D'MART FOUNDER Radhakishan Damani is a believer in 'Actions Speak Louder Than Words.' The 69-year-old seldom talks about his hugely profitable grocery retail business in public. The protagonist of the story is his ₹42,969-crore revenue company. With 324 stores, D'Mart stands tall in an industry riddled with failures.

Barring Reliance Retail, most big grocery retailers have either shut down or are struggling to make profits. The secret of Damani's success lies in his more conservative cluster expansion approach unlike Reliance Retail's aggression. Despite setting up the first store in 2002, two years before Reliance Retail, he opted to first consolidate in Maharashtra and Gujarat, where he had around 55 stores till 2012. In 2018, he had around 155 stores. The number touched 284 by FY22. Another reason for D'Mart's profitability is that it owns retail space as opposed to renting. This slows expansion but reduces per sq.ft. costs.

Damani, a seasoned stock investor, is cost-efficient. Most retail entrepreneurs consider Walmart founder Sam Walton as role model. However, it is Damani who has closely followed Walton's philosophy of offering EDLP (every day low price) and EDLC (every day low cost). D'Mart offers 6-7% discount on all products round the year. In early days of the business, he used to personally negotiate with suppliers to lower costs. The suppliers do not mind offering discounts as they get paid immediately as opposed to other retailers who take between a month and a month-and-a-half to pay. Damani also ensured inventory turnover time of less than 30 days as opposed to competitors' 60-70 days. All this helped D'Mart earn 20-25% more per sq.ft. than peers. When the company was listed in 2017, it was valued at ₹1.50 lakh crore, making Damani the fifth-richest Indian. At the end of FY23, Damani's net worth was $23.43 billion, as opposed to $27.53 billion in FY22. The reason is over 40% fall in share prices as operating margins dipped.

Though D’'Mart is known to command premium valuations, worries remain. "Evolving trends in retail grocery call for greater adaptability. Over the last one year, weakness in growth, especially on LTL (like-to-like)/SSSG (same store sales growth), and sustained weakness in GM&A (general merchandise and apparel) have seen multiples contract. Improvement in these two, along with sustenance of store additions, can drive valuation back to pre-Covid average (~75x) or even higher," says Nuvama Research. LTL growth, which was 30-40% pre-Covid-19, has dipped to 24%.

The retailer's attempt to open newer formats such as D'Mart Ready is yet to taste success. Its experiment with newer categories such as value fashion hasn't worked either. At the recent annual investor call, the management said proliferation of value fashion brands closer to D'Mart stores has hit sales. "The company is clear that it is a grocery-first format and has to position apparel within that," says the Nuvama report.

A section of the industry believes it's time Damani sheds the idea of conservative growth and embarks on a fast expansion strategy. The model of owning stores could limit growth and the need of the hour is to add more stores to deal with competition. High real estate costs have been a killer for most grocery retail chains. It will be interesting to see how Damani and his team manage costs and yet record high growth rates.

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