Avenue Supermart: a compounding machine?

Dated ( PUBLISHED: Oct 24, 2017) but a good read :

My takeaway: What’s in the DNA of the business? And, Who are their real competitors? Snippets from the article –

• Unlike its rivals who, for the most part, focused on achieving scale, DMart worked on keeping costs to a minimum and getting the per unit economics right.

• organised retailers at a big disadvantage compared to the kirana or mom-and-pop stores that run out of owned premises bought many years ago, with no rentals to pay. They typically have a far lower cost structure (they often use child labour or don’t have to pay employment taxes like provident fund).

• the local kirana will deliver whenever you want, in the smallest possible quantity and offer credit.

• Ramakant Baheti, the chief financial officer of Avenue Supermarts and a Damani hand for the last two decades, says his boss entered the business “with a view to create something other than stocks to leave behind for the next generation

• He earned his spurs over the next decade during which he ran two franchises for Apna Bazar. He’d spend time in the 7,000 square feet Nerul store and observe which items moved, how customers behaved and what level of discomfort they would put up with (unlike other retailers he eschewed air conditioning).

• The first thing Noronha realised was that price was a differentiator in India, particularly for groceries and fast-moving consumer categories like toiletries and personal care. The whole operation had to be geared towards offering an everyday low price. But since margins in this business are wafer thin, inventory turns are the key. “The trick lies in driving footfalls through grocery and then selling higher margin items such as toys, crockery, garments, home appliances and footwear,” says Noronha. “It’s the groceries that get shoppers in, but the general merchandise that drives our profits,” adds Baheti.

• Investments in an ERP platform and distribution centre allowed the company to have a far more efficient supply chain than competition, who did the same only when they achieved scale.

• The air conditioning was turned down, the aisles were not too widely spaced. Store employees were hired by an agency—“we later hired the better ones,” says Noronha —to cut costs and deal better with peak demand. DMart employs only half the number of employees per square feet as rivals