Behind the Deal. How retail raja Biyani lost his crown

Being in the retail business for nearly 25 years, Kishore Biyani, the founder and CEO of Future Group, is no stranger to basement bargain sales of ageing stock. But the August 2020 fire sale of the firm, the largest big box retail chain in India until a few years ago, to Reliance Retail Ventures Limited (RRVL) for ₹24,713 crore must hurt.

The 60-year-old founder of Future Group walks away from the transaction with almost no cash in hand. All the money will go to the company’s lenders. Not only that, Biyani and his family, in keeping with the non-compete terms of the deal with Reliance, cannot enter the retail business for 15 years. What he is left with is an apparel and consumer goods manufacturing business — pretty much where he started his entrepreneurial journey when he made readymade men’s clothing with a label called Manz, which then morphed into the Pantaloon brand.

Already squeezed by massive debt, six months of Covid-19 lockdown completely crippled Future Group’s operations. “We got into a trap with Covid and, during the first 3-4 months, we lost around ₹7,000 crore of revenues and there was no way we would have survived… the problem is that the rent does not stop and the interest does not stop,” explained Biyani to BS Nagesh, the chairman of Shoppers Stop, during a video conversation as part of a retail seminar, a month after the sale of Future Group.

How did Biyani, once the poster face of not just retail but India’s consumption story in the 2000s, end in a jam where the only solution was an exit? A bulk of the analysis on Future’s failure is focused on its store expansion and business acquisition binge of the last five years. While that has certainly contributed, the need for debt-fuelled expansion may have its reasons elsewhere.

The story of the meteoric rise of Biyani’s retail empire and its whimpering end amidst a legal tussle with Amazon has lessons aplenty for entrepreneurs.

By the mid- to late-2000s Future Group was firmly established as the country’s largest retailer and dubbed a “hypergrowth” company that would easily ride India’s consumption boom for years to come. The period coincided with the Congress-led United Progressive Alliance government’s efforts to open India’s vast retail sector to global retailers such as Walmart, Carrefour and Tesco. Wielding great influence, Biyani lobbied hard to keep away foreign direct invest in organised retail. At the time Biyani felt a few more years of protection from foreign competition would allow Indian retailers to grow much bigger and command better valuations when FDI came in.

Instead, if the Future Group had pushed for FDI reforms, it would have attracted several global suitors, salivating at the prospect of the India story, who could have paid a generous premium for Biyani’s fabled understanding of the local consumer. Partnerships with global giants could have given him the much needed cash to fight the expensive battles that were just around the corner. Being shielded from FDI soon proved of little value. With the E-commerce revolution, Biyani had to anyway contend with deep-pocketed global competition.

In the digital world, keeping competition at bay through policy measures can be counterproductive. Today, E-commerce firms Flipkart and Amazon are the two largest retailers in India with estimated sales of ₹34,610 crore and ₹18,826 crore respectively. Future Retail’s revenue in FY20, before the full impact of Covid-19, was ₹20,202 crore.

Always sceptical about the financial sustainability of the prevailing E-commerce model (in 2019, Flipkart lost ₹5,463 crore and Amazon ₹7,000 crore), Biyani opted instead to open hundreds of new small-format supermarkets. By 2015, Future operated 218 Big Bazaar stores with a combined space of 9.7 million sq ft in 118 cities. The idea was that the small stores within a two-kilometre radius of every neighbourhood in cities and smaller towns would serve consumer needs more efficiently than E-commerce players’ promise of same or next day delivery. Also, the stores could be used as mini fulfilment centres for door delivering local orders placed on Future’s digital app. This led the company to acquire Bharti Retail’s small-sized Easyday stores, concentrated in north India, for ₹750 crore in 2015.

Biyani offered Bharti a 10 per cent stake in the group and a seat on the board to Rajan Bharti Mittal. Future hoped to tap Airtel’s then 250 million subscribers with Future apps preloaded on Airtel SIM cards and crosspollinate customer loyalty programmes.

A year later, Future acquired the retail business of former Andhra Pradesh chief minister Chandrababu Naidu’s family-owned Heritage Foods, with a strong footprint in southern India, for ₹295 crore. Given the mounting challenges in running the telecom business, helping Future didn’t figure high on Bharti’s priorities. However, it was a good opportunity to offload its debt-laden retail arm.

To mount a credible challenge to Walmart-backed Flipkart or Amazon in India on the E-commerce front, Future would have to be ready to burn at least $1 billion a year.

Unlike its digital rivals, Future did not have access to a sizeable war-chest. As a result, even before Covid-19 struck, Future’s fate was pretty much sealed.

Another key reason for Future’s travails is something that plagues most family-run businesses. Future’s promoter family includes three Biyani brothers and two cousins. The company was a talent factory for the retail sector at large. Its executives were coveted by every new player in the market. But as the promoter family grew, daughters and nephews and nieces had to be allocated sizable territory, often at the cost of professional leadership.

Perhaps, Biyani will be back wiser with the lessons of the past but without its baggage.

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