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Flight To The Future
After reorganising its businesses, the Future Group guns for rapid growth by adopting digital technologies and predictive analytics. Can Kishore Biyani pull this off?
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Kishore Biyani is doing it again. In his quest to dominate the retailing business, the retail moghul is spearheading a data-driven model, one which relies on predictive analytics and other big-data capabilities, including using artificial intelligence on the tonnes of data collected by the Future Group’s multifarious retailing outlets. This past year, Biyani has been relentlessly investing in new data capabilities and has hired a top-notch data team, including a chief technology officer and a chief data officer, to increase big data and predictive analytics capabilities.
Biyani wants to cash-in on the large amounts of data each store generates not only to increase footfalls but also to raise the average spends per bill at his stores. The Future Group has access to 30-plus million people, who are on various loyalty programmes. Future Retail generated 143 million bills in FY17. So, Future Group has a huge potential for data mining the buying patterns of clients, particularly of those on loyalty programmes.
Mini Makes More
After having tasted success with mega-square-feet stores like the Big Bazaar format, Biyani is now rapidly expanding the smaller Easyday format, expected to scale up to 1,000 stores by end 2017, from the present 750-odd stores. In these stores, the Future Group has rolled out membership programmes, which are expected to provide upfront discounts on all categories for members and thus create a huge amount of data, which will be utilised to increase footfalls, and the average bill value.
“Right now, we are more excited about our small stores, and plan to build 10,000 of them within a radius of every 2 km wherever there is a population of over 1 lakh. Data and technology will drive that business. Once we have that data, we will be able to do much more,” says Biyani.
Cash In On The Loyalty Network
The Future Group has roughly 400 million footfalls in a year, with more than 30 million-odd customers, who are part of the loyalty network. The Future Group is running three membership programmes at the moment, which have data of customer shopping behaviour for over two years.
One of the ways in which this data can be used is to offer more products to a customer through various modes of ordering such as online, WhatsApp and even dial-in service. In 2016, Future Retail generated an average bill value of Rs 1,155, which increased around 11 per cent over FY16. But the focus will be to increase spends. For example, if parents are spending on, say, diapers, the business will nudge them to buy kids’ clothing, with varying discounts. Biyani is betting big on the Easyday format and plans to make it like a market place where one can order products from nearby stores on the app.
High On Big Data
Besides, Future Retail is looking at intelligent reports that predict the sales of various products, and back it up with a faster sourcing based on the cues it secures from a store’s front end. Doing all this requires data capability in terms of products and loads of customer purchase behaviour.
To enable big data capabilities, Future Retail is setting up a data lake to run algorithms and big data analytics, which will be expanded to all its formats, and replicated both online and offline.
Biyani sees both online and offline businesses blending over time, and hence, is not too worried about the lower prices and keen competition from online businesses. He sees the overall retailing business more as a high-tech environment where a blend has to be found between both the mediums of selling.
Alibaba in China, for example, has acquired stakes in four large retailers, and has rolled out its own convenience stores. It is moving toward what the Future Group calls the ‘new retail’, the physical store and the online one bundled. Amazon,too, is integrating an offline model into its business and its acquisition of Whole Foods Inc. seems to be along such lines.
Like many top business and company heads, Biyani too is aware of potential gains from going digital and setting up an online platform. “Physical and digital will be one tomorrow. It will converge. It is a blended experience for a customer,” says Biyani. “You need to sell your products and brands, through whichever format. It’s all about making money. The cost of doing business on e-commerce is quite high,” he says.
In retailing, as in any other business, data is the new gold. Increasing intelligence layers on existing data would allow for a high-degree of automation in decision-making such as buying, supply chain, promotions and store operations. Membership programmes will reduce ad spends and focus on retaining customers, while technology and data-gathering will enable the company to ramp up business operations, thus further offering lower costs to consumers.
Heavy Duty Rejig
Of course, things didn’t always work out for Biyani as planned. A series of rapid expansions in 2008 that saw the group foray into 22 segments meant huge debt on its books, which became difficult to service. Bankers were after him to pare down debt, which meant that the Group had to divest family jewels such as Pantaloons, which was Biyani’s first foray into the world of high-street retailing.
Biyani also hived off Capital First, the financing arm, to Warburg Pincus in a bid to lower the group’s debt levels, and brought down the mainstay businesses to focus on three segments — food, fashion and home, the divisions emblematic of the needs of the common man.
As a result of a series of “reorganisation” measures, as Biyani prefers to call it, the Future Group, which earlier had two entities (Future Retail and Future Ventures), now comprises five companies: Future Retail, Future Consumer, Future Lifestyle and Fashions (three companies focusing on front end) Future Enterprises and Future Market Network (two companies focusing on back end).
Now, it is more nimble-footed. For instance, all the heavy-hauling capital-intensive businesses are housed in Future Enterprises, the group’s investment arm that parks money into properties, etc., for expansion on the retail front. On its part, the business earns lease income. This was the key shift in business dynamics where Future Retail was split into two. As a result of this reorganisation, debt of nearly Rs 48 billion was transferred to Future Enterprises, and fixed assets were reduced from Rs 50 billion to Rs 6.1 billion.
Now because of this rejig, its retail arm Future Retail is now more of an asset-light retailing giant, which can focus on adding stores and formats. Future Retail runs all the multiple formats of its retail chain including Big Bazaar and, now, the new Easyday format.
This financial year, 2018, expansions are expected to see Future Retail increase housing by around 3 million sq. ft. Currently, Future Retail has around 13.8 million sq. ft of retail space, including 901 stores in 240 cities in 26 States.
All of Future Retail’s formats are on an expansion spree. In 2017, Easyday, for example, added 1.35 million sq. ft to take its number of stores to 538. In 2018, this is expected to touch around 1,000 stores. Going further, the group plans to launch a large number of stores within 2 km of each other.
Another focus area for Future Retail is FBB, which is [email protected] Bazaar, targeted at providing good fashion and great prices. FBB now has 54 stores in 32 states, and over 5.48 million sq. ft. The brand also launched its own e-commerce portal, www.fbbonline.in. Fashion for Future Retail is being driven by its own private labels, the self-owned brands, which account for nearly 95 per cent of its clothing sales in its stores.
One of the biggest benefits of this restructuring is that the business’ return ratios have begun to look much better now, and the business is generating more shareholder returns. Last year, for instance, the return on equity (RoE) improved to 16.4 per cent from a negative RoE in 2014. Shareholders are, of course, delighted. Ever since the new Future Retail stock got listed last year, its price has been on a tear, zoooming from Rs 157.7 in October 2016 to Rs 524 within the short span of a year.
Staying The Course
“Organised retail is in for good times as it comprises a bare 10-15 per cent across categories,” says Abneesh Roy, Senior VP, Edelweiss Financial Services. “Within that, the consolidation is taking place. Future Retail has bought out 4-5 of its competitors. This augurs well from a rental perspective and customer choice and more pricing power will follow consolidation. So, we are positive on retail sector and Future Retail.”
The retailing business has changed. The Future Group made mistakes, and other companies in retailing also made mistakes. Further, the onslaught of the online marketplace meant that a high degree of competitive intensity has been seen in the past.
Of course, competition cannot be wished away (See chart: ‘The Market Share Sweepstakes’ on page 127). Retailers like DMart are opening many smaller pick-up stores for the convenience of customers, even while they have been gaining market share of the retailing pie. It remains to be seen how Future Retail can tackle the competition and expand its retailing arm.
To Biyani, however, it is time now to stay the course. Essentially, mistakes in retailing stem from the fact that companies expanded too fast, and into non-core businesses.
Over the past several years, we have seen the Future Group prune its mistakes and curb its vigorous expansion. Sample this: in the past five years Future Retail closed 64 Big Bazaar and 51 Food Bazaar stores. E-zone, its electronic stores, also closed 111 stores since 2011, all to arrest excessive expansion. E-zone is also focusing on fast moving consumer durables.
Consumer, Indeed, Is King
Such reorganisation is also being seen across its group companies. In the recent past, the Future Group renamed its consumer group company, Future Ventures to Future Consumer. While Future Retail focuses on the front end, Future Consumer houses food manufacturing, with its own inhouse brands such as Golden Harvest, Tasty Treat, Sunkist, Nilgiris and so on. In fact, food and beverages comprise 94 per cent of this business, while the rest arises from home and personal care. With Rs 2,116 crore of revenue, this company is now looking at adding more distribution power to its existing network.
Future Consumer has ready-made supply integration with Future Retail, which helps acquire the existing set of customers. With Rs 2,196 crore revenue in FY17, this company is looking beyond the distribution power of Future Retail.Future Consumer derives 93 percent of its revenues from in-house branded products, largely sold through Future Retail. Over the last three years, this business has seen sales increase over 2.6 times. Now, this company is increasingly looking at expanding businesses at Kirana and other small supermarket formats, while at the same time further expansion of Big Bazaar and Easyday formats will mean more new sales opportunities.
Biyani points out that a lot is happening in its consumer business. Future Consumer is also in the process of testing new brands and variants, which, combined with its expanding distributing network, would offer further scale benefits.
Another part of the jigsaw, fitting right in is its fashion arm, Future Lifestyle, which is a leading fashion player in the country with 25 brands, of which 18 are self-owned or licensed, thus providing higher margins in the fashion segment. For Biyani, of course, fashion and clothing is where the group started its business back in 1987, and Future Lifestyle remains one of his biggest growth engines.
Future Lifestyle, in fact, operates retail outlets in three formats: Central, Brand Factory and Planet Sports. Now, with nearly 5.5 million sq. ft of retail space, Future Lifestyle has been reporting over 18 per cent sales growth in the past. In the next few years, Future Lifestyle is set to add another 1.1 million sq. ft to its retailing space, while the growing shift to organised retailing and an increase in brand awareness would only boost its coffers.
Biyani’s retailing empire now looks complete after this massive re-organisation that saw the group carve out five new sharply focused entities, each with its own key areas and balance sheets. Biyani notes that the five elements are now in place, and are now focusing on deriving more operating leverage from each other.
With the front-end businesses turning more asset-light and focusing on building brands, driving sales and store operations, back-end businesses such as Future Enterprises are involved in setting up store furniture, leasing and other infrastructure such as the tech backbone and other private label manufacturing.
Biyani is, in fact, doing it again. Though, this time, a more sharply focused, asset-light, data-driven, predictive-analytics model could mean that he may have found his magic again.