It's all about becoming irresistible to your core customers
In enhancing the customer experience, DMart slips on the tight control it has on its operational costs, sustaining the lowest prices will be difficult.
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Aadit Palicha, co-founder of Zepto, the quick commerce unicorn with its sky-high valuation, made an interesting observation on DMart's operating model on Nikhil Kamath's YouTube podcast. Commenting on the experience of shopping at DMart's brick-and-mortar stores, he said, "It's a pain… it's a fight. You stand in line; there is no proximity, you have to drive there, it is crowded, and the cashier might not be available…it is just not a good feeling. That's basically the cost of getting products for cheap."
The point holds merit, at least on the face of it. While the lowest prices are the key differentiator for DMart amongst competitors, as anyone who has shopped there would attest, its stores do not fare well on other aspects of the shopping experience. For instance, item selection is limited, the ambience is basic, and there is always a mad rush to get in and out of the store, even if it's not peak time. It would be reasonable to assume that should a survey be done to rank supermarket chains on attributes that a customer looks for in their shopping decision, DMart would rank right on top on price but would find itself far lower on most other attributes.
For all the negatives, though, DMart seems to have done pretty well for itself and its shareholders—its supermarket business, started in 2007, has been consistently profitable for over a decade now, with year-on-year growth. Zepto, on the other hand, despite the high valuation, rapid growth, and tall claims, has seen losses exceeding Rs10 billion in FY23 and FY24, notwithstanding the sincere efforts of Palicha and his team to make convenience available to the consumer at a low price.
How has DMart succeeded despite having a less-than-optimum customer experience? How do they manage to post profits at a time when quick commerce firms, which easily overshadow them on digital access, the convenience of a quick delivery, and the comfort of ordering from home, incur losses year after year?
The answer lies in DMart's obsessive focus on cost and its ability to understand its core customer base in and out. It knows the why part of the customer's decision-making process that gets them to a DMart store in the first place. People shop at DMart because of its low prices. While they may also like a better environment or service, the trade-off between price and service matters. As long as the customer places a much higher value on the price benefit than other benefits, this single-minded devotion to price works for DMart.
[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]