In a food & grocery segment dominated by small shops and open-air markets, supermarket chain DMart may have found the sweet spot.

Rising incomes, middle-class lifestyle changes and increased connectivity are driving robust growth in India’s retail industry. The ecommerce and luxury segments are especially strong. Yet alongside such modernizing trends, much of Indian retail remains traditional. According to the India Brand Equity Foundation (IBEF), unorganised retail accounted for 93% of the retail sector in FY2017. This is especially the case in the food & grocery segment, with supermarkets accounting for just 2% of sales. India may be the world’s sixth-largest grocery market globally, but small, local shops and open-air markets own it.

Success in the supermarket business has eluded retail heavyweights, such as Star Bazaar, a hypermarket run by a partnership of British retailer Tesco and the Tata conglomerate. It closed 20 stores in shopping malls in April, because the rents were too high. In 2014 Carrefour, the world’s second-biggest retailer, pulled out of India altogether. American giant Walmart has a number of wholesale stores in the country; however since acquiring Bengaluru-based ecommerce firm Flipkart earlier this year, it seems to be shifting its focus to deliveries of higher-priced items such as electronics rather than food & grocery.

A challenge to the unwritten rules of Indian retail has been taken up by DMart, a supermarket chain founded in 2002, which today has 163 stores in India. Its strategy is to be the lowest-priced retailer in the regions where it operates. It keeps store revenues high in part by packing its floor space. And it also shows a good understanding of Indian consumers. Neville Noronha, Chief Executive of DMart’s parent company, Avenue Supermarts, says it has two type of customers: lower-middle-class people proud to shop in a big, more upmarket store, and upper-middle-class shoppers who cannot resist the bargains.

In the six months to the end of September, DMart’s revenue reached 94 billion rupees ($1.3 billion), up by 33% from the same period last year. Profits were healthy, and DMart’s revenue per shop is four times higher than its nearest competitor. According to The Economist, “The firm seems to have cracked selling to the new Indian middle class, which is intensely price-conscious, rather than only to the rich in big cities. Its shops are mostly in fast-growing ‘second-tier’ cities and in the suburbs.”

There is some risk of DMart being a victim of its own success. Indian consumers are on board, and investors have high expectations: DMart’s shares boast a price-earnings ratio of around 100 on the Mumbai stock exchange. This is requiring rapid expansion. In the process of opening more stores, some analysts warn, DMart could be sacrificing some of the policies that set it apart. For example, decisions about what to stock were typically left to local store managers; with more stores, such decisions have become more centralized. But if it withstands the rigours of growth intact, DMart may prove to have captured one of the more elusive segments of the Indian retail sector.

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