Future Group, Bharti Retail merger, birth of an Indian retail giant
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Business
As global retail giants and brands eye a pie of India’s lucrative market and upbeat consumer sentiment, ecommerce majors too are working on ways to turn profitable. And in the midst of all, home-grown physical retailers are quietly chalking out strategies to pace ahead of the competition.
Indian retail giant in the making
The merged Future Retail and Bharti will now operate 203 Big Bazaar and 'Easyday' hypermarkets, 197 Food Bazaar and 'Easyday' supermarkets and 171 other stores comprising of Home Town, eZone, FBB and Foodhall. While in the value-format, post-merger Future Retail will operate 400 stores. The merger is expected to add around Rs 2,000 crores to Biyani’s retail business leading to a combined turnover of both the companies to around Rs 15,000 crores.
For Bharti, this is like taking a second chance, albeit with an Indian partner, after it parted ways with American retail giant Walmart less than two years ago. Bharti and Walmart had a joint venture for the wholesale cash-and-carry segment, which they called off since there was no clarification on the FDI policies of multi-brand retail, so Walmart decided to focus its energies in the wholesale segment on its own.
As competition heats up among ecommerce majors, physical retailers as well as among online and offline retailers, this step could give a much needed fillip to Future Retail against its competitors. Its competitors Mukesh Ambani's Reliance Retail operates around 616 stores in the same category, RP-Sanjiv Goenka-owned Spencer's Retail has 135 stores and 33 hypermarkets across 40 cities and More from the Aditya Birla Group has 438 supermarkets and 16 hypermarkets under the Megastore brands.
Consolidation, the way forward
After selling majority stake in Pantaloons to Aditya Birla Nuvo, Biyani has been busy streamlining his retail empire by dividing them into three separately listed entities called Future Retail, Future Consumer Enterprises and Future Lifestyle Fashion, an apparel retailing company. The hyper and supermarkets food and grocery retail chains Big Bazaar, Food Bazaar and Food Hall are included in listed flagship Future Retail. The convenience stores Nilgiris, KB's Conveniently Yours, Big Apple and Aadhaar are listed under Future Consumer.
However, the company was not able to control losses. Now Bharti is expected to give Future Retail the upper hand in the north. On the other hand, Bharti which was on the lookout for a partner to bolster its retail business will definitely get a boost. Under the deal structure announced by Biyani and Bharti Group Vice-Chairman Rajan Bharti Mittal, two new entities will be created — Future Retail and Future Enterprises. The retail business of Future Retail will be merged with Bharti Retail to form Future Retail. In the second step, infrastructure, assets and investments of both companies will be merged to create Future Enterprises.
Bharti Enterprises promoters will own 10 percent each in Future Retail and Future Enterprises, the combined value of which will be around Rs 500 crores. Bharti promoters will also get 5 percent optionally convertible debentures (OCD) in each of the newly formed entities, valued at Rs 250 crores that can be redeemed after 18 months. Future will hold 46-47 percent stake in each of the two firms.
After Aditya Birla Group announced the merger of its apparel retail businesses – Madura Fashion & Lifestyle and Pantaloon to create a single entity, this move by Future Group and Bharti Retail, clearly indicates that consolidation of businesses is the way forward for online as well as offline retailers to survive amid stiff competition.