compared to

its peers having a % as high as 8%.

● 3)Selection of Fast stock keeping units(SKU’s)-:

Dmart is very particular about stock selection,It’s unlikely that you will find anything exotic
because of the strategy of Dmart to offer a limited range of products at bulk to offer more
‘Value’

DMart focuses on understanding the top-selling products in a locality and only stocks those
products.

4)Hiring Workers on Contractual Basis rather than on Permanent Terms-:

In March 2024, the company had a total of 13,971 permanent employees and 59,961
employees hired on contractual basis thus,saving up even on employee costs.

SLOTING FEES:-

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Given the high footfall of DMart stores, brands pay them a fee to have their products on
their shelf in order to increase their sales. This fee is called a "slotting fee". Slotting fee
becomes a part of DMart's revenue and in turn, helps them offer higher discounts than
usual.

One of the major pain points of vendors is the lack of constant cash flow. So, because of
DMart's quick credit cycle, they are offered much lower prices than others on the already
wholesale rates.

3)Rare Spending on Advertising:-

● Dmart’s cost leadership model helps it to market itself/portray itself as the biggest
differentiator and doesn't need to speed much on marketing it's model speaks for
itself focusing on ‘Word of Mouth’ marketing,
● In Q2 '21 analyst investor call, Neville Noronha the CEO of Dmart answering a
question on rationale for having no loyalty program said “Our basic philosophy of
the business is all customers are the same and hence treat everybody equally. The
data we collect from customers are very functional in nature and we don’t harness
this data to engage with customers”. Such is the powerfulness of Dmart’s low price
USP, customer loyalty is never bought or forced upon. Thereby no money is spent
on such programmes.

4)A Trendsetter-:

● DMart has never followed trends taken by other competitors but it set its own
trends. The company has captured the market share through a clear price best
strategy.For example-: In the early 2010s era when it's biggest competitor
BigBazar(By The Future Group) was expanding its reach Big Bazaar grew to 250
stores, while DMart’s number of stores were just a mere 10. Analysts at that time
had written off unlisted DMart as a marginal player in the Indian offline retail space
● Fast Forward to 2022-:

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 The market capitalization of DMart was INR 2.3 trillion with 300+ stores across India
while Future Group lost the plot due to excessive debt,huge rental costs and had to
sell to Reliance.

5)The Discounting Policy-:

DMart stores are more like a well-tuned assembly chain: where products are converted into
sales as fast as possible. Because of this, it’s able to avoid the high-stakes, perennial
discount game that other retailers often get trapped in.

DMart deals in clear cut no-frills groceries and claims to provide the most discounted
price,They stay away from categories like Premium fashion, high-end electronics, and other
accessories.

Weaknesses-:
1)Limited Geographical Presence-:

Dmart’s Geographical presence is very restricted to the western regions of the country-:

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About 46%(364 Total Stores,(109(maharashtra)+60(gujarat) =169)of its Retail Stores are
located in the Western Part of the Nation.

2)Dependence On a Few Key Suppliers-:

Dmart relies on few key suppliers for its inventory,making it vulnerable to price
fluctuations,or supply chain distruptions.

3)No frills Approach-:

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.

4)Revenue Growth dependent on Store addtions-:

DMart's LFL growth has been recently impacted by a moderation in inflation and a fast
ramp-up of quick commerce services,weaker store productivity partly offsets higher store
additions.

3)OPPORTUNITIES-:

1)Diversification of Product lines-:

Dmart can diversify it's offerings by including a variety of higher margin products such as
apparel,electronics expanding revenue streams,under its current annual report dmart’s
percentage of revenue from general merchandise and apparel has been falling which is a
cause of concern for them,as per the CEO of avenue supermarts they don't see apparel as a
category under which they would expand,therefore the organisation can look into the
electronics space or wellness space and broden their scope of offerings.

2)Expansion Into New Markets-:

The company has a geographical concentration about 50 percent of its stores are located in
the western part of the country(maharashtra and Gujarat) it must look into the scope of

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expanding its scale of operations in especially the north and eastern parts of the country
and targeting the tier 2-3 cities helping them to generate a higher sales revenue.

3)Improving it's ECommerce fleet-:

Dmart has been facing a stiff competition from various players in the market especially
ecommerce which is slowly eating the share of dmart and other retail stores especially in
the segment of groceries and FMCG.Dmart’s own e commerce delivery fleet named ‘Dmart
Ready’focuses not on the fast(10 minute delivery model)but on the value model that the
consumer if is getting greater value and saving more then he/she can wait for the arrival of
their goods for even upto 12Hours(Dmart Ready’s standard delivery time).The owner of
DMart supermarkets said it does not plan to launch an ultra-fast delivery model and will
instead focus on opening more stores to cover catchments and clusters where quick
commerce companies are currently seeing high demand.

4) THREATS-:

1)Threat from Competitors-:

Sales growth of groceries, personal products and home care items in modern trade and
supermarkets slowed down to a four-year low in July and August, hurt by consumers' shift
to online channels, especially quick commerce, and retailers shutting down hundreds of
stores to improve profitability over the past year,Sales in modern trade increased 3.2%
during July and August, compared to 24% a year ago.With a rising proportion of Indian
consumer purchases getting unplanned and of low-to-moderate order value, there has
been an increase in demand for instant fulfilment, served by quick commerce players such
as Zepto, Swiggy Instamart and Blinkit. For most FMCG companies, online channels are now
nearly 10-12% of overall sales and quick commerce platforms account for a third of that.
Modern trade accounts for 12-15% of FMCG sales,it also faces stiff competition from
‘Zudio’,trent by TATA under its apparel business which is evident from its declining share of
revenue from ‘general merchandise and apparel’

2)Government regulations And Macroeconomic Factors

There is a constant change in government regulations as well as policy. Also, political

tensions in the country may also impact the business which results in reduced performance

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as well as higher cost of the products,the growth of retail stores depends upon a lot of
macroeconomic factors such the rate of inflation in the country especially under
CPI(consumer price index),if the economy is experiencing a slowdown a lot of offerings
would go unsold.

3)Overstocking of inventory in Recent times-:

The disconnect between DMart’s bulk-buying model and the shift toward smaller, frequent
purchases has led to over-stocking,In H1 FY25, DMart's over-stocked inventory amounted
to ₹3,450 crore, up from ₹2,800 crore in FY23, representing a 23% increase. This
over-stocking not only ties up capital but also increases the risk of inventory
obsolescence.The rise in days inventory from 28.8 days in FY23 to 32.6 days in H1 FY25
further highlights the increased holding costs that erode DMart’s cost leadership.