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Can DMart Show Indian Retail a Profitable Future?

Last fortnight, DMart reported 11,300 Cr of revenue, a 25% increase from last year, putting it on track for ~40,000Cr of annual revenue 


Radhakishan Damani was born in Bikaner, Rajasthan, to a Marwari family in 1955. 

He grew up in a lower-middle-class family. His father was a stockbroker, and his mother was a homemaker. Despite their modest income, Damani’s parents emphasised education greatly and encouraged him to study hard.

He got admission to the University of Mumbai but soon dropped out of the course to start his career as a ball bearings trader. He had to shut shop after his father’s untimely death in the late 70s.

Damani got into the stock market with his brother During his initial days in the stock market, he struggled. He fought hard to stay alive in the market, and good days were hard to come by.

Nevertheless, he did not let this setback discourage him and continued to pursue his dream of becoming a successful trader.

In the late 1980s, Damani decided to branch out independently and started his brokerage firm. Initially, he faced many challenges when competing with established players in the market. 

But Damani was not one to give up easily. 

Known as Mr White & White, for his unique style of wearing all-white clothes. He got famous for the technique of short selling, which was not very common at that time. 

He first locked horns with the big bull Harshad Mehta in the late 80s. With his limitless unknown source of funding, Harshad had taken the stock market by storm, increasing prices of stocks. 

Their first big head-to-head encounter was with Apollo Tyres. Damani couldn’t digest such a high valuation for stock and started shorting while Mehta was long. 

In the end, Damani had to cut huge losses in his position, which was a significant setback.

During this period, the Bombay stock exchange was divided. Gujaratis on one side and Marwari traders on the other.

Mehta emerged as the most powerful trader on the exchange, and a group of traders locally known as the “triple-Rs,” consisting of Damani, a chartist named Raju, and the now famous Rakesh Jhunjunwala, began to compete.

This dominance of Harshad Mehta led to the formation of the famous bear cartel piloted by Manu Manek, the Cobra of Dalal Street. Working under him were the young Damani and the future bull Rakesh Jhunjunwala. 

As the name suggests, this group believed in the bearish trading strategy of short-selling stocks and making a profit from their fall.

After some initially lost battles, they outgunned their archrival. When Harshad Mehta got caught for his infamous fraud in 1992, Damani was close to the verge of bankruptcy. 

He only had money to hold his short positions for seven more days. If Mehta had held his position for a week more, Damani would have had to cut his position and declare bankruptcy. 

He made a fortune when the market crashed in the aftermath. With such a close call, changes were in order.

Risk hai Toh Ishq hai

Following the Harshad Mehta incident, Damani transitioned from short-selling to value investing under Chandrakant Sampat 

Sampat and was hailed as Warren Buffet or the original value investor of India. Theportfolio included several successful stocks such as VST Industries, Sundaram Finance, Indian Cement, Gilette India and Blue Dart

In 1995, he was reportedly the largest individual shareholder of HDFC bank when it went public, which he went on accumulating more of. 

When a prominent player in the market asked him why he was buying HDFC Bank stock when there were so many other PSU banks available at cheaper valuations, his reply was, ““You can’t stay on Peddar Road (one of Mumbai’s most expensive areas) at Dharavi’s (Mumbai’s biggest slum) rates, watch out for HDFC’s price in the future”

He primarily made most of his profit from long-term investments in the late 90s. He also took advantage of short-term opportunities by again short-selling stocks, which he was tipped off, were being manipulated by Ketan Parikh. 

During this time, he also profited from real estate investments made by purchasing commercial properties at low prices in Navi Mumbai and Thane for future business ventures.

His first stint in the retail industry started in 1997 when he started a cooperative departmental store ‘Apna Bazaar’ franchise in Nerul, with the former CEO of Reliance Retail. 

Apna Bazaar worked on socialist principles. The supply chain and customer experience were not in the hands of franchise owners as much. 

After 2 years of running Apna Bazaar, he closed the store, Damani felt unconvinced with the model and was instead left unsatisfied with delayed supplies and lack of control over the store. 

This experience left him itching to do something in the retail chain industry. His incomplete spell with Apna Bazaar motivated him to understand more about the psychology of Indian retail consumers. He felt a void in the industry, and flurried with this, he was to begin a new chapter in his life.

He was anxious to start a business beyond investing, to test his hypothesis around the Indian consumer. In late 1999 after extensive research and discussion, he began Avenue Supermarts Ltd to do something in retail. 

It took another three years to launch its first store.

Success Kya Hai? Failure ke Baad ka Chapter

In the early 2000s, Damani quit the stock market as his primary job at the peak of his career and forayed into the retail business.

This came as a shock to everyone, as Damani was already incredibly wealthy.

But the rise of Ketan Parikh and his tech investments of 2000 had cornered Damani. Damani, who deeply understood old businesses like cement and industrials, perhaps felt a bigger challenge lay elsewhere. 

While running the Apna Bazaar franchise, he understood the problems with the department store business. 

Damani saw a lack of organised retail options in the country and found this to be an opportunity to create a chain of stores offering low-priced, high-quality products to Indian consumers. 

He had heard of Mr Sam Walton’s famous Supermarket Walmart. 

He took a trip down to the US to understand Walmart’s deep discounting and cost optimisation strategy. The low-cost ethos of Walton’s Walmart became the hallmark of Damani’s D-Mart. He even named the company following the same genesis

“Walton-Mart” became “Damani-Mart.

D-Mart clearly understood who their customers were and how they wanted to run their business. D-Mart’s target customers were middle-income households, it strongly banked on the sales technique of discounting. 

The strategy was simple

Offer heavy discounts on daily household items like flour, sugar, oil and rice. Sell more, sell cheaply. High volume sales and fast inventory movement meant the products would be fresh and give them a price power on their supplier with bulk orders. 

The customer who would come in to buy the cheap everyday item would take home a few high-margin items such as cheese and chocolate.

The company’s mission, as publicly claimed, was to provide the best possible value to its customers. Every rupee spent on shopping with them by the customer can give more value to the customer than anywhere else. Every rupee saved by the Indian middle class could go a long way for them.

They opened their first store in the suburban district of Powai in 2002, right near their target audience of the Indian middle-class

Damani had to come out of his comfort zone, the stock market, to be a part of this. He had made a name for himself in the trading world, people wanted to put money where he had his money. 

Leaving all that power and freedom to start something you didn’t know about was a brave decision.

A big investor that he was even then, Damani was never ashamed to be a part of this grocery venture. He excelled in purchasing and merchandising.

Perhaps his earlier days as a ball bearings trader were now coming to use.  

His beginnings at DMart were frugal. For several years since its inception, DMart’s corporate operations were run from a small space carved out from one of the early stores. He and his early leadership team worked together as one cohesive unit without hierarchy or barriers. 

By then, India was starting to open, in a huge way. 

Retail Itna Gehra Hai Desh Ki Pyaas Bujha Sakta Hai

​​In 2005, India was on the rise

Having tripled from a GDP of $270B in 1991 to $820Bn in 2005, a transformation was afoot. But with opportunity came competition. 

The cutthroat world of retail was not for the faint of heart. 

The retail space in India was dominated by small, family-owned stores known as Kirana stores. These stores had been a staple of the retail industry for centuries, and many people still preferred to shop at these local stores rather than at larger, more modern retailers.

That changed in 2006 when Walmart, one of the world’s largest retailers, announced that it would enter the Indian market through a joint venture with Bharti Enterprises, owner of the ‘Easy Day’ store. 

This marked the first time that Walmart had entered a market through a joint venture, and the move sent shockwaves through the retail industry in India. Walmart’s entry into the market was seen as a major threat to Kirana stores, and many small retailers were worried they would be unable to compete with the retail giant.

As Walmart prepared to enter the market, another explosive trend was going to take seed.

A small online bookstore made its first-ever delivery operating out of a small flat in Bengaluru. Flipkart was just getting started on its journey. A decade later, Flipkart and Walmart would collide differently. 

The growth of e-commerce was a force to be reckoned with, shaking up the traditional brick-and-mortar model and revolutionising how people shopped. Several e-commerce companies, such as Amazon India and Snapdeal, emerged within a few years. 

But there was a bigger trend of organization that was happening. 

At the time, there were over 14 million retail outlets in the country, with only 4 per cent of them larger than 500 sq. ft. The overall retail market was over $435Bn, with organised retail making only $21Bn or a paltry 5%.

By 2009, DMart had taken eight years to start its first ten stores. 

This wasn’t because of the absence of investment opportunities but more because of the belief in validating the business model from a perspective of both profitability and scalability.

As organised retail scaled, modern shopping centres and malls grew, many of which were inspired by retail formats in the West. These new retail spaces provided consumers with a wide range of options and made shopping more convenient.

The concept of a mall was shifting from being a retail shopping hub to an integrated commercial space, expanding rapidly into tier-2 cities of India, adding a total of 21 malls in 201.

The organised domestic retailers were also expanding their base. 

Pantaloons, a Future group venture, occupied 12 mn sq. ft. of retail space spread over 1000 stores, Spencer’s Retail occupied over 1.1 mn sq. ft. across 250 stores and Shoppers Stop occupied over 1.82 mn sq. ft. across 35 stores.

In the years that followed, the retail industry in India continued to evolve. International retailers such as Tesco and Carrefour announced plans to enter the market, and domestic players such as Reliance Retail and Future Group expanded significantly. 

The rise of organised retail, helped to drive the expansion of the retail industry in India.

By 2012, the retail industry in India had transformed, with a big boost that was going to drop.

Emotion Mein Competition Hamesha Galti Karta Hai

In 2012, 100% FDI in single-brand retail and 51% in multi-brand retail for the B2B segment was approved.

The landmark decision was a game-changer for the industry. The focus of retail players changed. The reason the focus of retail players was on growth and capturing market share.

For example, Future Retail was growing at a breakneck speed. Future Retail partnered with Amazon to expand e-commerce in India, thanks to the change in FDI investment policy.

However, DMart’s approach was completely different. Hyperfocus on unit economics remained the north star.

DMart was not plain lucky. It was smart in its approach.

Taking cues from other successful international operators, DMart managed working capital rather than opening more stores and growing the topline.

DMart’s approach seemed very similar to Walmart’s when they grew, with a meagre store count of 300 in 1982. Walmart expanded using the same principles of price disruption by being the lowest-cost retailer. Walmart focused on managing business more efficiently by managing working capital.

DMart first focused on optimising SKUs by having a maximum variety of products/categories but a limited number of brands. In short, they knew what you needed and what you would buy most frequently. This allowed DMart to churn the inventory faster than anyone in the industry.

Along with inventory management, DMart made sure to take care of vendors in the best possible way. DMart pays its vendors promptly within seven to eight days while competition took 35-40 days.

Paying vendors faster allowed first access to items where the inventory is low in the market because the vendor knows this pays the quickest.

With vendors, DMart focused on customer experience.

Paying vendors faster allowed cash discount benefits to be passed on to customers at lower prices. Stores were designed so that they were not complicated to navigate. Clear signs were provided, and aisles were designed to make navigation much easier.

Billing, the biggest capacity constraint in retail stores, was taken care of by having 15-20 counters, ensuring a quick, hassle-free experience.

By 2013, DMart’s revenues had grown from Rs. 260 cr. in 2007 to Rs. 3,334 cr. making them India’s third-largest branded retail chain. This was accomplished with just 65 stores, compared to the 1,000 stores of the Future Group and 1,450 stores of Reliance Retail.

DMart generated an incredible 70 Cr/store, 10x that of their competition.

By 2014, with 73 stores across Maharashtra, Gujarat, Hyderabad, and Bangalore, DMart had achieved a profit of Rs. 100 cr. 

While other retailers were finding ways to cut costs or slow down, DMart was on an expansion drive to open more supermarkets.

Its true middle-class focus was beginning to win. 

Free to Main Mere Baap ko Bhi IPO nahi Deta

India had more than 150 million households that fall in the middle-class definition, a group of 600M people.

However, the focus of big retailers was largely on the upper middle class and affluent class. No company was operating at scale to fill the gap that could cater to the middle class.

DMart was disrupting that market. It had achieved some scale in Maharashtra and Gujarat region by 2015, but now it needed to expand.

The higher throughput largely drove the efficiency of DMart’s operating model and the better profitability that its stores generated. 

This was thanks to the ‘Everyday Low Price’ value-for-money proposition that it provided to the shoppers at its stores.

It was no surprise that the per square-foot revenue of DMart is almost 2.5 times Future Retail and almost five times Hypercity. Profitability also painted the same picture. 

Efficiency was the mantra.

Customers loved the concept, and the same-store sales growth kept on increasing. Between 2015 and 2017, DMart had one of the highest same-store sales growth in the industry.

The growth in stores was in double digits. 

Of course, one can argue that the base was small. But the fact that in 15 years, DMart never faced a situation where it had to shut the store is a testament that the model was working.

In 2017, DMart clocked sales of Rs. 11,898 Cr. with a profit of Rs. 1,222 cr. It was about time for DMart to scale things. But it needed funds to do that.

Damani was going back to an old love a full 20 years later. It was about time for an IPO. 

Top management was very conservative in taking debt for expansion. DMart’s IPO was one of the most memorable in the market’s history.

The IPO was priced at Rs. 300 per share and oversubscribed by over 100 times. The listing didn’t disappoint investors either.

On the first day, the stock price doubled from Rs. 600, staggering 100% returns on the listing day.

DMart became the blue-eyed stock for investors. Many other stocks generally see price correction after listing day.

DMart never saw the IPO price ever again.

Duboge ya Udoge

Following the success of the IPO, DMart posted strong numbers in 2018

It was clear that DMart was here to stay in the hyper-competitive retail market. However, with DMart, players like Future Retail and Spencer’s were strong and had a market share with a higher number of stores.

For perspective, in 2018, DMart had over 150 stores with over Rs. 15,000 cr. Future Retail had more than 1,000 stores with over Rs. 18,000 cr. ($2.5 billion).

However, only DMart could post more than 5% net profit margin year-over-year. Future Retail had taken loads of debt, while DMart was conservative. 

DMart was doing something unique and different from other players that helped it to post a consistent net profit.

DMart focused on cost optimization with three key levers. 

It kept advertising costs to a minimum. DMart did not believe in spending large amounts of money on marketing or campaigns. Instead, it gained customers mostly by word-of-mouth, supported by the confidence of everyday low prices. 

It’s advertising as a % of revenue was thus literally 0.

DMart’s moat has been its core activity and easily outcompetes “compelling” offerings from competitors such as the Big Billion Day Sale and the Republic Day Sale, to name a few.

If money is spent on advertising rather than customer retention without providing enough distinct value, mind share is not captured, and the company loses money. 

The distinct value proposition for DMart was to give low processes every day, which would speak for itself. It worked. 

Even in the international markets, Costco and Aldi run on similar premises.

DMart followed a one-of-a-kind hiring policy. D-Mart did not believe in hiring highly educated employees and expensive MBAs to create an entitlement mentality. 

DMart prioritised employing hardworking individuals who wanted to prove themselves and who could adhere to processes. This strategy would reduce churn as higher attrition leads to higher costs for the company in the form of training.

It also ensured it stayed on top of profit margins. 

Profits have consistently remained in the 5-6% range versus loss-making counterparts over the last ten years. 

This is because all of DMart’s cost efficiencies, such as cash discounts from vendors, a greater emphasis on asset turnover, less labour cost, and a strategy to own stores, to name a few, are passed on to customers in the form of lower prices. 

These decreased prices attract many customers, and the growth continues in this manner. 

No competitor can continuously and profitably compete with DMart at such cheap pricing by just spending on advertising. This flywheel was a moat. 

DMart had spent the first ten years perfecting this scalable model and aimed to expand faster and more profitably because the foundation was solid.

Sustainable growth is what DMart thrived on, and the company generated over 100% return in the next three years after its IPO, making DMart blue-eyed stock for investors.

But a storm was coming

Profit Dikhta Hai, Har Koi Jhukta hai

The COVID-19 pandemic was a Black Swan event that pushed the retail industry to the brink.

Footfalls, the lifeblood of physical retail, collapsed. People moved online. It halted businesses, countries, and even continents in a couple of weeks.

DMart was no exception.

DMart was impacted by social distancing practices, which decreased retail footfall and changed consumer tastes and trends of moving towards online channels.

DMart had 50% of its stores closed during the peak of COVID. However, as a strong business franchise, DMart explored methods to innovate and survive and thrive, as they have done repeatedly.

The initiative DMart On Wheels (DOW) was undertaken, in which local store teams would put up a smaller store with a small range of essential products in a vast housing complex for 6-8 hours. 

Employees who worked throughout the lockdown were awarded a hardship allowance, and a new COVID-19 leave policy was announced.

In the past, the company’s efficient systems helped it survive difficult situations such as Demonetization. COVID was no exception.

At the peak of the e-commerce movement in the F&B segment, upon being asked, DMart did accept that e-commerce is not their core strength so venturing into e-commerce will be a slow process.

But DMart was aware of the fact that e-commerce can bring in benefits. With DMart Ready, DMart was building infra to move closer to the neighbourhood despite offline issues.

DMart started rolling out its new concept of DMart Ready in selected parts of Mumbai and Thane. Fast track to 2021, the results are encouraging post-COVID world.

DMart Ready operated in 500+ unique pin codes in 9 cities. However, this kind of venture was still loss-making for DMart.

DMart Ready was operating at a net loss of ~10% of the total revenue. The losses from this operation, however, are shrinking.

But while DMart adapted, its big competitor Future Retail fell like a house of cards due the pandemic. With 12,000 Cr of debt, it was first sellling to Reliance in late 2020, but the deal got blocked by Amazon. 

Future’s share price collapsed from 300 to 60 in 4 months, a steep fall. By 2021, the chain was being picked off like a carcass, with Reliance controlling the stores without paying anything.

Spencer’s didn’t have such a horrible fate, but it couldn’t live up to its IPO expectations. Listing at a 211 IPO price in 2019, it didn’t see its IPO price again like DMart. 

But unlike DMart, it had collapsed, not risen. As DMart entered 2022, it was the only large player of the last decade remaining.

Dharam Se Bada Dhandha

From being an upstart, DMart was now the pack’s leader, with a different set of challenges.

DMart now needs to solve two major problems. Geographical diversification and navigating real-estate ownership.

50% of its outlets were located in the two western states of Gujarat and Maharashtra as of FY21. However, its concentration was close to 60% a few years ago. DMart is well aware of this and is attempting to lessen its reliance on two states by growing into more states. 

Preserving past growth rates becomes more difficult as the scale grows, especially with the real estate following the laws of physics.

The problem is exacerbated for DMart because the corporation always wants to acquire the real-estate before opening a store. In the future, DMart will strive to open stores on long-term leases, which will help accelerate store expansion.

For growth, DMart has a few other unexplored opportunities. DMart may also learn from Costco and Aldi in the west. 

For example, the corporation might collaborate with BPCL, IOCL, and HPCL to build tiny stores at petrol pumps. Collaboration with major housing societies to establish smaller grocery stores is an option, as is using mobile truck stores. 

Such actions can undoubtedly enhance the number of touch points with customers, but they can also easily become a trap if not carried out correctly.

Subscriptions could also be an area to explore. 

For example, Costco offers subscriptions and now has over 60 million paid cardholders, generating over $3.5B in revenue. DMart can mimic the model and offer exclusive membership to certain stores.

Another growth opportunity lies in introducing and scaling private labels. Creating a profitable private-label brand is a difficult task.

Until now, D-Mart has treaded cautiously and slowly in this area, launching private labels for items with lower customer stickiness and higher price sensitivity, such as pulses, sugar, and other regular kitchen utensils. DMart ready can be particularly useful to test the demand for such products. DMart is already doing this, but not at scale.

With the changing dynamics of India’s economy and population, the scope for organised retail seems bright. DMart is doing well for now, with ample growth opportunities ahead.

The Indian retail market has been growing steadily and stands at $836Bn as of FY2022. As the Indian retail market scales, organised retail will follow. 

If DMart can scale certain initiatives, the blue-eyes stock of the last five years’ market will continue to dominate and provide returns for investors simultaneously.

DMart has transformed from an investor-led startup to a giant. But unlike many hypergrowth startups, it has scaled profitably. 

The DMart story will tell Indian retail how to win, profitably.

Writing: Bhoomika, Parth, Pranav, Tanish and Aviral Design: Abhinav and Blair

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Tanmoy Sal
Tanmoy Sal
1 year ago

Hello ajvcteam –

This is a really very insightful article. I am one of the editors of monthly Newsletter called “This Fiscal”.

I am requesting permission to reproduce few snippets from this article (along with charts) for one of our upcoming issues. Due credits and courtesy links to the original article would be provided in the the Newsletter

1 year ago

D-Mart almost similar to walmart