Posted on : 2023-02-19 22:12:19
Article : Good morning, Monday Management Solution for TASK 230- For success of diversified businesses in market place, companies need to limit attention and resources to stretch only to their capabilities. Umpteen companies fail to foresee the challenges and ultimately fail to achieve aimed success.
We have taken Future group ltd Biyani’s retail business to discuss the high and lows that led finally for the company opt to sell its retail business to a mega competitor. India’s retail maverick, Kishore Biyani, gave up his sprawling, over three-decade-old retail empire to rival Mukesh Ambani-led Reliance Retail. The deal includes close to 1,800 stores across Future Group's Big Bazaar, FBB, Easyday, Central, Foodhall formats that are spread in over 420 cities in India. However, since it is entangled in legal tussle due to Amazon’s interference in the case, the clear title transfers is not yet completed at the time of writing. This situation should not have happened for Future group but for the Kishore Biyani’s act of a warp speed of expansion, acquisition of several retail assets, both regional and national, a chase to build more private labels and in-house manufacturing capabilities, have left the company burdened with debt, and caused rating downgrade across the group’s listed entities. All the business decisions used to be taken by Mr Kishore Biyani all along. He created an empire which went to heavy debts and to solve the debts he took to selling option of businesses as solution route.
Biyani started out in 1980s, a few years before India’s economic liberalization, selling men's apparel. In 1987, he incorporated Manz Wear Private; and subsequently opened the first large format Pantaloons outlet in 1997. Apparel was Biyani’s first big foray into business before he diversified into too many businesses in which he has no knowledge. It was over a decade later in 2001, that the first Big Bazaar was launched in India, that also set the ball rolling for Biyani’s ambitions to service and reach more households and participate in India's consumption story. This was done by opening up of large format supermarkets, electronics stores, retail stores selling furniture, apparel brands, and multi-brand retail chains, apart from acquiring several neighbourhood groceries formats. In 2006, Future Group established a joint venture with Italian insurance major Generali. In the process, several businesses were hived off and stores shuttered as the heady expansion took a toll on the company’s finances. At a time when the group had accumulated consolidated debt, in 2012 he sold his flagship Pantaloon retail format to Aditya Birla Group. The move also set off a series of restructuring exercises by the group the combined debt of Future Group’s listed companies increased, with this most trusted Executives of Biyani left the company and eventually joined Reliance.
It's very difficult to pull off a diversified retail business, which is in fashion, grocery and FMCG. No doubt, the diversification never made sense. And to that extent it took real-estate and capital calls that always proved a drag to the company. Future Group’s businesses, especially its attempt at selling value fashion through FBB, stood to capitalize on the value fashion, however the foray into several others verticals was perhaps ill timed. If the capital stress hadn’t been there, Future’s formats are a great story, at least from the demand side. This includes even creating private labels and building warehousing and manufacturing capabilities. Between 2014-2017, Future Retail also bought several national and regional retail formats, especially those selling grocery, with the underlying intent of using technology as a bridge to connect consumers through a sprawling network of small stores.
In 2014, Future Group acquired south-based Nilgris chain of grocery stores for an estimated Rs300 crore. A few years earlier, Foodhall, an upmarket food store was conceptualized by Biyani’s younger daughter Avni Biyani. In 2016, a few years after Walmart parted ways with its local partner Bharti Retail, Future Group took a swoop at buying out the retailer’s Easyday chain of small format grocery stores. Later, it shuttered over 100 Easyday stores, in attempts to trim costs.
In 2016, it added Bengaluru-based retail chain Heritage Fresh, with its 124 stores to further consolidate its position in the southern market. In 2017, Future Retail spent over ₹650 crore to acquire the then loss-making Hyper City Retail owned by K Raheja Corp. In 2017, Ezone was integrated with Big Bazaar. In 2017, Future Retail announced plans to de-merge the home retailing business Hometown into Praxis Home Retail. It wanted to be a consumer group company and no more a retailer. Biyani was convinced that private labels will help him create a whole ecosystem, but it wasn’t actually viable because they wanted to flood their brands to every competing retailer, which didn’t work. They started focussing back on apparel in Big Bazaar, because FBB started doing very well. But in the meanwhile, he opened more things—it was constant piling of debt. To get rid of this future group had planned to sell its equity to Reliance. Having acquired Future group now Reliance is looking for alternatives due to lower revenue.
Similarly, MORE super markets. To get rid of the debt Aditya Birla’s More has changed the hands. Home-grown private equity fund Samara Capital and Amazon have signed a deal to acquire Aditya Birla Group's food and grocery retail chain More. The deal will now be subject to clearance from the Competition Commission of India (CCI). Once the process is complete Samara Capital and Amazon plan to rapidly expand the chain which was put on hold due to its burgeoning debt. They plan to set up 100-150 stores every year including neighborhood supermarkets and hypermarkets.
End point- In chain retail stores (Super markets) business one should have rapacious intellect, entrepreneurial zeal and seemingly infinite appetite for challenge and growth. Failing to have these attitudes the business may doom like any other.
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