Daymart: Keeping the hustle – Part – 2

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North Kerala’s largest retailer aims to be the state’s best & biggest

Overview: Kerala has a super-abundance of supermarkets with most of them duking it out for the customer mindshare and pocket. Unfortunately, quite a few of them are also going off the deep end, overburdened by their own naiveté in running a challenging grocery retail business.

Building the supply chain and other facets of business

Explaining the method and modus operandi of store expansion, Mustafa says that the focus has been to go in for a cluster-based approach to expansion, concentrating on a 20-30 km radius of Kozhikode. “Daymart has been able to put together a reliable supply chain in place in the region, despite the challenges, which is a critical component in the grocery business. All the 20 Daymart stores are located within 15-20 km distance of each other, and the strategy is to keep expanding along the same spatial pattern.”

Reflecting on the quality and standards of supply chain infrastructure in the Malabar region of north Kerala where Daymart stores are located, Mustafa says that the running time of vehicle from the warehouse to the store is very high. “Moving our products from the warehouse in Kozhikode to our store in Kuttiady, which is a distance of 50 km, takes a little above 2.5 hours because the roads are dilapidated and decrepit. That’s in sharp contrast to the road conditions in the Middle East where it would take about just 20-30 minutes to cover the same distance. Due to the bad state of roads, traffic jams are a perpetual feature and we cannot move our products from the warehouse to our stores on a daily basis. As a result, we have to package our staples and grocery products inside our own stores, instead of packaging them at our warehouse in Kozhikode. Every store that we operate now has its own packaging unit, to get around the problem,” notes Mustafa.

A crucial component of Daymart’s consumer-facing retail business is its back-end wholesale business, which gives the retailer more purchasing power and bargaining clout vis-à-vis its suppliers as well as greater procurement power for buying products such as fresh fruits and vegetables, staples, and household merchandise.

“We have 5 wholesale businesses, which includes fresh fruits & vegetables and rice. Our combination of retail and wholesale purchasing power enables us to procure goods at more discounted prices than the other retailers, which allows us to pass on this advantage in the form of bigger discounts to our customers. Also, thanks to our wholesale business, we have a direct connect with farmers from whom we procure farm-fresh fruits and vegetables, which ensures that we offer only the best quality of these products to our customers in the stores and also export them to other countries abroad. As all our wholesale business are one way or the other connected with our retail business, this dynamic helps to make our retail supply chain better and more efficient, obviating the need for dealing with middlemen and intermediaries in most cases,” says Mustafa.

Private labels become the growth driver

Thanks to its flourishing wholesale business, Daymart has been able to cobble together an enviable private label portfolio of its own, spanning across categories like cereals, staples, masalas, pulses, pickles, household essentials like detergents, etc. Daymart started on its private label business in earnest only two years ago but the retailer is already on its way to expanding its portfolio further by introducing other products in categories like cookware and footwear, which will be introduced shortly at all Daymart stores before being sold and distributed in the market as a brand.

“Private label has innovated and is speaking to consumers’ desires for freshness, health and wellness needs, culinary values, and expectations for transparency and sustainability,” notes Ali, adding that Daymart’s private-label brands often perform better than national brands because they have contemporized to offer consumers natural and organic offerings in trend-forward formats and flavours.

“Private brands enjoy more flexibility than manufacturer brands and can more easily pivot to meet changing consumer demands. In many instances across categories, they have also been able to jump ahead of traditional brands in critical areas such as ingredients, packaging, flavours and preparations,” says Ali.

“In each of the categories where we have our private label products, they have come to dominate the category in just about two years after being introduced in our stores. And even though, their overall share to the total sales pie is still fairly small, they are growing at a fast clip and will start making a significant sales contribution in another 2-3 years. You will be surprised that the sales of our in-store detergent is higher across all our stores than that of the market leader HUL…and that’s because customers have immense faith and trust in all our private label products, even if some of them like our private label atta is actually priced higher than national and other regional brands,” says Mustafa.

“When it comes to Daymart private label products, the focus is absolutely on ensuring that it is a better quality product than the other brands in the category, and not on ensuring that it gives us better margins…under no circumstance can we allow the dilution of the Daymart brand because going by the consumer response they have received so far, it may be not long before some of these brands are launched in the open market and that’s the vista where they can scale up further regionally and even nationally,” adds Ali.

At the moment, Daymart is manufacturing only some of its private label products like masalas but it ensures that the other products are manufactured at the same places from where they are being sourced and from where other premium brands get them manufactured from. “But once we have more stores and once our customer base reaches an inflection point, we plan to take to manufacturing these products on our own,” says Ali.

Standing up to competition

“In our north Kerala’s Malabar region, the grocery supermarket business today has almost become a contagion, touching off an epidemic of new supermarkets multiplying almost like toads in the north-east monsoon,” observes Mustafa.

Due to the very conspicuous influence of the Middle East in this region with almost everyone riding on the coattails of the financial payoffs from those countries and with everyone’s apron strings tied to one or more of the Gulf countries, the supermarket culture in Kerala has now become more pervasive and even promiscuous than that of its progenitor itself.

“Anyone and everyone with some stash of money has either opened a supermarket or is thinking of opening one…it has reached a point where competition has become cutthroat leading to several cases of business haemorrhaging,” notes Mustafa.

Daymart started on its private label business in earnest only two years ago but the retailer is already on its way to expand its portfolio further by introducing other products in categories like cookware and footwear, which will be introduced shortly at all Daymart stores.

Realising that it can be challenging to thrive in a market that’s now become over-the-top saturated, Daymart is not taking any chances and is looking out for new virgin markets in Kerala and neighbouring States. At the same time, Mustafa asserts that it’s not going to be Daymart but its upstart competitors that will most likely fall by the wayside when the market’s competitive push turns into no-holds barred shove. The retailer says that it has found a way to elbow its path into consumers’ heart – through attractive offers and discounts, customer service and relationship, and quality products with an enviable breadth – and it is engaged in constantly finessing this recipe with the zeal of a proselytiser.

“Other supermarkets in the region may also be offering good discounts but there’s a big difference between us and them. We can afford to offer big discounts by virtue of our scale and on the strength of our wholesale business, which gives us enough elbow room to squeeze concessions from the suppliers before we pass them on to our customers. But that’s not the case with other supermarkets, who are giving away discounts just for the heck of remaining competitive in the business, and not because they can afford to. How long they can keep doing that is anybody’s guess and the end might come sooner than expected,” says Mustafa.

He muses that, in the case of Kerala’s supermarket and retail industry, it could well be the case of too many cooks spoiling the market broth. “Daymart has itself acquired 4 supermarkets in the region in the past two years alone as those stores had run to the end of their financial tether and had to throw in the lifebuoys to be rescued from going under. The grapevine in our region is that if you can no longer run your supermarket, call Daymart to acquire you,” says Mustafa with a chuckle, adding there could be more instances in the future where Daymart would be called upon to pull some more supermarket’s chestnuts out of the fire.

“New entrants have opened supermarkets enamoured by its prospects that are colored by the Covid experience, but the underlying fundamentals and dynamics of this business remain extremely fluid and inchoate for these new entrants to grasp fully. On the other hand, we treat our supermarket business as a 200% customer relationship business and not just as a business enterprise. That probably explains why about 60-70% of our total customers are our loyal customers who are regular and repeat shoppers at our stores. All our stores have a person dedicated solely to take care of building a relationship with the customers and make them our valuable partners. Whenever, there is some special scheme or offer running at our stores, the communication is relayed to all our loyal customers and even personal calls are made to maintain that emotional connect with the customers,” explains Ali.

Apart from going out on a limb to turn customers at its stores into partners, Daymart has a strategy of empowering and rewarding its employees into becoming its store partners as well. Employees are selected on a regular basis based on their commitment and performance and are put in charge of its different stores on a rotational basis, which helps to keep their motivation level high and spurs them to engage more meaningfully and constructively with the customers.

“Our loyal customers and our loyal employees, about 700 on the payroll, are the biggest strengths of Daymart, and it is our constant effort to keep building this team to serve as our brand’s ambassadors,” says Mustafa. Daymart employs about 20-25 employees for each of its smaller stores less than 10,000 sq. ft. and 30-45 staff for stores bigger than 10,000 sq. ft. The remaining employees are staffed with the company’s wholesale and back-end businesses.

The unwavering focus on quality is another loyalty driver for Daymart customers. The stores are preferred by customers for the impeccable quality and freshness of its fruits and vegetables and also the range, variety and quality of its pulses. “People in the places where our stores are located have quickly glommed on to these superlative qualitative product features that they are assured to find every time they visit a Daymart store, and it has helped to build and enrich our brand DNA,” says Mustafa.

Talking of the product mix, Mustafa says that staples and fresh produce are the best-selling categories at Daymart stores, followed by household essentials and non-food products like stationery and cosmetics. “About 40% of our overall sales are accounted for by staples and fresh produce and the food category as a whole has a share of about 60% of the total sales pie,” informs Mustafa, adding that a majority of the purchases at Daymart stores is done my customers in the upper middle, middle, and lower-middle income bracket.

“Our stores don’t boast of high-value premium infrastructure and the ambience, store design and interiors, product basket and pricing are designed keeping in mind our major audience base, which is middle-brow and not premium,” says Ali.

Although the stores attract well-heeled and upper middle-class customers as well, Daymart’s key customer base is skewed towards the middle class and lower middle-class customers, who come to the stores looking for great discounts and ultra-competitive prices and that also explains the retailer’s focus on giving away discounts that are too good to be turned down.

Mustafa says that Daymart was the first in the region to introduce low-cost “Wednesday Bazaar” for fruits and vegetables, which became such a runaway hit with the customers that today the concept is being practiced by all grocery retailers in the area.

“We keep coming up with innovative marketing strategies for wooing customers and widening our reach. In recent years, we have launched ‘Saturday Bazaar’ under which we offer fruits at bargain basement prices; similarly, we have launched ‘Budget Week’ which runs through the first week of every month under which customers can avail of all our products at a relatively lower price than the regular price on other days,” says Mustafa.

According to Ali, the biggest challenge for Daymart and other modern trade retailers in Kerala and elsewhere across India is to wean customers away from kirana shops who hold sway over the grocery retail industry in India by cornering almost 85% of the market share. “Other big format retailers are not really my competition but the street-side kirana shops are, and my challenge is to convert their buyers into becoming our customers,” he says.

Daymart has acquired 4 supermarkets in the region in the past two years alone as those stores had run to the end of their financial tether and had to throw in the lifebuoys to be rescued from going under.

 Beefing up tech and IT systems

 “Even today, most regional supermarkets in Kerala don’t have a specialised inventory-management department, and their IT strength is primordial by today’s world standards. At Daymart, we have invested in building up expertise in these areas,” reveals Ali.

Daymart employs its own data analysts to sift through the heaps of customer data and provide the retailer with actionable insights. “In our HR, Marketing and Sales departments, people are encouraged to think out of the box and come up with creative solutions to the challenges that come our way,” says Mustafa.

Daymart stores are now in the process of installing Artificial Intelligence (AI) cameras – a first for supermarkets in Kerala – which will help the retailer get a ringside view of the customers activities in terms of how they prefer to navigate the shop floor, what time they visit the store, which areas they prefer to go, which are the hot spots inside the store where maximum product pick-up takes place, the choices they make inside the store, if they prefer high-value or low value products… all of which will help Daymart to monitor the customers so as to understand and serve them better.

Explaining the rationale behind the move, Ali says that retailers are primarily using AI to automate processes along the supply chain. “With AI, retailers can start to consume huge amounts of data, see patterns and then automate the necessary actions, like rerouting trucks due to developing bad weather conditions. The research shows the revenue potential for intelligent automation for retailers and CPG companies would be even higher than the cost savings.”

The AI cameras will also equip Daymart to cut down on its shrinkage rate from the current 1.5% to almost zero, giving a big bump to its overall profitability. “Though we have the regular cameras installed at our stores, monitoring all of them is not easy. But the AI camera will at once detect if any product that is picked up has not gone to the cart or back to the shelf,” notes Mustafa, adding that shrinkage is a big drain on the profitability of retailers and can be totally avoided with the use of AI cameras.

He observes that people in Kerala are status quo-ist and not very receptive to changes. Giving an example of how online ordering is least preferred by shoppers in Kerala, he says that Daymart has its own online App on which customers can order and get the products delivered, but the facility has not gained much traction with the shoppers in the State.

“While online ordering gained currency during the days of Covid restrictions, it has now tapered to the point of being used occasionally by our customers. Online ordering might find favour with those who put convenience above everything else. However, the service comes with an inherent flaw and that is manifested in the disconnect between the consumer and the retailer. In the case of Kerala, this disadvantage is mitigated to a great extent because people here don’t take to online ordering as their natural preference. The usage of the online ordering App is very minimal, especially among the native population and it is mostly used by people from the North and West who have come here to work or have settled here. Even those of our stores that are located in the premium areas of cities see far less app usage than the call-and-collect ordering facility, which is also offered by our stores.

More than online ordering, people prefer to call and place the orders and apart from the website and mobile app, we also offer this facility to our customers, which is more popular than online ordering and certainly nowhere near in-store visit that most of our customers continue to prefer,” shares Mustafa.

Future vision and expansion plans

“We have set up a goal to become the best and biggest retailer in Kerala and are working to accomplish those benchmarks. By 2030, our blueprint is to grow Daymart’s footprint to 50 stores and cross Rs. 500 crores in annual turnover. Once, we reach this goal, we will be able to realise our mission and vision fairly smoothly,” says Ali.

“I travel all around the world to see with my own eyes the changes aborning in the retail industry, the trends that are emerging and the practices that are past their sell-by date. We, at Daymart, are open to the changes and keep our ears to the ground to serve our customers in newer and more engaging ways, and that alone will keep us going,” says Mustafa, adding that he is quick to introduce the best practices and trends at his stores from what he picks up from his travels across and outside the country.

“In the course of my travels, I visit many stores both in India and overseas and I attend many trade events and shows from where I pick up the ideas that can be introduced at our own stores. We keep bringing in new ideas and practices to our stores, which helps Daymart refresh its business proposition and offerings from time to time, and stay relevant,” he says.

With the pace of expansion at Daymart now finding its own momentum, the retailer has set its sights on launching bigger stores – 10,000-20,000 sq. ft -where it can introduce bigger assortments and breadth of merchandise. Of the 20 stores in operation currently, 4 of Daymart stores are above 10,000 sq. ft. and the plan is to keep growing their count, wherever possible, as they fetch better returns and the revenue run rate for these stores is higher.

“Assortments are larger and more varied at our bigger stores, they have more shop-in-shop and there are more dedicated counters for dry fruits, and other high-value products, apart from a foodservice section, which elevates and enhances the shopping value at stores as customers like to indulge in refreshments while shopping. Having a foodservice section inside the store not only helps to attract higher footfalls, it also lengthens the dwell time of shoppers inside the store, which leads to more purchasing activities besides fetching incremental and independent revenue from the department,” says Mustafa.

At the same time, the larger space at these stores allows Daymart to go for more in-store activities like product samplings and demos, festival and cultural activities, all of which help to draw in more footfalls, pull in higher sales and revenue, and fetch higher yields for the bigger stores.

Going forward, the strategy will be to expand both smaller and bigger stores depending on the locality and the market potential of the specific geography. However, there would be a greater push and emphasis towards opening larger stores, especially around the periphery of cities where Daymart stores are currently operational.