A virtual war room has been set up practically overnight by the founder of Future Group, which is backed by both Amazon.com Inc. and Blackstone Group Inc. to ensure his vast chain of Indian grocery stores has enough.
The Indian conglomerate, Future Group is headquartered in Mumbai, Maharashtra, India. The company is famous for having a significant prominence in Indian retail and fashion sectors, with lifestyle stores like Brand Factory, Central, etc, popular supermarket chains like Big Bazaar and Food Bazaar. It has more than 1,300 stores across the country, making a notable presence in integrated foods and FMCG manufacturing sectors, Future Group, set up in 1996; runs India’s second-largest retail chain by revenue. Kishore Biyani bets big on India’s consumption story by piling on debt backed by shares of his companies, and he kept margins thin to cater to the nation’s cost-conscious population and lure them away from smaller mom-and-pop stores.
The REDD Intelligence mentioned that the Future Group has a mix of debt, equity and other assets. Amazon invested $193 million, Blackstone, the world’s largest alternative asset manager; invested about $236 million during the same period. The debt of Future Group was $1.6 billion debt as of March 2019, 80% of which was held by private equity firms, 13% by Indian shadow lenders, and the rest by banks, as per REDD estimates. REDD analyst Janvi Sanghvi reported “The Biyani family’s shareholding has lost more than half its value over the past year, and almost 80% of their stake is pledged.”
Operations of Future Group’s stores during the pandemic:
Employees struggle to reach their workplaces, hence Future Group’s stores and warehouses are operating with only half their usual staff. Inventories could run very low if supply chain issues aren’t resolved. CXO’s and senior managers have been scheduled for the ground duty of Big Bazaar to ensure the last-mile operation is on and to fill for store staff shortage. Spencer’s Retail and Nature’s Basket have created a virtual war room where the company’s senior team and store-level staff hold coordination meetings twice every day.
Future Consumer’s 1 billion rupees ($13 million) of commercial paper on review for downgrade by Crisil, the local unit of S&P Global Ratings, saying the Covid-19 pandemic will disrupt operations and increase the financial risk profiles of retail outlets. Crisil noted that shares have been under pressure since the majority of the equity-backed loans were held by “large foreign institutional investors, which continue to be associated and aligned with the management and the group’s growth strategy.”
Biyani is counting on these creditors to help structure a deal whose net worth was valued at $1.8 billion by Forbes in 2019. No immediate reply to requests for comment by representatives for Future Group, Amazon and Blackstone.
The virus outbreak “is a big blow for highly leveraged groups and those that have pledged shares,”, as said by Chokkalingam G, head of an investment advisory at Equinomics Research & Advisory Pvt. without naming any specific business. After the government announced a 21-day lockdown to fight the coronavirus, the tycoon’s two-front battle illustrates the challenges faced by many Indian companies Businesses are finding it difficult to aid in the world’s biggest isolation effort since the operations upended by the restrictions. Hence, the Reserve Bank of India cut interest rates and announced steps to boost liquidity. All banks and shadow lenders were allowed a three-month moratorium on repayment of term loans outstanding in March as announced by RBI Governor Shaktikanta Das.
The 7-Eleven entry to India:
The 21-day lockdown and the coronavirus pandemic and has stalled Future Group founder and Chief Executive Officer (CEO) Kishore Biyani’s mega plan to bring global retail chain 7-Eleven to India.
A Japanese-American international chain of convenience stores, headquartered in Dallas, Texas, 7-Eleven is the world’s largest convenience store. The retailer has been exploring an India entry since 2004. For the development and operation of 7-Eleven outlets in India, a master franchise agreement had been signed with a Future Retail Ltd arm, SHME Food Brands Pvt Ltd. It will have a snack point, where people can buy Indian snacks while shopping, so the format of the 7-Eleven stores is likely to be different from the other conventional convenience stores
Future Retail has 1,800 stores in over 270 cities across India. It has vast and varied experience in the retail business. The Future Group owns brands such as Big Bazaar, Food Hall, EasyDay, FBB, among others. In high-traffic neighborhoods, corporate parks, hospitals, transit points, colleges, Biyani had planned to launch the 7-Eleven stores. BusinessLine had reported that the Future Group had planned to launch its first 7-Eleven store in Mumbai, Maharashtra, in February or March 2020. A discussion was supposed to be held to discuss whether to launch the stores or not by the senior officials. The pandemic and the complete lockdown in India will lead to an indefinite delay. The pandemic will lead it to not launch anytime soon.” It could have been a really good business for Future Group since it is known all over the world. Kishore Biyani had said, “Thailand has 11,000 7-Eleven stores, Mumbai can easily have 1,000 stores.”
The major issue:
30% of the big player’s business comes from delivery, especially to the kiranas. Mediratta, head of an industry chamber Ficci’s retail and internal trade committee, said, “but deliveries have been stopped for the last 2-3 days because vehicles are either impounded or sent back by police”. More has stopped selling all non-essential or non-food items and is currently focusing on 650 products for hypermarkets and 400 for supermarkets, which include packaged food, dairy, grocery, fruits, vegetables
The consumers and kirana stores have been cautioned by B2B platforms Jumbotail and Udaan, e-commerce firms Amazon and Flipkart, as well as E-grocers BigBasket, Grofers as they deal with operational disturbances caused by the restriction on manufacturing and movement of goods, and people. The people count of BigBasket is improving day by day in all top cities including Delhi, Mumbai, and Bengaluru, but is not enough to deliver all orders. The company is selectively opening new slots, due to backlog in orders and some operational issues. Grofers, based in Gurugram was unable to operate in several cities for a few days after the announcement of the lockdown, it has begun operations at 90% of its warehouses with half its delivery partners equipped with all relevant official permissions. Snapdeal is eyeing on the developments, the timelines have been extended to its sellers for shipping the orders received by them. Sellers have been provided communication that no cancellation charges or penalties will be levied if they are not able to ship in time or ship at all.
To augment the last-mile delivery, to prevent an acute shortage of workers, food and grocery retailers and e-grocers have started to utilize available manpower resources of other e-commerce ventures, not all the e-grocers have agreed to pick and deliver orders from local kiranas and supermarkets to customers. Fashion and other segments have currently shut down operations so Grofers and BigBasket are going to partner with food delivery apps Swiggy and Zomato, and other available resources of e-commerce firms
Delays or cancellation of orders of essential items has been faced by customers of Amazon, who have taken to social media to criticize Amazon. A 21- day lockdown has been imposed in India in the past one week, to counter the Covid-19 virus outbreak. The essentials, such as staples, fast-moving consumer goods, other household items, were ordered through its Fresh and Pantry services, and the company is delivering these within two days at pre-set delivery slots. However, Amazon India has not been able to do so due to a combination of large order backlogs and lack of on-ground worker essentials ordered from third-party sellers on Amazon’s platform even before the lockdown, many users have pointed out that the website has been showing three-week-long delivery timelines. Amazon has mandated guidelines on working conditions at its warehouses globally to avoid workers from contracting the infection
Amazon is resuming its services including Pantry, gradually, adding in more cities and pin codes as they get necessary clearances and passes from the local authorities. They are first serving existing orders and are then accepting new orders.” Amazon also relies heavily on air transport, which has been stopped till April 14, adding that the company depends heavily on its large fulfillment centers across cities to route all deliveries nationally, further movement of inter-city trucks has also been restricted for days.
The company has started to recruit more on-ground staff and has also raised worker wages by roughly $2 per hour in the United States until the end of April. The company hasn’t been so proactive in India, with its plan to roll out incentives to get workers to come back and plans not being as robust to hire new on-ground staff as needed.
How the e-stores are delivering through the kirana stores?
‘I Have Space’ (IHS) program of Amazon’s grew 40 percent year-on-year to 17,500 neighborhood stores in 225 cities at the end of 2017, wherein it partners with local stores that will deliver products to customers within a 2-4 km radius. 60% of the orders are fulfilled by the Flipkart-owned Myntra’s ‘Mensa Network’ which has expanded to 6,200 stores in 50 cities since it was launched in April last year. Flipkart said its alternative delivery network, which includes Apollo Pharmacies which handles 20-30% of its deliveries during its peak festive season sales.
The kirana stores are handling the last leg of deliveries for e-commerce behemoths such as Amazon India and Myntra, and these stores are getting increasing attention for handling the last leg of their deliveries.
The last-mile delivery of e-commerce companies been scaled up over the past year significantly, helping them reduce their delivery staff or engage them for more advanced tasks. One-third of Amazon’s delivery is done by store networks and Myntra’s about two-thirds are done by them as per industry estimates.
Retailers write to malls for the rental waiver:
In eastern India, the leading fashion, electronics, smartphone and home retail chains have asked the tenants and malls for a complete rental waiver for March and April due to no business even before the lockdown was announced since consumers were wary to step out. Most of the stores are shut, hence even the food and grocery chains, have asked for a waiver, otherwise for a reduction in the rental where stores are partially operational. Reliance Retail, Future Group, the multiple lifestyle formats under Arvind Lifestyle such as US Polo Assn, Sephora, Arrow, Calvin Klein, Tommy Hilfiger, Lifestyle, SpencerNSE -2.46 %’s Retail, Nature’s Basket are the big chains who have asked for a waiver. Retailers Association of India CEO Kumar Rajagopalan, said rent and manpower account for one-third each of the retailer total expense pie and if these retailers will have to pay rent it will become unsustainable and several may go bankrupt due to nil revenue.
The multiplexes and largest restaurant chains in Kolkata and Delhi have written individually to mall owners asking to waive the rentals up till May amid the lockdown. These include McDonald’s, Jubilant FoodWorks-operated Domino’s Pizza, Speciality Restaurants, Reliance Retail, Future Group, Spencer’s Retail, PVR. Zero revenues have been cited by them in the immediate term and a drop of at least 50% in revenues for several months to come. A Lot of store closures, job losses, and significant erosion of profits and revenue will be experienced by the ₹4.2 lakh crore restaurant industry, which employs over seven million people.