Page 46 - Forbes - Asia (September 2018)

FORBES ASIA
FAB 50 — AVENUE
DMart’s loyal customers become hooked on the low prices, like Walmart shoppers in the U.S.
in Hyderabad and Bangalore. After he
moved to Chennai he kept looking for
an outlet until one opened up in the
suburb of Virugambakkam. The store
sports black-and-white signs saying
some products are 6% cheaper than
the maximum retail price set by the
manufacturer, whether cereal, butter
or shampoo. “We get all our big-ticket
items—rice, oil, flour—from here,” he
says while shopping with his wife to
stock up on a three-month supply.
“We are able to save a lot on the bill.”
DMart can hold down costs be-
cause it owns most of the real estate.
Also, it buys directly from manufac-
turers. “DMart’s product mix has
been almost the same in the last five
years,” adds Roy. “This has helped it
retain lower prices, compared with
other retailers.”
Based in Mumbai, DMart opened
its first store in 2002 and only nine
more over its first eight years. The
founder, Radhakishan Damani, who
shares a $12.2 billion fortune, wanted to
understand the nuances of the business
before ramping up. DMart now counts
157 stores across the country.
Along with the soaring stock are
44 | FORBES ASIA SEPTEMBER 2018
rising concerns that Avenue is over-
valued. “Everything but the stock is
on discount,” says a research report
from Mumbai’s Ambit Capital. “Even
Walmart never enjoyed such rich
valuations.” Brokerage houses are also
concerned that if the company ex-
pands with leased stores as opposed
to company-owned stores, it could
hurt its profit margins.
And while DMart seems to have
mastered o ine retailing, online
retailing is rabidly competitive.
“[As in] many countries, concerns
of disruption for brick-and-mortar
retail businesses longer-term can’t be
ruled out,” says an equity report from
Mumbai’s Citi Research in May. The
e-grocery segment alone is expected
to more than quadruple by 2020, to at
least $4 billion. Large players include
the Walmart-Flipkart combination,
online grocery major BigBasket.com,
Amazon and Reliance.
In June, Reliance Retail an-
nounced an ambitious e-commerce
plan that would involve online sales
and an o ine system for delivery
through millions of mom-and-pop
grocery stores across India. “We
see merchants as critical
customer-fulfillment points
who will share a beneficial
relationship with us,” said
Reliance Industries chair-
man Mukesh Ambani at the
company’s annual meeting
in July.
As companies scramble
to build their e-commerce
operations, DMart launched
its own click-and-pick of-
fering, called DMart Ready.
Customers order online and
then pick up their groceries
from smaller DMart Ready
stores in their neighbor-
hood or have them delivered
at a small cost. But DMart
Ready ofers fresh vegetables
on only a limited scale,
and that’s expected to hurt
growth.
What might help DMart is the
Indian government’s proposed e-
commerce policy. That would give
brick-and-mortar stores—especially
mom-and-pops—a boost by curbing
the deep discounts that e-commerce
players thrive on. It also calls for
tighter scrutiny of mergers and the
appointment of an e-commerce regu-
lator to shield domestic e-commerce
players from foreign competition.
Meena Ganesh, a BigBasket.com
cofounder, says some elements of the
government’s plan are not acceptable.
“Companies need to do disruptive
things in order to change consumer
behavior,” she says. “This could be free
delivery, deep discounting, subscrip-
tion packages or financing. The govern-
ment should not be in the business of
defining what is deep discounting or
how bulk purchases should be done.
This is clear interference.”
No matter what the government
decides, Avenue should continue
to post gaudy results. Sales in the ANIRUDDHA CHOWDHURY/MINT VIA GETTY IMAGES
organized brick-and-mortar retail
segment are expected to more than
double in the four years ending in
2020, to $115 billion. F