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Future Group is betting on Google’s analytics and Facebook’s user data to find locations to set up about six member-only small stores every day for the next five years. Is that a precursor to a tie-up for e-commerce even as Amazon’s Jeff Bezos sniffs an opportunity in India’s $672-billion retail market?
Chief Executive Officer Kishore Biyani said he’s not looking at partnership at one single level. “We manufacture our own products, our own brands and want to engage at a very holistic level,” he said in an interview with BloombergQuint.
The plan to start 10,000 stores modelled on Walmart’s Sam’s Club comes as the share of hypermarkets and superstores is growing on the back of rising consumption in Asia’s third-largest economy. More so after last year’s demonetisation that encouraged customers and mom-and-pop stores to adopt digital payments.
Future Retail, which operates Big Bazaar and Easyday outlets, had burnt nearly Rs 300 crore when it entered e-commerce a decade ago. Online sales contribute about 12 percent to its revenue. And Amazon and homegrown marketplace Flipkart have joined the likes of Grofers and BigBasket to sell grocery online.
“It is a blended commerce for us. We do not segregate between online and offline business,” Biyani said. “We have a lot of people migrating from online to offline and vice versa.”
While Future Group’s new club stores will not allow online payments, they will let customers place orders via WhatsApp. Biyani said it’s to make buying easier as he targets to turn Future Group into a trillion-dollar entity by 2047.
Kishore Biyani, Group CEO At Future GroupOur programme is basically to bring down the cost of delivery even if people are ordering goods, sitting at home. We are doing the job of what e-commerce could have done.
The founder of Future Group said the recent tie-up between Shoppers Stop Ltd. and Amazon is a sign that online retailers at looking at brick-and-mortar format, and not vice versa. In fact, the entire retail industry is shifting towards technology to deliver the consumer goods, he said.
Biyani expects small stores to surpass hypermarkets in revenue. Future Group is targeting 60 percent of its sales to come from the small outlets and the rest from the large-format vertical.
Watch the full conversation:
Here are the edited excerpts from the conversation:
What will be the outcome of 3.0 effort?
Over the period of time, we have been into retail in large stores and now we are building up the small store format. Small stores deals with essentials of people living around us. Recently, with KB’s Fair Price, Aadhaar and Nilgiris, we got a lot of assets accumulated. So, we thought it is time to bring all these assets together and build small store strategy. But how can we layer the small store strategy with technology?
It is the layering of technology over the physical store and making some members in the stores and dealing with them through data, technology and various other means so that we can serve the 2,000 customers and the recurring number of stores.
Also, they are in the neighborhood. So, it is about community building. People from the neighborhood are running the store, merchandise, work and deliver products. So, the whole idea is to build a community network around a store. This is the idea which is working for last two years. We have got technology and partners in place. We will have 1,000 stores by the end of this financial year. So, we have whole strategy now working and we believe that this can scale much faster than what we did.
Small stores are the way forward for us to reach closer to customers. We have more than 250 big stores, which will keep moving 25-30 stores every year. But small stores can be expanded much faster and it will have proximity to the customer. This is the strategy for us going forward.
Did you notice higher sales because of better location and use of the technology in your pilot process?
The prototyping of the stores has been done and we are mapping each and every region to see how many members we can make. So, first experiment was with making members. We have touched 2,000 members in 7-10 stores. Most of the stores have crossed membership of 1,000. We are more than 3.5 lakh members in our Easy Day club. In terms of getting membership, we are prototyping, and it is working.
The other assumption was we will bring down cost of doing business. And we believe that we will be able to run the stores at 40 percent less cost of that of a normal small store, which we were running earlier because the productivity increases with rising memberships.
Further, we are finding a pattern of spending of the members which we see that they spend about Rs 3,500 a month with us, where earlier was much lesser. Our average ticket size is two-and-a-half times more than the normal ticket size which we are getting out of members.
All the assumption that we are working on are prototyped, and we believe that the model will scale all over India.
Can you take us through how tie up with Google and Facebook is helping you?
There are more than 300 million smartphones users in the country. For us, they are the first acquirers in modern retail environment. So, we understand that whether we can make 2,000 locations where we can open store. The data from Google can help to identify the way people are using and whether we can make 2,000 members.
This is working on data to get numbers. In every store, we want 2,000 members. Once, we have 2,000 members, the store becomes profitable, it can operate at a certain cost and we will be able to serve members effectively. So, that’s a good engagement.
Secondly with Google, we can work on creating hyper-local demand based on information and data which we get. We can create various promotions at hyper local level within the range of two kilometers. Today, technology will enable us to do business in very different way and the way we used to do business earlier.
In terms of Facebook, we can process order through WhatsApp. We can build communities where all the members can talk to each other. So, we are engaging in multiple things with technologies for the customers to get best of the experience and products at a faster speed.
But even on smaller bases, many kiranas are doing business through WhatsApp.
Yes and they are doing this for a while. They build stores where population is around, but they are running small stores. They are running Stock Keeping Units of about 400. But we are giving SKU of 3,500 and if the customer wants it beyond that, then we deliver it to members. So, it is much beyond what a local kiranawala does.
A modern retailer can experiment with lot of products and make people experiment with products. It can make them experience or taste the product. The local kiranawala has to depend on advertising for the brand to do everything which creates demand. But we create demand for a lot of categories with experiences we create with the brand and product.
Will you use any franchising model or are you going to own them?
For stores, we will continue with the Nilgiris, a franchise retail format, in south India. It’s like we are opening, and the Future retailer is becoming a franchise. I believe in first 10,000 stores, about 80 percent will run by the company.
Will this happen at the expense of the local kirana store?
India is growing at the rate of about 8 percent and the population is going up by 25 million people every year. So, our consumption will keep on increasing and growing.
Also, we want to sell more number of SKUs. If you see the local kiranawalas, they don’t sell more than 300-400 SKUs. Our store will sell about 3,500 SKUs, which will be there in minimum quantity physically in the store. The extended assort on market place can be as high as a lakh SKUs. So, we are talking of a very different product. I believe everyone will survive because there is nothing in which we are competing except few products in few categories.
Today if you live in neighborhood, you buy vegetables, dairy products, grocery and packaged food from different stores, we bring everything on one single platform with addition to extended assortment which is coming out of technology.
Also, we are taking technology to serve the customers and offer them products on great prices.
Can we expect the compound annual growth rate of 20 percent in India for retail for the next 10 years and more because of this extension?
In India, people are experimenting with new products and categories due to aspirations. If India grows by 6-8 percent, the growth of 20 percent of modern retail is not an abnormal growth and one can do much more.
Modern retail in its first avatar was a model which was expensive to acquire the customer and cost of distribution and cost of doing business. The retail 2.2, i.e., e-commerce was a very expensive exercise in terms of acquiring customer fulfillment, technology and other costs. I believe this model can operate at a cost which is suitable where the modern retailer and entire ecosystem will be a part of it and it can be a profitable business.
With this model, are you planning to play both sides, i.e. the modern retailer and e-commerce?
Absolutely. But if you look at the way the world is shaping up, most of the e-commerce players opened retail stores, whereas all physical retailers are moving to some kind of technology to deliver goods to people.
Our program to serve the customers within two kilometers is to bring down the cost of delivery and people can order sitting at home. So, we are doing the jobs that the e-commerce companies could have done. We are building a long tail to the market place.
We are creating experience of all senses in the store, which a local kirana or e-commerce can’t do. We are invoking all the senses to get business.
Did you notice a shift in consumer shopping trend and hence launch this?
We are using technology online to get people offline. In our current program of rant factory, we have started online registration of people to come in and beat the queue. We have registered more than one lakh people. So, we are using various technologies and forums to get customers to offline stores, which have been working remarkably well.
I believe data and online effort are contributing more than 10-12 percent of business currently. The use of technology will help us to engage with consumers and make people experience in a physical environment. This is the idea which we are working on currently.
In 5-6 years, I think, nobody will talk of e-commerce and physical stores separately. It will be blended stores and everybody will have the same way of doing business.
How did you respond to Amazon’s 5 percent purchase in Shoppers Stop? Would you be looking to strike partnership of similar nature?
We are not looking at partnership at one single level. We are in categories of food, fashion and home. We manufacture our own products and we have our own brands, distribution networks and retail stores. I will rather engage at a holistic level rather than engaging at a product or company level.
What is holistic level?
Right now, we are not looking at anything. But, if I want to do then I will do at level where I would hasten up the pace of business for me. We manage the entire value chain and it is not about particular value chain for which I am interested to align with anyone.
What percentage of total sales across your stores you could attribute to e-commerce today?
The influence of online would be 10-12 percent of our business currently.
What’s the target to grow and by when?
I assume that in the next 4-5 years, the influence of online or offline will be more than 50-60 percent.
Are you not looking at joining hand with anyone to strengthen your e-commerce business?
If you look at the Future Group, the total business that it does with the country besides electronic, we are much larger than it.
We are on a different trajectory and platform. I believe, they are retail 2.0 and we are getting into 3.0. So, they will have to decide what they want to do and not us.
Can you run us through your revenue in the 3.0 alteration?
We believe small store format will surpass the bigger format in terms of revenues. The small store format will be 60 percent of the revenue and 40 percent will come from large stores. So, that’s the shift which will happen.
It’s not an e-commerce for us but a blended commerce and we do not segregate between online and offline business. We have lot of people who come from online in to offline and offline into online. So, it is merged business for us. We don’t count business separately out of online.
If 60 percent come from small format stores, does that change your margin and profit profiles?
In the smaller store, the major business will come out of food. So, margins are lesser in terms of food as business. But on a parallel note, we are expanding our fashion business. We have a chance to become top 10 among the global fashion companies by next year in terms of volume.
Do we have a Future Group IPO coming up?
Yes. For Future supply chain, our logistics and distribution supply business.
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