Why DMart prices are cheap?

Total there are 196 stores in INDIA across 11 states in 72 cities.

Actually DMart has eliminated middleman and the commissions. Those two are moved as discounts to consumers. If you think all products are low price in Dmart then you are wrong. Fast moving consumers goods (FMCG) products are used as anchor to sell its high margin products like Toys, Fruits & Vegetables, Grocery & Staples, & Plastic Containers. Moreover Dmart has its own branded products in Grocery, Home & Personal Care section which has high margins.

Many factors like Low Advertising, less Debt and own buildings contribute to less pricing. One major factor lies in Dmart Purchasing power.

Let us see how a FMCG manufacturer distributes its products in India. Look at the below picture, I have taken an example of a Soap manufacturing company distributing its product.

factory

Super Stockist

Stockist

Wholeseller

Retailer

Consumer

Dmart has 196 Stores spread across Indian Cities, Dmart buys products for its whole 196 stores, the sales channel is almost direct now, Dmart does not need many warehouses, Inventory is at its store and consumer picks it up, Inventory turnover is optimal which cuts down the storage costs.

For ex: A Soap priced at Rs.40 will be sold at Rs 35 to Stockist, in turn stockist sells it to 37 to wholesaler, by the time it reaches consumer it will be sold at MRP 40 or 39.50.

But what DMart strategy is..

factory

Dmart

Comsumer

Factory manufactures soaps in Batches. Then, Stockists bulk break them into dozens , Wholesaler and retailer to packets and at last consumer buys 2 -3 packs. Stockists buy really huge quantities, hence they have bargaining power.

Economies of Scale - D-mart procurement capacity is more than Big Bazaar as they have enough capacity to liquidate any amount of stocks. Hence they are able to negotiate better prices for goods.