Written By Sagar Malviya, ET Bureau
The Japanese-owned, US-headquartered 7-Eleven generates nearly a third of its sales in the Asian country. The Future Group’s latest move will be pitched against round-the clock convenience store chain Twenty Four Seven, promoted by Modi Enterprises and In & Out, which is run by state-owned Bharat Petroleum Corp Ltd.
Seven & i Group and Future Group didn’t respond to queries.
“Future Group has a number of neighbourhood stores through their own format launches and through acquisitions. Some of them could surely be repurposed to 7-Eleven convenience stores, while there could be other franchisees appointed for specific sites or territories,” said Devangshu Dutta, chief executive at consultancy firm Third Eyesight. “However, becoming a franchisee entails costs and restrictions. The question is whether there is enough margin available in the business to allow for so many tiers of stakeholders.”
A partnership between the two will help Future Group reach out to buyers beyond their own outlets in the modern trade segment, analysts said.
Future Group, which runs 1,444 stores in 409 cities, generates most of its revenue from food and grocery retailing. It has three smaller store brands — Easy Day, Heritage Retail, and Nilgiri’s — that have been acquired in the past few years and contribute 15% to sales. A recent report by Antique Broking expects Future Group’s small-store business to breakeven at an Ebidta (earnings before interest, taxes, depreciation, and amortisation) level by the end of FY19. A year ago, like 7-Eleven to the mix will make the group more attractive to prospective investors, an analyst said.
“Future Retail has always maintained it is FDI (foreign direct investment) compliant, which essentially means they are looking to sell stakes. A portfolio of retail brands including an international chain brings more heft to the company so that it attracts invest-Trent Hypermarket, a joint venture between the Tata Group and Tesco exited its small store business that operated under the Star Daily brand.
Adding a brand name ments from global retailer. However, investors are also being cautious now due to changing regulation in the retail sector,” said Abneesh Roy, senior vice president, institutional equities, Edelweiss Securities.
Globally, corner shops including 7-Eleven in Japan, Taiwan, Thailand and Singapore, Lawson in Japan and Oxxo in Mexico are among the largest retailers in their respective markets, reflecting the growing business of small outlets in several countries despite the presence of international supermarket and hypermarket chains. Since 2012, most of the large grocery retailers in the country have reduced store sizes by 13-35% to drive more profit through higher revenue per square feet.
In India, smaller stores or kiranas still account for nearly 90% of the all consumer products sales. Future Consumer, which sells its own brands of snacks, cookies and other packaged foods at its Big Bazaar stores, gets about a quarter of its sales from about 120,000 general stores.