THE REORGANIZATION OF FUTURE GROUP
While there is plenty of movement within the group, there is little clarity on what Kishore Biyani’s mainstay retail business, Future Retail, will look like
Kishore Biyani does not like the word “restructuring”. Through the duration of an interview with Mint, he was careful to reiterate that his sprawling retail and consumer products empire, Future Group, has simply been reorganizing.
“We are always reorganizing”, Biyani said at his office in Tardeo, south Mumbai, one of two that the company operates out of in the city. The other is in Vikhroli. “The consumer is constantly changing, we have to change too. We reorganize every three-four years.”
But this reorganization has been under way for almost a decade.
The trademark of Biyani’s company is rapid, inorganic growth. In the last decade, Future Group has mutated considerably through a stream of acquisitions, sales and spin-offs. Year-on-year comparisons have become so difficult that most analysts tracking the group’s five listed entities have stopped coverage. Consider the events of the last few months. In May, Biyani announced he was taking fbb, the group’s mass fashion retail chain, to Oman, through a joint venture. In the same month the two arms of his furniture retail business, Hometown and Fabfurnish, were demerged into a separate entity, and he transferred ownership of Lee Cooper, one of Future Group’s biggest fashion brands, to a separate entity. Only a couple of months before this, Biyani had announced a joint venture with American organic food firm Hain Celestial that would sell vegetable chips and other snacks in India. Meanwhile, he has finally finished reorganizing his retail arm, Future Retail Ltd, after acquiring Sunil Mittal’s Bharti Retail and south Indian retail chain Heritage.
Despite Biyani’s attempts to downplay the constant restructuring, the group is undergoing a major reorientation, from being primarily a retail business to a consumer goods company. “I’m a consumer goods company,” he said. “I’m not a retailer anymore. Retail is the distribution part of my consumer business.” Future Consumer Ltd already has close to 30 brands in food, beverage, home and personal care, all part of the group’s listed company.
While there is plenty of movement within the Future Group, there is little clarity on how Biyani’s mainstay retail business, Future Retail, will look. Analysts are waiting to see how Future Consumer manages to integrate with the group’s retail focus. In addition, while Biyani has said he wants to consolidate all his retail offerings under Future Retail, his apparel brands firm, Future Lifestyle and Fashion Ltd (FLFL), and owns and operates two apparel retail chains, Brand Factory and Central.
What will the Future Group of the future look like? Is the latest move one restructuring exercise too many? The jury is still out.
Rise of the small store
In 2012 Biyani sold Pantaloons, his first successful retail chain, to Aditya Birla Nuvo Ltd to defray some of the Rs5,800 crore debt the parent company had. Since then Future Retail has changed beyond recognition through acquisitions, mergers and restructuring.
In 2016, Bharti Retail became part of the group. Bengaluru-based retail chain Heritage, previously owned by Andhra Pradesh chief minister N. Chandrababu Naidu, was added to the business in November 2016. Biyani spent nearly Rs800 crore on these acquisitions. The group now operates in seven retail formats: the large gourmet store chain Foodhall, smaller ones including Bigbazaar and Easyday, along with the furniture and fashion store chains. Its largest retail brand is Bigbazaar, with 235 stores in 124 cities covering 10.18 million square feet of retail space, as per data from the Future Retail annual report for fiscal year 2017 (FY17).
Now Biyani wants to focus on smaller stores.
“Our next round of growth will come from the small store,” said Biyani. “We visualize it from a very different angle. We call it the Pados ki Dukaan, your neighbourhood store.” The group’s small stores, Easyday, Heritage Fresh and Nilgiris, will cover most of India, under brand names known to those regions locally, he said.
“It will be like your Dubeyji,” said Biyani. “You can get everything that you want. We want to open maybe 7-8-10,000 small stores.” He believes it does not matter what name a small store operates under, as long as it is well-planned and functions smoothly.
After acquiring the Easyday chain of convenience stores, Biyani began merging his own small store format, KB Fair Price, with the rest of the chain. “Easyday stores, Heritage Fresh and Nilgiris will all be small stores,” Biyani said. “We will touch 1,000 stores this year. That’s huge.”
Biyani’s strategy is built squarely on his acquisitions from the past fiscal year. First was Heritage, then Nilgiris, another southern Indian grocery store chain. Finally came Easyday, with stores heavily concentrated in north India. He is clear he wants to concentrate on the small store format.
Biyani plans for these stores to operate on a subscription model. “It’s a membership programme,” he said. “For every neighbourhood store we want to have 1,500 members, not more. We will serve these 1,500 members the way they want to be served. You tell me what you want and we will get it, at 10% less than market price.”
“It will be more technology-driven t han one can imagine”, he said. Data analytics will help each store monitor consumer behaviour and manage inventory.
Retail analysts say investing in setting up a small store network in India will pay off in the long term, particularly in newer urban centres. “Organized retail is now growing at double-digits in India,” said Pankaj Renjhen, managing director of retail services at real estate consultancy JLL India, in an interview. “With the introduction of hypermarkets, consumers are getting smarter. They are open to the idea of shopping in a better environment, and the market is set because consumption is growing fast in India as well. Now if retail chains move to the hub and spoke model (a pared-down network in which smaller centres are connected to large distribution stations), you take the experience of the big stores to the consumer’s doorstep.”
While this may not replace the traditional kirana store for consumers everywhere, Renjhen said organized small stores like the one Biyani is setting up can work best in “new” urban areas, where mom-and-pop stores are not omnipresent. These include cities like Gurugram and Noida in the National Capital Region, and newly developed urban fringes of cities like Pune.
“The story is set for small format stores, especially in mature markets,” said Renjhen. “In some cases, if mom-and-pop stores are able to compete and differentiate, they will (survive). In some cases, they can even do better, because they can align to their local market: they might be able to customize better because they know what sells best in that neighbourhood, or can give their customers a better experience.”
One example of where kirana stores score over organized retail is that they are willing to make sales on small lines of credit to loyal, local customers. Biyani’s subscription model seems an attempt at emulating this.
So where does Future Group’s iconic Big Bazaar, the large supermarket chain, fit in in this new push? Biyani has not thought that aspect through.
“We will work that out,” he said. “We’ll take our customers’ opinions into consideration, but not in the first phase (of reorganization). In the second phase (of reorganization), yes.”
This does not mean the group will refrain from expanding. Biyani says he will open between 25 and 30 Big Bazaar stores every year. “It’s in a great position,” he said. But Biyani is also shifting Big Bazaar’s positioning, moving from the “cheap and best” monthlyvisit supermarket slot to a “lifestyle depart-
Investing in setting up a small store network will pay off in the long term, analysts say
Organized retail: Kishore Biyani says his group will not invest in an omnichannel strategy for its physical stores for now. Future Group’s biggest brand is Bigbazaar, with 235 stores in 124 cities covering 10.18 million sq. ft.