VRIO Analysis - D-mart, its competitive advantage and sustainability

The scope of this article is to use the VRIO framework to assess how a retailer’s resources fare with regard to providing the firm a sustained competitive.

The Resource Based View (RBV) is a model that sees resources as key to superior firm performance and if its resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage.

As a case study I have selected D-mart chain of stores.

Industry :

The Indian retail industry accounts for roughly 10 % of country’s Gross Domestic Product and is one of the biggest employers. The potential is immense as India is one of the fastest growing economies with second largest population in the world. More than 90% of the sector is from unorganized retailers, while the rest is contributed by the organised retail chains.

Prominent chains are Reliance Fresh, Aditya Birla Group, Spencer, Big Bazaar and Avenue Supermarkets.

Company :

D-mart owned by Avenue Supermarkets Ltd., started its’ first store in 2002 at Powai, Mumbai, Maharashtra, with a mission to be lowest price retailer. D-mart today has a well-established presence in 140 locations across 11 states in India.

Mr. Radhakishan Damani, MD and his family started D-mart to address the growing need of Indian families for one-stop-shops for the daily requirements — groceries, vegetables and household goods at the lowest-possible prices.

It made a big-bang listing of initial public offering in March, 2017, opening more than 100% above its IPO price. As on 4th of November, 2017 the share price is Rs. 1129, around four times its IPO price of Rs. 299.

Leading Competitors	Market Cap.	Sales	Net Profit
	(Rs. cr.)	Turnover
Avenue Supermarkets Ltd.	70,468.50	11,881.12	482.64
Future Retail	25,808.18	17,075.09	368.28
Trent	9,927.96	1,738.06	106.86

Brief financials :

Main resources and competitive advantage:

• Located mostly in smaller cities and towns.

• Property is mostly owned or on 30 years lease, thereby reducing future rent outgo and possible loss of prime locations.

• Stores at or near market area, avoids outlet in malls.

• Initially grew at a slower pace rather than expanding in a hurry.

• Sales mix is pre-dominantly food stuff and groceries.

• Strong logistic network.

• Lesser indulgence in creating brands, instead sells low cost daily basis food stuffs and groceries at 6-7 % discount to other stores.

• Higher inventory turnover ratio.

• Lower payment days for suppliers, hence D-mart is able to procure at cheaper rates.

• All stores are profit making.

• Has never closed or moved stores.

• Garnered a strong customer loyalty.

Resources at disposable with D-mart if assessed provide the following:

Valuable

Low cost items, higher inventory turnaround ratio and no recurring fixed expenses as rent, contributes heavily towards reduction in net cost.

Mr. Radhakishan Damani, founder of D-mart was a legend in investment and share trading. His approach of keeping a keen eye on long term profits instead of short-cuts is consistently replicated in running of operations in D-mart.

Rare 

Its choice of regions and premium locations provides it a deep penetration into the retail market of small cities and towns. A resource not present with its rivals

                                                                                                             

Inimitability

It is prohibitively high cost for rivals to compete in the same market with D-mart with location advantage.

Superior access to inputs. Rivals cannot replicate similar sourcing model.

Network effects - Highly loyal customer base. Sales strategy is unique and not adopted by its rivals. Competitors cannot provide enough incentive to customers to switch.

Early entry into smaller towns provided it with mix of tried and trained human resources and other local advantages, which cannot be easily replicated by subsequent entrants.

Non- substitutable and organizationally exploitable

D-mart is able to use it resources efficiently, which at present do not have strategically equivalent substitute. Rivals would be subjected to cost dis-advantages.

Strength and Threat-mitigation

Threats

There are ever increasing threat from the rise of e-commerce. Flipkart, amazon, big-basket are increasingly narrowing the business gap.

The other threat is from global chain of stores like Walmart and Carrefour with similar sales strategy.

Solution

The biggest plus point for D-mart is its ability to be source of quality items at a higher discount to its rivals, both brick and motors and online. Its focus on mainly food-stuff and groceries, unlike other retail chains who sell anything from electrical appliances, electronics, mobiles, computers, cloth range, luxury watches and expensive perfumes.

D-mart needs to carry on the same strategy so as to clock higher inventory turnaround and lower payable days, thus making it possible to offer even higher discounts. Competitive advantage is sustainable if prices are lower than rivals.

D-mart should continue with prudent expansion strategy.

Customer satisfaction is the key to retail business. Maintaining and continued improvement in this area is an important sustainability strategy.

D-mart may open up online shopping channels and strengthening its logistic arm to cater to home delivery.

Vinay Pandey, 04/11/2017

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