Future-Bharti merger will push Kishore Biyani ahead of its rivals

Between 2000 and 2008, Kishore Biyani became synonymous with Indian organised retail. He was not the first off the blocks - Shoppers' Stop started by the Raheja group held that distinction. But Biyani was expanding so rapidly, experimenting with so many new formats, and often first to introduce so many innovations, that he became the pre-eminent player in organised retail.

He rushed into geographies and formats while others were still doing market research. He opened grocery shops (Big Bazaar), fashion outlets (Pantaloons), furniture shops (Home Town) and even electronic mega outlets (e-zone). He toyed with the idea of a retail consumer finance supermarket, and started Future Capital. He had relatively little capital and his rivals had far deeper pockets, but he borrowed and expanded rapidly across the country.

The first phase of Biyani's growth took place in the backdrop of the global - and Indian - economic boom. Cheap liquidity was powering entrepreneurs and the stock markets, and organised retail was seen as a sunrise sector. Nobody thought that the good times would ever end.

As it turned out, the Lehman Brothers collapse saw the financial markets around the globe getting roiled, and India was also shaken by the events. Biyani found himself overextended. He had to sell off Pantaloons, his main fashion brand, to the AV Birla group, and also shed Future Capital to bring his debt under control.

Meanwhile, the market dynamics were changing.

Reliance Industries had decided that retail would be a big business, no matter how much investment it required. As Reliance had unlimited money to spend, it started expanding fast precisely when Biyani was slowing down. Reliance lost a lot of money initially in its retail expansion but it powered on, and soon its retail footprint was almost as big as Biyani's. The AV Birla group and RPG had also focused on the business and put in more resources, and they were growing quickly as well. Biyani now had far more formidable rivals than he faced in his initial run.

Post 2010, the e-tailing revolution in India also started. Initially, Flipkart and the others like Infibeam stuck to retailing books, but soon they expanded into other categories, from electronic items to home goods and fashion. New dedicated players in niche markets also cropped up - from fashion retailers like Myntra and Jabong to furniture sellers like Pepperfry and Urban Ladder. The e-tailers have enormous funds from venture capitalists, and while they all continue losing money, they are also driving physical retailers in many categories out of business.

Now, e-tail companies are also focusing on food and grocery - which is Biyani's biggest business. Biyani had made a couple of attempts to get into e-tail earlier, but had failed miserably.

Last week, Biyani announced that his Future Retail was merging with Bharti group's Bharti Retail in an all-equity deal. Bharti had entered retail in partnership with Walmart, but the partnership was dissolved in 2013. Bharti was losing money in its retail business, and it made sense to merge with a player who obviously understood retail far better.

The merger will again push Biyani way ahead of his rivals, at least temporarily. It will also allow him to raise fresh capital. Biyani is now embarking on an ambitious omni-channel strategy that he hopes will allow him to fight his online rivals better. He is also getting into private label FMCG products which allow him to fight the price war again with e-tailers. To understand his calculations, read the cover story.