Future Group’s ambitious reboot

Samar Srivastava, Forbes India

Mumbai, 31 March 2015

At the age of 54, Kishore Biyani is ready for change. The founder and CEO of Future Group, one of India’s largest retail conglomerates, is dramatically altering the way he does business. “By 2020, we need to transform Future Group into a technology company. We will be more of an analytics company than a retail one,” he tells Forbes India. This doesn’t mean that he has lost sight of his customer. Just the opposite: Biyani wants to know more about each and every person who visits his stores, including 38-year-old Chandrakant Dhawan (name changed).

Every month, Dhawan and his family visit the Big Bazaar outlet in Mumbai’s Vile Parle to stock up on groceries and other household commodities. During the festive season, his shopping basket includes a few gifts, and at the start of the academic year, he buys stationery for his children. In all, he spends about Rs 60,000 a year at Big Bazaar, which is owned by the Future Group. Biyani, however, is not satisfied with Dhawan’s spends. He wants more.

He’s determined to get the one crore loyal customers—whom he already has—to spend at least Rs 1 lakh annually in either one or across all 14 retail formats that the Future Group owns. If he succeeds, he would end up making revenues of Rs 1 lakh crore, a more than six-fold jump from what his retail businesses earn today.

Biyani spent the last two decades building a sprawling empire across India with millions of square feet of retail space. Through his Big Bazaar format, he has created the country’s best-known hypermarket, and has enjoyed success with affordable apparel labels like Pantaloons (since sold) and Central. The group has also developed smaller brands that retail everything from electronics (eZone) to furniture (Home Town).

Now, he is seeking to take his company in a direction that many traditional international retailers like American giant Target and Tesco in the UK have already adopted: First, using customer analytics to predict what consumers want even before they realise it themselves. And second, taking a bite out of the ecommerce pie.

Both moves, say experts, is a natural step in the conglomerate’s evolution to stay on the top. Biyani’s vision for the Future Group as an analytics company is hardly surprising; he has continuously upended the rules of the game and challenged conventional wisdom. In the early 2000s, for instance, he started the Sabse Sasta Din campaign, which promised the lowest prices in all Big Bazaar outlets across the country for three days around January 26 (Republic Day) and August 15 (Independence Day). They became, and remain to date, some of the most important sales days in the country.

The question is whether the Future Group will be able to build on the highs of the previous decade. Can it replicate this success across all its formats and not just Big Bazaar? If he accomplishes what he has set out to do, Biyani will be able to widen the narrowing gap with one its biggest competitors, Reliance Retail, a subsidiary of Mukesh Ambani’s Reliance Industries Ltd (RIL). Last year, Reliance Retail reported revenues of Rs 14,496 crore. The Future Group with Rs 15,500 crore in revenues has managed to retain its lead, but only by a whisker. (RIL owns Network 18 which publishes Forbes India.)

Industry experts point out that data alone will not guarantee increased sales.

“The Future Group is not the first to adopt this strategy, but it certainly has the most ambitious target,” says Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.

(Smaller retailers like Shoppers Stop are already using data analytics to boost sales.)

According to Dutta, to have a team running analytics solutions is the relatively easier part. “What is harder is getting the organisation to react to the insights. If there is a short-term opportunity, but the retailer is unable to source the goods from the supplier, it is as good as not having the data,” he says.

Manoj Agarwal, chief information officer at Future Group, while aware of the pitfalls, is excited about the direction the company is taking. “It’s a journey that will take us from brick to click,” he says.

Tailor-made for a customer

The first step in this journey is to strengthen the group’s loyalty programme. And the core of Biyani’s plan is the confluence of real-time analytics, real-time personalisation and real-time shopping. At a lab in his Vikhroli office, Forbes India gets a peek into the granularity of the data the company has been able to collect. It is now able to get very specific information about a customer, and based on past consumption patterns, can predict future buying trends. How many bars of soap will a particular customer buy in a year? Is a family taking advantage of the deals on vegetables? Is a person buying larger pack sizes more frequently or does he/she prefer smaller sizes?

It’s called predictive data. “What this does is allow us to specifically tailor deals and discounts for individual customers. This is something we couldn’t have done before,” says Dupindera Sandhu, who runs the Future Group’s loyalty programme, which, incidentally, has already been revamped. Customers can now use one card to avail of discounts and rewards across all the 12 brands, including Food Bazaar, Planet Sports, Central, Home Town, eZone, Brand Factory and Future Bazaar.

In addition, Future Group has tied up with Payback, a multi-brand loyalty programme, which allows a customer to avail of offers from services outside the Future Group. While this benefits consumers, it also gives the company access to a rich trove of data on a person’s travel habits, dining preferences and so on. The lab has also developed a new set of tools to create a social media profile of a customer based on information he or she has publicly shared online on sites such as Twitter, Instagram, Facebook and so on.

And from this information, Biyani knows that Dhawan from Vile Parle, who shops at Big Bazaar, likes hiking, prefers Samsung to Apple, and takes one international vacation every year. Agarwal says all this data is now easily available, and it is in “the slicing and dicing of information” that retailers have their task cut out. If done efficiently, a retailer can meet an individual customer’s needs. For instance, in Dhawan’s case, when he is due for a phone upgrade, the company can send him a discount coupon from eZone. When social media chatter picks up that he is planning a hiking trip, he could be enticed to purchase some outdoor gear that Planet Sports can offer at a discount.

Biyani has budgeted Rs 100 crore for this analytics overhaul, but it’s not money which is the issue as much as it is rewiring the organisation to think and function in a manner that prioritises data. The advantage of such an initiative is that after the initial investment and installation of computers and software, they cost little to run. But the benefits can be disproportionate. “The moment Dhawan buys a single phone costing Rs 30,000 from me, he is that much closer to spending Rs 1 lakh a year,” says Biyani.

And while he’s convinced that this is the new face of retail, he acknowledges that there is a fine line between using data for marketing purposes and invading a customer’s privacy. The solution is to ensure that consumers have the power to decide how much information they’d like retailers to have.

To sweeten the pot, Biyani has also made sure to up his offerings with excellent results. His electronics store, eZone, was a format that had been hit hard by competition. Online players had taken away the mobile phone market and nimbler rivals like Croma with stronger private labels had managed to grab a larger market share. “We have now managed to make this a Rs 2,000-crore business from Rs 800 crore [a couple of years ago],” says Rajan Malhotra, president eZone. He claims to have done this by offering customers assured buyback plans and service contracts. But there’s no denying that Future Group has been hit by the etailers.

Tackling the ecommerce threat

The market is a very different place from 2001, the year Biyani launched Big Bazaar. With 230 stores across the country, it is India’s largest hypermarket, but gone are the days when a retailer can count on physical footfalls to do the job. With competition from ecommerce rising, the Future Group is fighting to retain customers. It doesn’t help that the ecommerce industry, which is flush with private equity and venture capital funds, can afford to lose money while acquiring new consumers. Meanwhile, traditional retail has seen valuations plummet. Future Group is no exception: Its share price on the Bombay Stock Exchange has dropped from Rs 480 in 2010 to Rs 102 as of March 9, 2015.

“Discounting below price is not an option,” says Biyani, referring to the low prices that many ecommerce platforms are offering to grab customers. He believes that this trend of selling goods at very low prices will settle down in 12-18 months when private equity players stop funding losses. “At this point, my physical stores will be at an advantage.”

At the same time, the Future Group is getting ready to grab a bite of the ecommerce pie. In six months, most of Future Group’s brands will be available online. For instance, customers will be able to order online on Bigbazaar.com and have the products they buy delivered to their homes. Those dissatisfied can return them to the nearest physical store and get their refund immediately. This will significantly cut down return costs that are the bane of online retailers.

Biyani calls this initiative the Omni channel (online and offline) push. With a network of stores in 102 cities, he knows that he has a huge advantage over online retailers: A well-developed and efficient logistics arm. Goods ordered online need not be shipped to a customer from a warehouse in a distant location. Instead they can be shipped to stores, after which the company can tie up with a local partner for the last mile—from the store to the consumer. Think of Biyani as an online retailer with a significant offline presence.

His pan-India delivery network will allow him to save significantly on logistics costs. His nephew Vivek Biyani, who is director of Future Group and is leading the online push, adds: “Our trucks, in any case, deliver across the country. It shouldn’t be too hard adding specific customer orders to that.” Future Group is also making a big bet on in-store kiosks, which will allow customers on the store floor to order products that are not in stock. These will be delivered directly to the person’s home. Even small measures like these will go a long way in reducing the inventory a store needs to keep. At a Big Bazaar outlet in Mumbai, a customer used a kiosk to order a tea set online. Products like mugs and dinnerware are also offered with a small 10 percent discount. These kiosks will be rolled out in Big Bazaar outlets all through the year.

The precedent for Biyani’s ‘Omni push’ has been set by international brands such as Wal-Mart which, along with a physical presence, has an ecommerce platform that contributes about $12.5 billion in sales every year, according to a company press release. This is about 2.5 percent of the retail giant’s annual sales. While these initiatives have not been roaring successes—it is best to describe them as work in progress—they have contributed to that bump in top-line for traditional retailers.

In remaking the Future Group to compete effectively with his online rivals, Biyani has shown that he is a retailer who is thinking of the future. And as always, he’s made a big audacious bet. Global rivals have had a tough time pulling it off and there is no doubt that his journey will be equally challenging.

In 1997, when he rolled out his first Pantaloons store in Kolkata, the odds were stacked against him. He was an unknown player with very little capital. He built the brand into a household name before selling it to the Aditya Birla Group in 2012. In 2001, his first Big Bazaar changed the way Indians shopped. Now, once again, Biyani has shown that he’s capable of thinking big. The future of his company may well depend on this.

(Published in Forbes India.)