Thread by @FinFloww

Zudio is hurting DMart’s business!

But when DMart is a supermarket with 76.8% of it’s revenue coming from groceries,

then how has a clothing company like Zudio been able to hurt it’s business?

THREAD: here’s why this is happening🧵

Let’s first understand how DMart earns its money.

It's natural to assume that DMart makes most of its money from groceries. This assumption holds true when we look at their revenue:

76.8% of DMart’s revenue comes from the grocery section.
23.2% comes from the apparel section.

But the picture changes when we consider the profit margins.

DMart is designed to attract customers with groceries but tempt them into purchasing items with higher profit margins.

For DMart, apparel is the highest margin section & contributes the most to their profits.

Essentially, groceries act as the hook, while the apparel section is the real money maker.

However, take a closer look at DMart’s apparel section:

The experience is below average, & the designs are quite plain.

A model where the hook is different from the profit driver can be confusing for customers.

People associate DMart with groceries, & no one really wants to buy clothes at a grocery store.

Yet, they do, primarily because of the extremely low prices.

Now, consider Zudio.

The shopping experience there is similar to Zara, yet Zudio offers clothes at the same price point as DMart.

Zudio doesn’t compromise on quality or style.

If Zudio hadn’t existed, DMart would have continued its business unaffected, and customers might have accepted the service as it was, assuming they couldn’t get a better experience at that price point.

What Zudio did was fundamentally alter consumer psychology,

showing people what a premium clothing shopping experience can feel like, even at low prices.

This shift in consumer expectations creates an aversion to shopping at DMart, especially after experiencing Zudio.

That’s how you steal market share.

If a business is thriving due to reasons beyond price, you can steal market share by lowering prices.

But if a business thrives solely because of low prices, and you can offer a better experience and products at the same price, customers will naturally gravitate towards you.

This also enhances the perception of the products they buy in their own minds.

Fundamentally, shopping triggers both external and internal responses.

We want to look good in front of others, but we also want to feel good about our purchases.

When customers buy cheap clothes from a grocery store, it doesn’t make them feel good about themselves and at the same time makes them perceive those clothes in low regard.

However, if they purchase something from a dedicated shopping experience like Zudio,

it doesn’t feel like they’re buying something cheap, and therefore, they don’t feel cheap about themselves.

While these factors might seem minute considering the scale of companies like DMart, they are crucial psychological triggers.

How a person feels about themselves after shopping can slowly start to affect a company’s bottom line.

Now, let’s consider another challenge to DMart’s margins:

Tata Group potentially eyeing competition with DMart through StarBazaar — Tata’s supermarket chain.

Although not as widespread yet, you’ll notice that many StarBazaar and Zudio stores are located side by side, often interconnected.

While DMart sells everything under the grocery store brand, Tata can achieve the same by linking the two stores while keeping them distinct.

Now, let’s consider another challenge to DMart’s margins:

Tata Group eyeing competition with DMart through StarBazaar — Tata’s supermarket chain.

Although not as widespread yet, you’ll notice that many StarBazaar & Zudio stores are located side by side, often interconnected.

This approach helps maintain separate perceptions.

Customers won’t feel the premium effect if they buy apparel from a grocery store like StarBazaar,

but Zudio remains unaffected by this perception.

This strategy can work in a similar way to DMart’s model

— regular grocery traffic is converted into higher-margin sales at the adjacent Zudio store, and vice versa.

The model that DMart employs could easily work in Western markets, like it does with Walmart & Costco.

But Indians are highly aspirational.

We might seek out cheaper groceries and try to save a few rupees here and there, but we don’t want to feel or appear cheap.

That’s why a model like Zudio’s is so successful here.

This also suggests that Indian consumers are fundamentally discerning.

If they can get the same products elsewhere with an experience that doesn’t make them feel cheap, they’ll switch quickly.

So, to anyone who thinks selling cheaper products in a price-sensitive country like India will always succeed, it’s time to reconsider.

The Indian market is very different and complex to understand.

If you liked this read, do RePost🔄 the 1st post and follow us @FinFloww for such reads every Monday, Wednesday and Friday!

Get our WhatsApp newsletter: whatsapp.com/channel/0029Va…

Subscribe to WHAT THE FLOWW?, our weekly email newsletter where we dive deeper into such concepts: soshals.app/finfloww