Kishore Biyani: Future Retail tweaks growth strategy

MUMBAI: Retail major Future Group has tweaked its growth strategy to focus on affordable pricing from an expansion-led one, sensing the nervous consumer mood amid worries over the Covid-19 outbreak and because of the challenging economic environment.

Chief executive Kishore Biyani told ET that the operator of the Big Bazaar, Central and Brand Factory chains would seek cost leadership in the market by offering the lowest price in the consumer market across food and apparel. He said the coronavirus scare had impacted the small and medium enterprises sector significantly and would affect demand.

“We are challenging any other player to offer a price less than ours. I don’t see the market growing very fast and expansions will be curtailed to focus only on new markets,” Biyani said. “This growth will be led by technology and credit. We will offer consumption credit through a significant tie-up with Bajaj Finance,” he said.

The group has slashed management layers to reduce cost structure, which it expects to help save Rs 600 crore.

In the past few months, Future Retail has pruned its fixed costs across corporate overheads, operations, people and marketing that had resulted in savings of Rs500 crore. With the company targeting break-even for small stores by September this year, it has shut 177 small-format outlets. It will open new stores, both big and small, only in existing profitable markets.

“There will not be any discounting. It is a ‘first price right’ strategy (making the MRP attractive enough without offering additional discounts), which will get the consumer into our outlets,” Biyani said.

But the bigger play to improve profitability will be through online sales, that will require significantly lower cost to sell goods due to Future Group’s partnership with Amazon.

Last year, Amazon agreed to acquire a 49% stake in Biyani’s Future Coupons, which owns (9.8%) of Future Retail, with an option to buy the entire holding at a later stage. Amazon can exercise its option to buy promoters’ shareholding in Future Retail between the third and 10th years.

“Amazon’s partnership will translate into at least 15% of its (Future Retail’s) overall sales, or about $1 billion, coming from their online initiatives by 2023 and will earn significantly higher margin compared to physical stores,” Biyani said.

Future Retail and Amazon have started using each other’s network to sell products from apparel to grocery, helping both retailers cross-leverage physical stores and the online channel to widen distribution. While Amazon is now an authorised online sales channel for Future Retail, its stores and warehouses will be used as distribution centres by Amazon for quicker delivery. Both retailers are testing this service in 22 stores and said that it would be rolled out across Future Retail’s store network in the next two years.

Future Retail, which runs as many as 1,388 stores, controls about 15% of India’s organised food and grocery market through the Big Bazaar and Nilgiris supermarket chains. Physical stores account for more than 90% of all retail sales in India. Market research firm Nielsen expects ecommerce to contribute about 5% to India’s overall fast-moving consumer goods market by (2024) with annual sales of $4 billion through this channel. At present online accounts for 2% of FMCG sales at $1.2 billion.

Biyani dismissed concerns of a Fitch Ratings report that said Future Retail’s high pledged promoter shareholding could trigger a change of control. “We have strong support and confidence from marquee investors both at promoter level and company level, like PremjiInvest, Blackstone, Aion, SSG, Nippon express, L Chatterton, IFC, among others,” he said.

Over the past one month, Future Retail’s shares have lost more than half its value at Rs124.60 on Wednesday. The shares are at a three-year low now.

Earlier this week, Fitch Ratings released a report that said the encumbrance on part of the promoter shareholding to secure debt taken out at the promoter level could trigger a change of control event for holders of Future Retail’s $500 million bond due 2025, in the event of default by the promoters. However, the ratings firm said it believed attempts to monetise assets over the previous few years within the promoter group and the implementation of maximum encumbrance targets on shareholdings showed the promoters’ intention to limit interdependency and risk.

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