Bengaluru: Big Bazaar founder Kishore Biyani, who ushered in a retail revolution way back in 2001, maybe in huge trouble with mounting indebtedness in his e-commerce segment as a large number of customers have suddenly switched over to online buying due to the COVID-19-enforced lockdown, something few had ever factored in.
Biyani’s businesses had been founded on the ‘footfalls’ in retail stores, something that vanished since the lockdown began in March 2020 and nobody knows when normal business activities would actually begin to pull the Indian economy back on the rails.
Individually, according to Forbes magazine, Biyani’s net worth was USD 1.78 billion in 2019. Future Retail reported annual revenue of Rs. 20,165 crores in FY19 with a net profit of Rs. 733 crore. In the third quarter of FY20, the company reported revenues of Rs. 5,129 crore with a net profit of Rs. 170 crore.
But that’s not the case with his e-commerce arm. As of the end of 2019, the Group was saddled with a huge pile of debt amounting to Rs. 12,800 crore for which the Biyani family had even pledged over 80% of their stake in five listed companies. Market rating agency Fitch continuously downgraded the company in April and May. And Biyani cannot pledge any more shares or buy more time as the lenders are breathing down his neck to seek more collaterals to make up for the diminished value of his pledged shares.
Biyani pioneered India’s retail revolution with his Big Bazaar format in FMCG. The Future Group’s success could not, however, be replicated in his foray into the e-commerce sector in which he encountered repeated challenges.
Coronavirus, the unexpected ‘Act of God’, overturned many a carefully crafted applecart. The global pandemic of COVID-19 forced the people to stay at home and buy online instead, which spurred e-commerce. Earlier seen as a luxury, it suddenly became flavour of the season the way demonetization had spurred digital payments. Not only lockdowns but also curfews, social distancing, limited working hours, fewer customers and uncertain supplies ruined the physical-format big stores.
To meet this fresh challenge, the Future Group relaunched its full-fledged e-commerce platform in April 2020, followed by the relaunch of Future Pay. It also serviced orders for home-delivered groceries and essentials to customers using WhatsApp groups from pre-selected stores.
Currently, Future Pay app with more than a million downloads on Google Play may be going strong selling everything available in a Big Bazaar store during the lockdown period. But e-commerce as a business model has always been a struggle for the Group be it Future Bazaar in 2007, Big Bazaar Direct in 2013, or the FabFurnish in 2013.
Sensing more trouble in January 2020, the Group laid off 400 people across product development, marketing, sales, and ground operations as it looked to scale down its e-commerce project.
This is in contrast to what Biyani believed earlier. In November 2017, he had said that online business had risks in India from physical retails like Big Bazzar, owing to low business share and high cost of business. “Online retail has a threat from us and it’s time people realised that they are not a threat to us as they don’t even have 1 per cent business share and the cost of doing business is also high.”
Apparently, his optimism stemmed from the state of online businesses in advanced economies in a pre-coronavirus era. China, believed to be the most digital-driven economy, has 82 per cent physical-format business, America has 89 percent physical model and similarly, India, too, would have had huge potential for physical retail as the online share was negligible.
That was why Biyani, at a NASSCOM Product Conclave in November 2017, divulged a 30-year vision Retail 3.0 initiative called “Tathaastu”. The Conclave saw Asia’s largest integrated consumer retail by 2047 with revenues above USD 1 trillion, with both online and offline converging in the next 10 years.
But by 2019, the Group decided to pare its digital strategy due to a slowdown in retail spends aided by delay in expected funds.
Later, Seattle headquartered Amazon, through a mix of debt, equity and other assets, bought stakes in Future Group. As recently as January 2020, they said that “Amazon India would become a sanctioned online sales channel for Future Retail Ltd. stores and Future Retail”. Blackstone, the world’s largest alternative asset manager, also invested around USD 236 million during the same period.
Recently, reports emerged about concerns from manufacturers and suppliers related to the delay in payments from the Future Group as bills remained unpaid for more than 90 days.
Many other e-commerce companies in the same segment, like Grofers, BigBasket etc, as also in other sectors, have been successful, largely due to increasingly technology-savvy population, increase in consumerism, and easy access to the internet via mobile devices.
The competition in the grocery and food retail segment is intense. As Jim Watkins says “A river cuts through a rock not because of its power, but because of its persistence.” Biyani had weathered many storms in the past but the future threat for his Future Group comes from competing start-ups like BigBasket and Grofers and the one on the horizon…Reliance’s JioMart.