A Creditor Revolt Scuttled Ambani’s $3.2 Billion Retail Deal


April 24, 2022

Written By Suvashree Ghosh, Bijou George, and Sankalp Phartiyal

It was a contentious plan to repay overseas bondholders in full that brought what would have been India’s biggest retail deal to a grinding halt.

Debt-laden Future Retail Ltd.’s offshore bondholders — a relatively smaller part of the creditor pool — were promised 100% payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66%, the people added, asking not to be identified discussing confidential information.

The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani’s conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc., which argued it had the first right of refusal contractually.

Bank of India and State Bank of India, the main bankers to Future Retail, didn’t immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn’t immediately comment.

State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there’s no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process.

Hard-Nosed Decision

The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation’s largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. Future Retail is almost certain to default on its $500 million bond coupon payment due July 22, S&P Global Ratings said Tuesday, while downgrading the company’s ratings deeper into junk territory.

The lenders’ action has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon — the e-tailer had started arbitration proceedings in Singapore to block the deal — but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process.

“Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans” even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. “This would also lead to moratorium on any or all ongoing arbitration proceedings against Future.”

While the local lenders were agreeable to the deal when it was first announced, a lot changed in the past year or so, the people said. While the Amazon lawsuit dragged on, the asset value eroded and the pandemic worsened the cash crunch at Future Retail that began defaulting on its debt repayments.

Secured Indian lenders were promised recoveries ranging between 34% to 88% of the total $4 billion in dues and even those payouts were staggered over seven years, the people said.

Bloodless Coup

Reliance dealt a body blow to the Kishore Biyani-led Future Group in February when it quietly began poaching employees and taking over rental leases of hundreds of stores earlier run by Future Retail and Future Lifestyle Fashions Ltd. Ambani’s bloodless coup prompted Amazon to suggest settlement talks on the bitter dispute and alarmed Future’s investors and lenders who worried about asset-stripping.

Reliance’s unexpected takeover of Future’s stores eroded bankers’ confidence in the deal as it stripped off value from the chain and potentially could erode Reliance’s offer terms.

The out-of-court truce talks between Amazon, Future and Reliance collapsed soon after the store-purchases were initiated, the companies informed India’s top court on March 15. Amazon will continue with its arbitration proceedings against Future Group in Singapore, according to a person familiar with the matter, who asked not to be identified as the deliberations are private.

“A major turning point was when Reliance physically took over Future’s stores, which turned it into a no-holds barred situation,” said Devangshu Dutta, head of New Delhi-based retail consultancy Third Eyesight. “Before this the battle was being fought in courts and across the negotiating table. But at this point it moved over to the real business.”

Source: bloomberg

Retail 2020

Devangshu Dutta

December 17, 2019

Remember the year 2000? After Y2K passed safely, that year some optimistic analysts predicted that India’s modern retail chains would reach 20 per cent market share by 2015. Two years after that supposed watershed, another firm declared that modern retail will be at around that level in 2020 – but wait! – only in the top 9 cities in the country. Don’t hold your breath: India surprises; constantly. As many have noted, “predictions are tough, especially about the future!” What we can do is reflect on some of this year’s developments that could play out over the coming year.

In many minds 2019 may be the Year of the Recession, plagued by discounting, but that demand slowdown has brewing for some time now. However, there’s another under-appreciated factor that has been playing out: while small, independent retailers can flex their business investments with variations in demand, modern retail chains need to spread the business throughout the year in order to meet fixed expenses and to manage margins more consistently.

To reduce dependence on festive demand, retailers like Big Bazaar and Reliance have been inventing shopping events like Sabse Sasta Din (Cheapest Day), Sabse Sachi Sale (Most Authentic Sale), Republic Day / 3-Day sale, Independence Day shopping and more for the last few years. In ecommerce, there’s the Amazon’s Freedom Sale, Prime Day, and Great India Festival, and Flipkart’s Big Billion Day Sale. This year retailers and brands went overboard with Black Friday sale, a shopping-event concept from the 1950s in the USA linked to a harvest celebration marked by European colonisers of North America. (The fact that Black Friday has a totally different connotation in India since the terrorist bombings in Bombay in 1993 seems to have completely escaped the attention of brands, retailers and advertising agencies.) Be that as it may, we can only expect more such invented and imported events to pepper the retail calendar, to drive footfall and sales. The consumer has been successfully converted to a value-seeking man-eater fed on a diet of deals and discounts. With no big-bang economic stimuli domestically and a sputtering global economy, we should just get used to the idea of not fireworks but slow-burning oil lamps and sprinklings of flowers and colour through the year. Retailers will just have to work that much harder to keep the lamps from sputtering.

Ecommerce companies have been in operating for 20 years now, but the Indian consumer still mostly prefers a hands-on experience. The lack of trust is a huge factor, built on the back of inconsistency of products and services. The one segment that has been receiving a lot of love, attention and money this year (and will grow in 2020) is food and grocery, since it is the largest chunk of the consumption basket. Beyond the incumbents – Grofers, Big Basket, MilkBasket and the likes – now Walmart-Flipkart and Amazon are going hard at it, and Reliance has also jumped in. Remember, though, that selling groceries online is as old as the first dot-com boom in India. E-grocers still struggle to create a habit among their customers that would give them regular and remunerative transactions, and they also need to tackle supply-side challenges. Average transactions remain small, demand remains fragmented, and supply chain issues continue to be troublesome. Most e-grocers are ending up depending on a relatively narrow band of consumers in a handful of cities.  The generation that is comfortable with an ever-present screen is not yet large enough to tilt the scales towards non-store shopping and convenience isn’t the biggest driver for the rest, so, for a while it’ll remain a bumpy, painful, unprofitable road.

Where we will see rapid pick-up is social commerce, both in terms of referral networks as well as using social networks to create niche entrepreneurial businesses – 2020 should be a good year for social commerce, including a mix of online platforms, social media apps as well as offline community markets. However, western or East Asia models won’t be replicated as the Indian market is significantly lower in average incomes, and way more fragmented.

As a closing thought, I’ll mention a sector that I’ve been involved with (for far too long): fashion. In the last 8-10 decades, globally fashion has become an industry living off artificially-generated expiry dates. A challenge that I have extended to many in the industry, and this year publicly at a conference: if consumption falls to half in the next five years, and you still have to run a profitable business (obviously!), how would you do it? Plenty of clues lie in India – we epitomise the future consumers; frugal, value-seeking, wanting the latest and the best but not fearful about missing out the newest design, because it will just be there a few weeks later at a discount. If you can crack that customer base and turn a profit, you would be well set for the next decade or so.

(Published as a year-end perspective in the Financial Express.)

Is Amazon a friend or foe? India’s two largest retailers have divergent views


May 21, 2019

Written By Sangeeta Tanwar

Two of India’s leading retail chains are currently preparing the ground for their full-fledged e-commerce forays, albeit in totally different ways.

While the Kishore Biyani-led Future Group, which operates the popular Big Bazaar hypermarket chain, is busy listing its labels on Amazon, rival Reliance Retail is withdrawing its products from all e-commerce platforms, as parent Reliance Industries (RIL) gears up to launch its own online marketplace.

For both the traditional players, cracking online sales is important as they prepare for a future beyond high street retail.

Online sales in India will balloon from last year’s $18 billion (Rs1.25 lakh crore) to $170 billion by 2030, Jefferies India predicted recently. This potential aside, Indian e-commerce is still nascent and retailers are still perfecting their strategies.

“E-commerce is now a game of two dimensions, one of scale and the other of last-mile ubiquity. Whoever gets this right, will manage growth, revenue, and customer acquisition,” said Anil V Pillai, director of the independent marketing firm Terragni Consulting.

As for the Future Group, it thinks the best way to achieve this is by riding piggyback on Amazon’s proven capabilities in scale and last-mile delivery.

How the plan evolved

In 2016, the Future Group had made its first e-commerce acquisition by buying out the struggling furniture retailer FabFurnish from its German incubator Rocket Internet. Biyani had hoped to find synergies between the startup and his group’s furniture brand Hometown.

A year later, hit by heavy losses, FabFurnish was shuttered. Biyani downplayed the move saying his losses were “compensated” as the company had learnt “enough” from the episode.

The move now to partner Amazon seems to have stemmed from that learning.

Over the past month, the two have been trying to make joint plans, including in distribution, warehousing, and creating products for Amazon and its grocery format, Pantry. Also, Future group brands, including Big Bazaar, are being aligned with Amazon Now, which promises delivery of everyday essentials within two hours, suggest media reports.

A more serious handicap will be Amazon controlling Future Group’s data and customer relationships in the partnership. “In e-commerce, ownership of customer relationship and data, which offers consumer insights, is the real asset,” points out Devangshu Dutta, CEO of Third Eyesight, a consulting firm focussed on retail and consumer products.

Vianello agrees: “When you have your own e-commerce venture, as Reliance Retail plans, you are the owner of the data and you can slice and dice it to come up with exciting product offerings and improved service experience.”

This is one of the advantages that RIL might have seen in going it alone.

Going solo

“Reliance Retail has taken a more integrated approach towards e-commerce,” observed Dutta. “The company is set to leverage its pan-India retail presence and Reliance Jio’s (RIL’s telecom business) data capabilities to roll out an e-commerce platform,” explained Dutta.

The synergy between Reliance Jio and Reliance Retail is a big advantage. The retailer has about 10,000 stores across 6,500 towns in India, while Jio has a subscriber base of 306 million. After bringing many Indians online with Jio’s affordable data offerings, Reliance now hopes to get most of them to start shopping online as well.

The challenge, though, would be in getting the last-mile delivery right. “Reliance Retail could be at a disadvantage here compared to the Future Group, which has its delivery mechanism in place courtesy its partnership with Amazon,” suggested Vianello.

Moreover, like with Jio, consumers will expect heavy discounts from Reliance’s e-commerce venture as well, which may be difficult to sustain given the initial investments. “Biyani’s (online) launch involves lower upfront costs, while Reliance Retail’s will be resource hungry since it’s an almost greenfield project,” pointed out Pillai, adding, “Reliance’s challenge is the overwhelming perception about the group being a price warrior and disrupter.”

So, which strategy will triumph? Everything comes down to execution. “Success in retail, including e-commerce, is about more and more customers choosing to transact with you repeatedly. Achieving this is a difficult and ongoing process. There are no guaranteed or permanent winners,” says Dutta.

Source: qz

 KISHORE BIYANI: The Man They Wrote Off


June 14, 2004

Two years ago, no one took Kishore Biyani seriously. His company, Pantaloon Retail, was seen as a one-man show. Biyani himself was regarded as unpredictable, and not a long-term bet. Today, he is the biggest retailer in India. In two years, Kishore Biyani has bounced back to become India’s largest retailer. Here’s how the maverick ignored conventional wisdom on retailing, and won.

By M. Rajshekhar

The makeover of 26, Residency Road is almost complete. On this Thursday morning, Bangaloreans walking down this tree-lined avenue slow down to stare at the megalith that has replaced the old Victoria hotel. It’s a sharp, new mall. The sort with escalators and huge grey metal flanks clamped to the walls outside.

All around it, people are zipping around in what can only be termed as desperate hurry. Labourers are clearing the dirt from the cobblestones that surface the driveway. Nearby, a mason is relaying a slab at the fountain. Truckloads of merchandise are arriving. Most onlookers take all this in, correctly conclude that the store is about to open, and walk on.

Other, more observant, watchers notice a somewhat nondescript man sitting on a ledge between the fountain and the steps that lead up to the mall. He doesn’t seem to be doing much. Every few minutes, he pulls out a cellphone – one of three he carries – to ask about the latest election results, and how the stockmarkets are doing. For, on this Thursday morning, the final election results are being tallied, and it looks like the Congress might win after all. But there are more interesting sights that engage everyone’s attention, and the man escapes most people’s scrutiny.

That seems to be something of a running motif throughout Kishore Biyani’s life. Ask people who India’s largest retailer is, and chances are they will say B.S. Nagesh of Shoppers’ Stop or RPG Retail’s Raghu Pillai. And yet, it is Biyani who is the largest player in the Indian market today. This June, when he announces the 2003-04 results of his company Pantaloon Retail, his topline will be about Rs 650 crore. A clear Rs 100 crore more than RPG’s, the second largest player in the Indian market. Shoppers’ Stop is in third place with revenues of Rs 400 crore.

Back in 2002, when Businessworld last wrote about him, the ‘bania’ from Mumbai was in much the same position as the Congress Party was before the elections. No one took him seriously. Biyani hung around the periphery of the retail industry, which was dominated by personalities like the suave Nagesh, unlike whom, he was taciturn to the point of being tongue-tied. He fidgeted constantly during formal meetings, which made the task of carrying out any serious conversation with him quite an ordeal. Little wonder, he seldom received invitations to speak at industry seminars.

No one quite liked him either, because the man strongly believed – and said so bluntly – that his peers in the retail business were mere copycats. “Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing,” he would say to anyone who cared to listen. His search for the ideal model also meant that he took colossal risks – something that scared away most financiers used to dealing with more conventional businessmen. On top of that, Biyani made no bones about the fact that he liked to run a one-man show. “I use people as hands and legs. I prefer to do the thinking around here,” he once famously said. As a result, both professional managers and investors avoided him. And few people gave him any chance of succeeding.

Between then and now, a lot has changed. Biyani has moved centrestage. Today he has three highly successful retail formats: the Big Bazaar hypermarket; Food Bazaar, that straddles the food and grocery business; and his original Pantaloons apparel stores. The property opening in Bangalore is his fourth model, a mall called Central. By the end of next year, he expects to have 30 Food Bazaars, 22 Big Bazaars, 21 Pantaloons and four Centrals. Right now, he has 13 Food Bazaars, 9 Big Bazaars (the 10th is opening next week in Nashik), 13 Pantaloons and one Central. Between them, Biyani’s stores occupy 1.1 million sq. ft of retail space. By the end of next year, they will occupy 3 million sq. ft.

With the opening of Central, Biyani says his portfolio is complete. Even as his competitors like the Rahejas (who own Shoppers’ Stop) embark on new formats (food and grocery), Biyani says that his appetite for experimentation is now sated. “I will no longer try out newer formats. My focus will be to consolidate our operations.” Don’t take him too literally, though. What he means is that he will continue betting on new opportunities ranging from gold to car accessories, but not on quite the same scale as, say, his first Big Bazaar or his first Food Bazaar. Instead, he will concentrate on ramping up each of his four main formats.

Drawn by his growth, in the last two years well-known financial institutional investors like Goldman Sachs and Citigroup Global Markets have picked up stakes in his firm. And when the stockmarkets looked buoyant just a few weeks before the poll results, the Pantaloon stock was among the best performing on the BSE. It quotes at Rs 311 today, up from Rs 51.25 a year ago. Things are going so well now that Biyani has stopped talking about selling out to foreign retailers when they come in.

“Things have really fallen into place in the last two years,” he says. It is noon, and we are walking through the mall. Inside, the whole place is a mess. There are less than 30 hours to go before Bangalore’s newest and largest mall opens for business. And, so far, nothing is in place. The escalators are not working. The shelves are still coming up. The merchandise is still coming in. The stuff which has come in hasn’t been unpacked yet. Cardboard cartons, plastic sheets lie everywhere. And yet, there is something oddly relaxed about Biyani’s demeanour. He wonders about the stockmarket. Why is it rising? Can Manmohan Singh be the next PM?

Perhaps Biyani is in an unusually good humour because he knows that the chaos will settle down soon enough. Just like it has with his entire business. A big factor, he says, was Big Bazaar Mumbai. The format was a huge gamble, says Bala Deshpande, who served as ICICI Venture’s representative on the Pantaloon board. Around 2001, when the first Big Bazaar opened, Pantaloon’s topline was Rs 180 crore. The company needed money to expand, but had just Rs 4 crore of profits. The share price was low (Rs 18), so it could not have raised much from the bourses. Biyani would also have had to part with a lot of equity – his family and he hold 40% in Pantaloon today. Biyani took a Rs 120-crore loan that pushed his debt exposure to as high as 1.5. If Big Bazaar hadn’t worked, he would have ended with huge debts and a loss.

But, as it turned out, the store clicked. In week one, the first Big Bazaar store pulled in over a lakh customers, and did a crore in turnover. By the end of the first year, Biyani had opened three more Big Bazaars. Riding on the hypermarket, Pantaloon saw its turnover of Rs 286 crore (2001-02) climb to Rs 445 crore (2002-03). Investors began to take notice. They also became more comfortable with the idea of him being a maverick. Says Biyani: “Investors look for growth. And there are not many growth stories in Indian retail. Most companies are growing very slowly.”

It helped, also, that around the same time, Biyani began to pay a lot more attention to what the investors wanted. Says Deshpande: “As the new investors came in, they told him that he needed to delegate in order to grow.” And so, he went on a hiring spree. Biyani pulled in the head of Globus, Ved Prakash Arya, to handle operations; Jaydeep Shetty from Inox to create new brands; Sanjeev Agrawal to handle marketing; Kush Medhora from Westside to look after new store rollouts; Ambrish Chheda came in to look after Food Bazaar and handle business development; Bina Mirchandani came in to look after the merchandising; V. Muralidharan came in from Lifestyle to head Central…

Persuading the professionals wasn’t easy. Take Kush Medhora. Initially, he didn’t want to join. “I thought the company was unprofessional from the way the first few stores looked. I had also heard that the company was a one-man show.” But during the job interview, Biyani told him he wanted to abdicate everything except strategic planning and the selection of new locations. That helped Medhora make up his mind.

There is probably another reason why Medhora joined. He enjoys the adrenaline rush. His job, opening new stores, keeps him on the road for 220 days in a year.

Ved Prakash Arya At Food Bazaar, Mumbai: Like the former head of Globus and current Pantaloons COO, many professionals are not averse to working with Biyani now

It is this frenetic pace that drew him to Pantaloon. “We will be (worth) Rs 5,000 crore by 2007,” he says. “Such expansion is fun. In a way, we are creating history.” Right now, he is running around – he is short of site engineers. His team has just one when it needs at least another three. He is also interviewing aspiring Big Bazaar store managers. In a break from regular retail recruitment, the company is hiring chartered accountants for store managers. Managing Big Bazaar is like financial tap dancing. The margins are slimmer. The business runs on faster stock turnarounds, and calls for a very different way of thinking from the other stores. And so, Pantaloon is looking for people with an eye for numbers. “Alternate Saturdays are holidays,” Medhora grins, “and so that is when we do our interviews.”

As the company grows by leaps and bounds, it is discovering all the advantages of scale. In everything, from raising finances to negotiating rates, the economies of scale kick in. To go from its current 1.1 million sq. ft of retail space to 3 million sq. ft by the end of 2005, Biyani estimates he will need an investment of about Rs 250 crore. Of that, Rs 32 crore has been raised through a convertible debenture offer made in November 2003. Another Rs 60 crore is being raised though debt. The current cash flows should take care of debt servicing without much problem. Meanwhile, the rapidly growing profits can be ploughed back to fund the expansion. The company has an EBITDA (earnings before interest, tax, depreciation and amortisation) of a little over Rs 65 crore. Right now, says C.P. Toshniwal, chief of corporate planning, “Our turnover is around Rs 650 crore. But by next year, the turnover will be Rs 1,300 crore. So, we will have an EBITDA of Rs 130 crore, all of which help fund the expansion.” In contrast, Shoppers’ Stop will throw up Rs 24 crore as EBITDA this year.

Interestingly, even as Biyani gets more cash from his business, at the same time, he is making that cash work harder. In the old days, he says, “I would have paid Rs 7 crore-7.5 crore for a 50,000-sq. ft store and I would have done an annual turnover of Rs 35 crore. Now, I spend about Rs 4 crore for a store of that size, and do a business of Rs 50 crore-60 crore.”

You can attribute that partly to the mall-making frenzy in this country. There is a shortage of anchor tenants in this country – at least ones that can pull customers in, and Biyani is exploiting that. Not only is he able to negotiate lower rentals, he has begun insisting that mall owners also develop the place for him. In the old days, he says, “We would buy the property, do the fittings and so on. Now, I just take a fully-appointed building from them.”
Day two. Kishore Biyani is standing on a scooter. The Businessworld photographer is trying to get some elevation into the photograph. From that unsteady perch, he is talking about why he thinks the best is yet to come for his chain. All his formats, he says, are seeing an interesting evolution.

Take Pantaloons. This is the brand that started Biyani’s transformation into a retailer. Back in 1997, Biyani was manufacturing two brands, John Miller and Bare. Both were struggling. Even though his products were good, and the pricing was competitive, high distribution costs and margins were making the whole business unviable. And so he decided to set up his own stores. That year, the first of these came up in Kolkata. At this stage, the plan was that the company would open another 2-3 such stores, no more. Recalls Kabir Loomba, who worked with Biyani as a chief operating officer (COO) in that period: “When the first store came up, we did not know when the second store would come up.” But the Kolkata store was an eye-opener. Biyani had been hoping it would do about Rs 7 crore in its first year. It did Rs 10 crore. Loomba feels this taught Biyani an important lesson: the Indian market was under-retailed. This was when the aggressive retail expansion started.

Over the years, Pantaloons has been through a few makeovers. And right now, it is getting another one. Biyani is junking the old positioning of ‘India’s family store’ and is planning to target the youth instead. His consumer insight is, like always, a shade radical: “Within a family, people were thinking and dressing and acting very differently. Which is why I believe studying Indian consumers by demographics and psychographics is a waste of time. We should look at communities: techies, metrosexuals, etc.”

So, Pantaloons will now be about affordable fashion. (‘Fashion from Pantaloons’ is the new adline.) In the next two years, says Biyani, Pantaloons will be the Indian equivalent of Spanish fashion retailer Zara.

Internationally, in this business of fashion retailing, while the margins on individual garments are high, eventually, the margins are low. That is because the unsold stocks have to be liquidated through heavy discounting. For instance, it takes 90-120 days to design and ship, say, a new line of fashion merchandise. This means two things. One, the company will always be forced to order in lots of 90-120 days, lest it runs out of stock halfway. Two, if the fashion changes, the company is saddled with inventory which then has to be liquidated. Says Biyani: “If the margins on every garment are 50%, but I am going to sell half of them after a 12% markdown, my margins are already down to 44%.” And so, the company is trying to crash the time to market from 90 days to about 21 days.

Zara has a neat model that lets it launch new lines in less than 21 days. What made it possible is that it had its own factories. Biyani is doing something similar. Faster manufacturing, says Anshuman Singh, who looks after the supply chain, will let the company keep less inventory, which will make it more responsive to market changes while reducing the amount of stocks to be sold at a discount. At the same time, as fresh stocks hit the market faster, sales will rise. By becoming much more responsive, says Biyani, “We can up our margins by 5-6%.” Right now, he has brought the time lag down from 90 to 40 days.

But fashion tastes in India don’t change that fast. So the real question is: what will it take to drive disposability of clothes higher? According to retail consultant Devangshu Dutta, that is price. “Pantaloons will have to really bring prices down, by half or so. But that might create a problem between Pantaloons and Big Bazaar, for the latter is also based on apparel.”

As it were, Biyani’s new strategy for Big Bazaar also centres on fashion, but with a volumes orientation. It will retail what Biyani calls commoditised fashion – blue jeans, white shirts. Biyani is planning to buy these in very large numbers, drive prices down, and sell. Take denim. Recalls Singh: “Pantaloons has jeans from Bare at Rs 695 and above. Newport, priced at Rs 599, was the cheapest pair of jeans in the market. So, we contacted Arvind Mills and asked if they could give us jeans at Rs 299 if we were willing to take 100,000 units a month.” That is where Ruf-n-Tuf came in. The brand had been discontinued when Pantaloon first contacted Arvind. From now on, it will be available only through Big Bazaar. There is a similar deal for T-shirts.

This will have to be a lean operation. Pantaloon will carry no stocks. They will lie with the manufacturer and replenished just in time. In businesses where there aren’t any large manufacturers, like plastics, leather, food technologies, Pantaloon is trying to engineer its own low prices. For ketchup, it has an in-house label for Rs 38 as opposed to an industry average of Rs 58 for the same size.

And then, there is the format that fascinates and worries Biyani: Food Bazaar. Right now, of the company’s topline of about Rs 650 crore, Rs 250 crore has come from Pantaloons, the apparel store, another Rs 230 crore from Big Bazaar and the rest (Rs 160 crore-170 crore) is contributed by Food Bazaar. Biyani worries that Food Bazaar is growing too fast. He says: “I could double the stores I have and still face no problem. But it is important to recognise that it should not be more than 30% of my topline.” (That is why, he says, “I have underplayed food in Big Bazaar.”)

That flies in the face of conventional wisdom. Most retailers believe food is central to their retailing operations. If you look at the rival hypermarket format Giant from the RPG stable, 50% of its revenues come from food. In contrast, Biyani doesn’t want the share of foods to rise over 30%. He has a simple explanation: in India, cost of modern retailing is very high, and food doesn’t offer adequate margins. If cost of operations is 30%, food margins are just 12-14%. In contrast, apparel and non-food segments offer margins of 25-30%.

Part of his success is the ability to paint on a blank canvas. Incredibly, when Big Bazaar was conceptualised, he put in place a team of four people, including himself, none of whom understood the hypermarket business. And one of the first insights the team had was that all neighbourhood markets are the same – each of them has a bania, a dry cleaner and a chemist. “We knew we would have to create that same mix of the mandi in whatever new format we evolve.”

Or take Food Bazaar. “I am going to change the face of food retailing in India,” promises Biyani. Right now, he is working on a new focus for Food Bazaar. He calls it ‘farm to plate’ – essentially, a plank to improve freshness in the products. Boasts Chheda, the chief of business development: “The Ahmedabad Food Bazaar has a full-scale dairy set-up in place with a capacity to produce 1,000 litres a day. We make our own paneer and pasteurise milk. The company is also adding spice grinders and atta chakkis (flour mills).”

It’s an example of how earthy entrepreneurs think differently. Says Biyani: “It is obvious to everyone that what Indians prize most in their food is freshness. That is what I need to give my consumers. But most managers take that as a mandate to set up a cold chain in this country. But I wonder, why cannot I have a farm next to my store? Managers always complicate things. It is the MBA culture. B-schools teach you how to manage complexity, but I don’t think that is necessary. Life is quite simple.”

Central is a smart concept too. It is a seamless mall. In other words, while there are lots of retailers under one roof, the look and feel is like that of a department store, down to the unified billing centre. And yet, all the stocks are held not by Biyani, but by the partners. By the end of September, Biyani will add two more – a 210,000-sq. ft monster in Hyderabad, and a smaller one in Pune. A fourth one will come up by May next year. The four Centrals will do about Rs 360 crore in turnover in the first year.

To continue innovation, Biyani has a new businesses team. Newly constituted under the charge of former Globus manager, Anand Jadhav, it is trying to identify new businesses for the company. Says Jadhav: “In 4-5 years, same store growth might start to plateau. To keep that rate of growth intact, we are identifying new businesses we can expand into, or use to replace less profitable ones.” Right now, Jadhav and Biyani come up with the ideas and Jadhav’s team sees how each of the areas can generate a topline of Rs 100 crore in two years. So far, he has zeroed in on footwear, music and car accessories. His mandate: to launch 3-4 business ideas every year.

Talking about managing innovation brings us to contrast Biyani and Nagesh. Nagesh believes Biyani will have to give up on gut-feel soon. “Gut-feel is not consistent. He will just confuse his managers terribly. There is no doubt in my mind that Kishore will have to go in for tech-driven answers.”

In many ways, the two are poles apart. Nagesh is extremely systematic. He gets systems in place and then scales up very fast. Biyani works the other way around. He believes in growth first, and that problems can be fixed along the way. As the Indian market evolves, it will be interesting to see who has the better retailing organisation. The scientific Shoppers’ Stop, or the serendipitous Pantaloon. It will also be interesting to see how Pantaloon retains its founder’s intuitive spirit even as the professional managers and systems take root.

It is a little after 6 p.m. The diya is lit. The ribbon is cut. And the mall opens for business. A lot of employees are hanging around, all eager to see how the mall does. Medhora is standing, grinning, near the entrance. “Five days before the store opened,” he tells me, “A tenant called to say he could not get any cabinets for his counter. We had to run to find carpenters. We got the cabinets just in the nick of time.”

The mall begins to fill up. The first glitches reveal themselves. The public address system is not working too well – the speakers are too high. And then, a few minutes after the mall opens, the power fails. The lights dim. The escalators stop moving. Opening glitches, shrugs Biyani.

The Tarapur plant: As Biyani plans to reposition Pantaloons as a fashion store, he plans to crash the time to market to three weeks. It helps that he also makes clothes

Postscript: Less than a week later, half the Pantaloon managers were back in Bangalore ironing out some of the bugs.

Postscript two: Another week later, I call Murali, the head of the mall. Business is good, he reports. Getting close to 15,000 people on weekdays and 25,000 on the weekends.

(With reports from Irshad Daftari)

Article from BusinessWorld, 14 June 2004