Kishore Biyani has surrendered the ‘crown jewel’ of the Future Group by selling his retail business to billionaire Mukesh Ambani’s Reliance Retail in a stunning reversal of fortunes for a businessman who was once celebrated as India’s Retail King.
The mega transaction with a combined value of Rs 24,713 crore cements the position of Reliance Retail as the undisputed leader in the organised retail segment and adds muscle to an ongoing battle with Amazon for the Indian e-commerce market. The Future Group houses leading retail formats, including supermarket chain Big Bazaar, upmarket food stores Foodhall, and bargain clothing chain Brand Factory.
1987. 1997. 2007. These three years, each separated by a decade, sum up the rise and fall of Kishore Biyani.
In 1987, a young Marwari got frustrated by the conservative business approach of his family elders and started a garment manufacturing business, called Manz Wear.
By 1997, the business was doing well enough for Biyani to open the first Pantaloons store in Kolkata. It was said to be twice the size of any other store in the city.
The brand and the stores caught the imagination of an exploding middle-class that was beginning to reap the fruits of the 1991 liberalisation. In 2001, he diversified and launched his biggest success; he started a series of supermarket stores under Big Bazaar.
Fashioned to replicate a busy and chaotic marketplace that Indians were otherwise used to, but packaged in a supermarket format, the retail chain became immensely popular and expanded fast. Over the next six years, it will add nearly 100 stores across the breadth and length of the country.
Biyani’s biggest success had come from diversification. He looked for more opportunities.
He had already burnt his fingers by venturing into Bollywood and making two movies that were both, critically and commercially, panned.
But like an entrepreneur, always looking out for a new opportunity, Biyani used the same risk-taking penchant to diversify further. Alas, as he would accept years later, he shouldn’t have.
In 2007, Biyani’s Future Group diversified into insurance and launched Future General Insurance. In the same year, Future Capital was formed, offering financial products, wealth management services, equity broking solutions and real estate broking. His group also ventured into real estate.
These ventures were to prove costly later. Even though he managed to recover from the 2008 global economic meltdown, entry of aggressive deep-pocketed rivals meant that the original retail king also had to keep burning cash to retain market share. But clearly, the entrepreneur had spread himself, and his business empire, too thin.
In early 2019, having diversified into many categories over the years with limited success in some of them, Biyani confessed that it was a mistake and the company would restrict itself to food, fashion and home furnishings verticals. But by then it was too late.
Biyani was looking for a knight in shining armour, went pillar to post for selling his beleaguered businesses. He held marathon meetings with potential suitors who could bail him out.
By March 2020, ratings agency ICRA had already placed a negative rating on Future Group’s holding company Future Corporate Resources to non-investment grade on high debt levels.
“It was mainly on account of an increase in debt of the operating companies, with the total debt at the group’s listed companies increasing to Rs 12,778 crore as of September 30, 2019, from Rs 10,951 crore as of March 31, 2019,” ICRA said.
Future Retail was said to have taken loans worth Rs 170 crore under the Common COVID-19 Emergency Credit Line (CCECL) scheme from multiple banks since April to stay afloat due to mounting debt and the COVID-19 pandemic.
Future Group was burdened with net debt of about Rs 12,989 crore with all shares of promoters being pledged with lenders.
In the last moment, just to avert a default the company made a payment of Rs 100 crore or $14 million on its foreign bonds on August 24, 2020. A default would have seen the company getting downgraded by ratings agencies to default category.
Despite the fall, Biyani’s legacy as India’s original retail pioneer will remain unblemished. He had spotted the opportunity much before anyone else.
A graduate from HR College in Mumbai, and hailing from a business family that was originally from Rajasthan, Biyani started his entrepreneurial journey by making readymade trousers in the late 1980s but his retail journey only started in the late 1990s when he set up a Pantaloons store and a Big Bazaar in Calcutta.
Biyani's idea was to rely heavily on white-label that were produced under Future Consumer Enterprises, sell it at the best and competitive prices along with stocking bigger brand products from HUL and ITC.
He believed his private labels would offer him the highest value proposition and at the same time protect his margins further helping him generate huge revenue and profits.
He brought in more formats and labels - Pantaloons, Big Bazaar, Food Bazaar and Central.
At the same time, competition was coming in several ways. There was a lot of buzz around Shoppers’ Stop, the department store started by the Raheja Group, or RPG Retail or even the Tata group’s foray into retail.
Later, even more deep-pocketed rivals entered the scene such as Aditya Birla Group, Reliance Retail and Bharti-Walmart.
To stay ahead of the pack, Biyani started borrowing. While he still continued growing after that, some of his deep-pocketed rivals had grown even faster.
In late 2009, Biyani was forced to restructure the group by de-merging the non-retail assets. He focussed only on four formats rather than 24. The retained ones were - Pantaloons, Central, Big Bazaar and Food Bazaar. But the debt problem refused to go away.
In April 2012, the debt for the core retail business sored to Rs 5,800 crore and the net debt-equity ratio at 1.8x. The debt was nearly 55 percent of the FY12 EBITDA.
The same year, he sold off his first success, Pantaloons, to the Aditya Birla group for Rs 1,600 crore.
Even as he was caught up to clean the debt pile – including a futile attempt to divest the insurance business to L&T - consumer was moving on to online shopping.
Biyani was head on challenged by wide-spreading network of Amazon Retail, Amazon Pantry and the capital boost received by Flipkart after Walmart purchased a stake in Flipkart.
Though the Biyani family attempted e-commerce through Big Bazaar Direct, that did not go a long way.
Meanwhile, the likes of Tata Star Bazaar, Reliance Retail had grown their own franchises that further ate into Future Consumer's brick and mortar pie.
All of this culminated to a point Reliance Industries found an able target in Future Consumer, that now puts RIL Retail saga in a direct head-on with Amazon in India.
The virus attack
By March 2020, it was clear that Biyani was struggling to keep his business afloat. Future Retail was downgraded, debt had piled up even more, and the entrepreneur’s net worth, according to Forbes India, had fallen to $400 million, from about $1.7 billion just a year ago.
While he and his family held 33.5 percent stake in Future Group, nearly all of it was pledged to lenders.
It didn’t help that from the end of March, the country went into a lockdown post the COVID-19 disruption.
Even though outlets selling essentials could be opened, consumers preferred their neighbourhood shops, or opted for online players. Big Bazaar outlets were mostly located in malls, which opened much later, and continue to struggle to get footfalls.
The impact was telling on the company’s stock, which plummeted by over 80 percent in a matter of four months.Not surprisingly, Biyani mandated an investment bank for a stake sale. The search for an investor eventually led him to the entrepreneur who had already overtaken him to be the new retail king.