Raja of Retail reinvents himself

27 Oct,2014

 

By Malini Goyal

 

I wouldn’t suggest we are an ideal organization, but I think we have made the beginning towards building one” Kishore Biyani, in his autobiography ‘It Happened in India’.

 

Seven years after India’s Raja of Retail penned his entrepreneurial journey – and in the process convinced his elder daughter Ashni that he wasn’t writing it, as she feared, “too soon” – Kishore Biyani’s “ideal organization” is still a work in progress. By 2007 – 16 years after he opened his first store to sell apparel, Pantaloons – Biyani had done enough in the retail space, and more, to earn the Raja handle.

 

His Future Group was selling food and groceries, apparel, footwear, furniture, consumer electronics, home products, books, medicines, mobiles et al through multiple formats like supermarkets, hypermarkets, malls, specialty stores – and, yes, an online portal too.

 

Forays into the broader consumption space – restaurants, entertainment centres and even consumer finance and insurance – were all prongs of the group that hit revenues of just over Rs 5,000 crore in the year ended June 2008.

 

Today, Biyani looks back at the no-holds-barred growth phase with mixed emotions. “Success is very heady. [But] difficult times humble you.”

 

Those difficult times came courtesy of the global financial crisis of 2008.

 

The Future Group found itself saddled with a debt of over Rs 4,000 crore even as liquidity dried up and consumers tightened their purse strings.

 

The debt kept rising, peaking at Rs 7,800 crore in 2012. The post-2008 phase was of gritty survival, culminating in the sale of Pantaloon to the AV Birla group for Rs 1,600 crore in 2012; and a series of selloff deals are still in the pipeline.

 

Over the next couple of years, rationalizing stores became the buzzword and, as things stand today, Reliance Retail is the largest organized retailer – the newly crowned ‘Raja’, if you will – and e-commerce giants Amazon, Flipkart, Snapdeal et al have captured the mind space of consumers and the moneybags of investors.

 

Yesterday’s Raja of Retail, now 53, seemingly with a smaller fire in the belly, is watching the new kids on the block, happy that he wrote his tome at the right time – after all, wasn’t it Biyani himself who told an investor: “Retail is like riding a bicycle uphill, if you stop pedaling you will slide down?”

 

Biyani hasn’t stopped pedalling. The only difference is that he now wants to ride a faster, larger cycle, a road bike perhaps, that traverses terrains beyond organized retailing and bunny-hops onto the track of food – processing it, marketing it and branding it.

 

At the same time he wants to throw his hat once again in the ring in which he was one of the first to do so: e-commerce. Don’t forget he had set up Futurebazaar.com in 2007 – the same year Flipkart was born.

 

“He [Biyani] is in the most exciting phase of his career. I have never seen him so engaged and committed,” says Shailesh Haribhakti, managing partner, Haribhakti & Co, an independent director of Future Lifestyle. On the board, Haribhakti has known Biyani for over two decades now.

 

Food for Thought

Last month, prime minister Narendra Modi inaugurated a 110-acre food park in Tumkur in Karnataka, Biyani’s first iron in the fire of foodprocessing.

 

He plans to set up two more – one in Madhya Pradesh and West Bengal each – with the aim of fuelling the foods business into a Rs 20,000-crore behemoth by 2020, from just Rs 1,000 crore currently.

 

The processed and packaged foods business in India is a gargantuan pie, at Rs 40,000 crore; however, it is fragmented and dominated by unorganized players. In 2012-13, Indian households are estimated to have spent Rs 11,00,000 crore on food.

 

For his part, Biyani doesn’t see the food foray as a shift from the core business. “I have never looked at myself as just a retailer,” he says. “We have always been an FMCG company,” he adds.

 

To be sure, group company Future Consumer Enterprises is present in over 60 product categories, and the plan is to make frozen foods, ready-to-eat and baked items at the food parks. “India does not have home-grown food products that cater to Indian tastes,” adds Biyani.

 

Biyani wants to do to food what he did to retail in the 1990s. “Hopefully, we will be the largest food FMCG company in the country by 2020,” says Biyani. His vision is to make Future Group a Rs 1,00,000 crore entity by 2020, with food contributing a fifth of those revenues.

 

When Biyani took the plunge into retail, Walmart founder Sam Walton was doubtless an inspiration – but not necessarily for the Walmart model. The Future Group CEO has been influenced by Walton’s desire to “rewrite rules”.

 

Biyani reckons he’s done something similar by creating a unique retailing model in India that has the look and feel of mandis, and takes into account local tastes and cultures. The food venture will follow the similar principles of providing indigenous solutions.

 

Twist in E-tail, too

Biyani made headlines early this month when he squared off with trailblazing etailer Flipkart. After Flipkart’s big sale day, on which it claimed to have sold goods worth $100 million, Biyani slammed it. “How can someone sell products below the manufacturing price? This is not legal,” he told the media.

 

A few days later, Biyani chose to collaborate with Flipkart’s rival Amazon to exclusively retail Future Group’s 45 private label brands on its platform. And there’s more to the deal, insists Biyani. “This is not a transactional tie-up. It is deeper and strategic.”

 

“The deal is significant. It is the first time that Amazon India has entered such a strategic partnership with a big organized retailer,” avers Amit Agarwal, country manager, Amazon India.

 

Arvind Singhal, chairman of Technopak Advisors, isn’t impressed. “People are misreading the alliance, which is not between two partners but a seller and a buyer. That is all it is.” Both Agarwal and Biyani disagree. “It’s a win-win partnership. They have great consumer insights [offline].

 

We understand online customers well, in real time,” Agarwal says. The two partners will use each other’s strengths to woo consumers, explore product development and brands in new categories, collaborate in distribution and cross promotions. The alliance will later extend to food.

 

“The partnership has etched out a certain guaranteed [level of ] sales, throughputs and margins,” says Biyani. Experts say fashion is one of the fastest growing segments in etailing due to its fatter margins (than in groceries) and also growing consumer demand.

 

Amazon is not the only piece in the online play. Future Group is betting big on catering to customers using multiple online channels, or omni-channel retailing. It has invested heavily in the backend in terms of supply logistics and inventory to make servicing offline-online orders seamless. Soon, it will allow customers to place orders online and pick up delivery from one of its retail stores.

 

In Tier II and III cities, last September it rolled out direct selling service Big Bazaar Direct that allows customers to place orders with appointed franchisees. Armed with a tablet preloaded with Big Bazaar product catalogues, these franchises can collect orders from consumers’ doorsteps and earn a commission.

 

Biyani is no newbie to e-commerce, having set up an online portal in 2007 that went through various tweaks and experiments. He first set up information kiosks that displayed products and offered information to consumers.

 

According to news reports, in six months in Uttar Pradesh alone, Biyani wanted to set up 37 such stores selling – along with books, apparels and movies – regional brands. It did not work. “We were ahead of the times,” is how Biyani explains it.

 

In 2010, Biyani re-launched the digital platform with a target of garnering a tenth of the group’s projected revenues of Rs 30,000 crore in 4-5 years. The platform spanned e-commerce, m-commerce and teleshopping.

 

By 2011, muted consumer response tempered the projections to daily sales of Rs 1 crore. A year later, the business-to-consumer model was tweaked to include business-to-business, with an eye on corporate gifting. That too hasn’t set the Ganges on fire. Futurebazaar. com did business worth just Rs 100 crore last year.

 

The Idea Man and His Execution Problems

Clearly Biyani, whose grandfather made the move to Mumbai from Nagaur district of Rajasthan in the mid-1930s, is one of those earthy Indian entrepreneurs who didn’t need to go to Ivy League B-schools to sniff out business opportunities. Perhaps the closest similarity to Biyani is the Hissar-born Subhash Chandra of the Essel group who was the first mover in businesses from flexible packaging and satellite television to a cricket league and direct-to-home television.

 

Like in Chandra’s case, however, execution – and building professional teams that work seamlessly with the founder and his family over a reasonable period to help in execution – has proven to be harder.

 

“Biyani’s biggest strength is ideation – you will see a steady flow of announcements and ideas, but not enough attention is paid to execution,” says a former senior executive who worked with Biyani. “I still think he is doing too many things,” adds Abhishek Ranganathan, vice-president, PhillipCapital, a financial services firm.

 

Execution suffers because of a lack of strategic management bandwidth. It is not that Biyani does not realize the significance of getting smart professionals. According to media reports, he tried hard to hire Amazon India head Agarwal but could not.

 

Around 2010, he went on a hiring spree. A 2010 media report says Biyani had hired over 30 senior executives from HUL, Pepsi and Coke for leadership positions in a four-year burst. In 2010 alone, he hired six of them, including V Vaidyanthan of ICICI, Vibha Paul Rishi of Pepsi and Sameer Sain from Goldman Sachs. But few of the high-profile honchos hung around for long.

 

The absence of structures and processes in operations rattled many who were used to an MNC work culture. They found that often they did not have complete control over their department. “Imagine I am heading Big Bazaar. And then somebody has a marketing suggestion that KB loves. The next thing I know, without even consulting me, the idea has been approved,” says a senior executive who was in a leadership role with the group.

 

At the other end, those responsible for mistakes were not being pulled up adequately. “KB is a brilliant visionary. He gives a long rope to make mistakes. But at the end, if you are not delivering then you have to be accountable. That accountability was often missing,” adds the senior executive. Explains Ranganathan of PhillipCapital: “Poor management bandwidth is also a function of objectives not being made very clear [to professionals].”

 

The Succession Issue

Those who have worked in the Future group – we spoke to over 10 such senior executives – say there is a bigger issue that the group must address: family and succession.

 

The Future group has gone through three phases. In the first, till around 2008 or so, the group was KBdriven. “His word was gospel. And he called the shots. The organization was well aligned,” says a former executive. Then post-2008, Biyani hired a bunch of professionals to run the business and the family took a back seat. But by 2012, as the group stared at a debt crisis, the family was back with a bang, with cousin Rakesh Biyani playing a critical role in pushing for operational efficiencies.

 

“We were buying sales, not earning them. We forgot the basics of retailing. We did not put enough effort to fix internal operations,” says Rakesh, director, Future Group. Last year, Future Group closed about 40% of its underperforming Food Bazaar stores. All other formats – from KB Fairprice to home furnishing chain Home-Town and Big Bazaar – are being scrutinized.

 

Some 2 million sq ft of the 16 million sq ft retail space has been rationalized (after which the group has added 3 million sq ft). Higher margin products like in the fashion category are being given more space and display while in the low-margin food and grocery category, the thrust is to do more with less, points out Rajan Malhotra, president, retail strategy, Future Group.

 

A Morgan Stanley report released early this month takes note of “a decisive shift in philosophy and strategy to focus on balance sheet restructuring, lower leverage, improved capital efficiency and high same-store sales growth vs unbridled space additions and investment in non-core businesses.”

 

Future Group’s leverage crisis has taught Biyani many lessons. He now believes in the dictum “Big does not equal great and great does not equal big.” Creation with control rather than unbridled growth is a constant theme. He realizes that profit, balance sheets and stock market are important and keeps a close watch on the numbers. And the pioneer who leaned heavily on his gut to take decisions will also use science, technology and data analytics a lot to make business calls. “In the digital world, things are different,” he adds.

 

Building for Growth

On the back of this recalibration of the core business, Biyani is laying the foundation for the future with the food processing game plan. The food parks will have flour and rice mills, pasta plants, bakeries etc. The products will be sold through Future group’s retail chains (particularly the neighbourhood format KB Fairprice).

 

Biyani’s upmarket food retail format, Foodhall, is a crucial piece of the food processing blueprint. The Mumbai outlet in the Palladium mall in Lower Parel is a far cry from the mandi imagery one associates with Big Bazaar, and has a fair slice of the high-spending consumer, many of them expats.

 

“It is very profitable. We see this more as our food laboratory where we test our new products and recipes before going for mass production,” says Avni, Biyani’s younger daughter who steers this business. Biyani’s bet on food could prove a masterstroke. A recent Crisil report says that smaller tier II regional players have outpaced giants like HUL, ITC and Nestle in the Rs 1,20,000-crore food and beverages category.

 

From 20% in 2008, their share has gone up to 30% in 2014 and by 2019 it is likely to touch 40%. The big marketers have found it difficult to operate in a segment that offers slim margins and requires a regional product focus in a country with varied food habits. For Future Group, food is a vertical integration from the retail business, presenting Biyani the opportunity to push his own private food labels (which offer higher margins).

 

Like in the past, Biyani needs a seasoned team to execute his vision. “We have a good leadership team. We are working with Egon Zehnder and Ram Charan to further boost it,” says Biyani. Those who know the group well say the family is still deeply involved and the group lacks professional management bandwidth.

 

While Biyani’s cousin Rakesh is operationally involved, his other brothers – Vijay, Anil and cousin Sunil – are directors in the group with no executive roles in listed firms. The second generation comprising Kishore’s daughters Avni and Ashni and his nephew Vivek (Vijay’s son) too have joined. “I see the group going through two big transitions – from one generation to the next, and from one business [retail] to another [food]. Doing both the transitions simultaneously won’t prove easy,” says a former executive at the group.

 

Another is more candid: “Kishore needs to sort the palace once and for all. There can be only one king. When everybody is not pulling in one direction, the army does not work well.”

 

The army also needs more colonels, majors and lieutenants. Biyani denies that hiring talent is an issue, and says it is an ongoing effort. A Mumbai-based headhunter who refused to be named says: “When I look at the group, I see that it has many doers who can manage the operations but no visible leaders. A family business has to look at long-term institution building.”

 

In It Happened in India, Biyani makes a telling observation of his influence on the family: “I believe it was our generation and myself who were responsible for making the family look at things differently first about the social customs that were being practiced and, some years later, the way it did business.”

 

Perhaps it’s time for Biyani to once again look at the way the family does business. Or is it time for the nextgen to show the way?

 

Source:The Economic Times

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