The future is small
With Heritage Foods' retail business, Future Group will shore up its small store network in the South and build footprint through local, flexible formats
Across the world, big retailers are thinking small when it comes to expansion. So is home-grown big box retailer, Future Group. The retail chain is expanding its brand presence and footprint through the acquisition of numerous small regional stores; the latest being the acquisition of South-based Heritage Retail business.
For the Kishore Biyani-led Future Group, Heritage, owned by the family of Andhra Pradesh Chief Minister N Chandrababu Naidu, adds muscle to its brand in the South. Future Group also owns the Nilgiris chain (acquired in 2014) and the Big Apple chain of stores (acquired in 2012), which has been largely incorporated within the group’s Easyday brand. All three acquisitions bolster the group’s presence in the south and Heritage, in particular, its strength in the small store segment.
Kishore Biyani has identified small format stores as the first of the five pillars of his group’s long term retail strategy. Two months ago, Biyani in an analyst call, said that the group was reinventing itself given the new challenges in the retail sector and small stores would be a core growth strategy. He reiterated his intentions after the purchase of Heritage and said “The consolidation of Heritage small-format stores brings us closer to the homes of customers in the three key metros in southern India.”
Heritage adds 124 stores to the Future network in the South. It also has 157 stores from the Nilgiris stable and a few Big Apple stores. The rest of the group’s small store network is in North and West India. The company has said that it wants to take its retail network to 4,000 by 2021 and small format stores will be significant in this journey.
Going small is in fact a global phenomenon. American chain Target is walking down the same path and analysts, the world over, believe that smaller stores offer big box brick and mortar retail brands a chance at survival. Typically small store formats offer flexibility and allow retailers to go into areas where setting large spacious stores is a problem. The global template for a small store is a space of around or less than 50,000 square feet with pick-up points for online orders. This is one way big retailers can fight the growing clout of online retailers such as Amazon more effectively.
For small store formats, getting absorbed by a large retailer is perhaps the only way to survive the onslaught of online marketplaces. N Brahmani, executive director of Heritage Foods said, “Heritage stores are now part of a larger retail network and will benefit from economies of scale and supplier relationships that are critical in modern retailing.”
Heritage Fresh has retail outlets in Bengaluru, Hyderabad and Chennai. The stores sell a wide range of household items, consumer products, staples, and fresh fruits and vegetables. The company says that the brand has both trust and recall and serves over 24 million customers annually.
Biyani said that the consolidation of Heritage small format stores forms part of company’s strategy of aggressively expanding the small stores network nationally by 2021, including around 2,000 franchises, to service daily and weekly needs of customers. Big Bazaar, he has said in previous media interactions, will focus on delivering value and catering to the monthly consumption basket of urban India.
Analysts said that the deal will be a win-win for both companies, but Heritage will be the immediate beneficiary. Its loss making retail business has been a drag on the company’s financials for several years and is expected to improve after the sale. However it is not going to smooth sailing for the venture because trade analysts point out that going small requires retail brands to be agile with respect to the supply and distribution chain. For big box retailers (Walmart, Ikea are examples and in India, Future’s Big Bazaar), the focus is scale and customer footfall while small stores are more community focused and look at cost effective strategies for frequent replenishment and targeted stocking of goods. Also successful small format stores are technology driven and use big data to stay nimble.
Future Group has six retail brands including Big Bazaar, Easyday, fbb, Foodhall, ezone and Home Town. It is present in 234 cities and has around 743 stores and digital channels. The bulk of its small store network is in NCR, Punjab, Haryana and Western Uttar Pradesh. The group was looking at increasing its presence in small format stores in the South, which is one of the biggest markets for the FMCG industry today.
Heritage also offers Future a chance to take in-house brands into the Southern market. Today its own brands account for nearly 95 per cent of its business. In general merchandise, the share is nearly 65 per cent and the group wants to have significant percentage in the food business also by2021, for which the South will be an important market. The deal will increase its foothold in Hyderabad, Chennai and Bangalore.
For Heritage, which has its own brands, the Future retail network offers a chance to foray into new regions. Nilgiris products are currently available in the East and will soon be launched in the North, starting with stores in Delhi. With this deal, Heritage hopes to leverage the strength of Future Retail to expand the market for its dairy products across India, Nara Lokesh, director Heritage Foods said.