Customer entry is never a big challenge: Future Group CEO Kishore Biyani
Kishore Biyani, Founder and CEO of Future Group, and
Managing Director of Pantaloon Retail, discusses the retail sector and
his own group in an exclusive interview.
Kishore Biyani, Founder and CEO of Future Group
Retail giant Kishore Biyani, Founder and CEO of Future Group, and Managing Director of Pantaloon Retail, discusses the retail sector and his own group with Govindraj Ethiraj in an exclusive interview on the show Bottomline, which airs on Headlines Today.
Q: How does the economy look to you? The big numbers seem very disappointing.
A: If you look at the human race, it always wants more than it has. You always aspire for more. The current lot of people who are getting into the consuming fold were born to democratic parents. I was born to socialistic parents. I didn't get what I wanted. The younger generation doesn't have that guilt about consumption that we did. So, in a sense there are new categories which are emerging. There is an aspiration level. People want to consume more than what they are doing, more than ever before. So, as humans we want to consume more. Economic cycles come and go… But a base consumption level has been set now. Basic food, basic clothing, basic home products.
Q: And you are not seeing any pull back in that?
A: We are not seeing any pull back. We are seeing category shifts, maybe, but nothing to show that consumption is not happening or that people don't want things. Problems with consumption of basic items come up when job security issues come up. People's jobs are quite secure and there are no fears of job losses. But what is not happening is new job creation. That also adds to consumption. The basic food, clothing business seems to be quite okay… There are categories which are growing significantly - chocolates, beauty products, breakfast foods. There are some categories which are showing very good growth.
Q: And what explains that?
A: These are all categories which are related to vanity, or to children. Breakfast habits are changing in India. A child today has a different breakfast from his/her parents eat. We see a lot of variation in breakfast as a category. Chocolate is becoming the new celebration item. It is replacing mithai to a great extent and consumption is happening across all age groups. Beauty is a new emerging category. Everybody wants to look better. Old people want to look younger and young people want to look a little mature.
Q: How many people are walking into your stores today all over the country?
A: We have stores all over and customer entry is never a big challenge in a country as huge as India. We have close to 300 million footfalls a year, which is huge. We have around 70 million square feet of retail space.
Q: So, one-fourth the population is visiting or revisiting your stores?
A: Yeah, visiting and revisiting… We believe modern retail is a public space. Where do you go when you have some time? People go to malls, retail stores. You meet people, you do some looking around, you become relevant by being aware of what's happening around you.
Q: Is the fate of the retail industry dependent on a certain amount of base consumption?
A: Base consumption is not the challenge. The new consumption, the new categories, how much we launch, how much can we expect - those are the challenges. Modern retail is about selling new products and new categories and creating demands for new categories to the aspirational Indian consumers.
Q: If you look at big retail versus the kirana store, how has that battle played out in the last few years?
A: That was never a battle because India is a huge country of 1.2 billion-plus people and modern retail only caters to the value added selling of a product. We sell more than 60,000 to 70,000 SKUs (stock keeping units) and a kiranawala would sell 700 to 1,000 SKUs. So, he would compete with us in only 600 to 700 SKUs. What about the remaining SKUs? And second, I believe in the theory of India 1, India 2 and India 3. India 1 is the consuming class. All those who have a little bit of domestic help, I put them in the India 1 category, and they are the people who are going to modern stores. I think India 2 still shops from the local kirana stores and wholesale markets. India 3 is a struggling class. It is made up of people who are making ends meet by working as farm labourers, contract labourers. There is a different market for every kind of retail format.
Q: You talked about children, about breakfast. Those are the new trends that you are capitalising on in some sense. Are they reflected in other markets across the world?
A: I am talking of India as a market.
Q: Look at the advanced countries…
A: I don't understand any other country. We don't track data on other countries.
Q: So, you are saying India's organised retail is evolving independent of global trends?
A: iPads, iPhones are being sold everywhere. Smartphones are becoming the order of the day. India is picking up trends. In terms of our food habits we are very different from the rest. In terms of fashion, however, we are catching up with the world. We still don't wear as much as fashion as the world wears. In beauty products also we are now drifting towards the west. But our beauty concepts are still different from western notions of beauty. Our culture has its own nuances, the way we look at things. But on modern things we are the same as anyone else…
Q: You have been through a difficult phase. You have a debt problem and I will come to that in a moment. Where did things go wrong and what have you done to set them right?
A: We have been working for the last two years looking at how to reorganise our business, because we strongly believe in retail as a business. We believe retail will continue as a business and consumption will happen and we are well placed in terms of size and skills… We had gone into a lot of other businesses… We now want to stick to the core.
Q: Can you give me an example of one or two areas you went into which you now feel you shouldn't have?
A: There are many things. But I think that's behind us now.
Q: The reason I ask is a lot of people look at you for inspiration.
A: Financial services was a business we went into. We thought it was non-core. We have diluted our promoters' stake in one of our major entities as well, Pantaloon, so that we can run the rest of the business with renewed focus. I strongly believe that business has to be done by batting on the front foot. You can't be burdened by something and carry on doing business. So, we believe we are back to growth… The energy levels are high. We believe the market will support us.
Q: It's been a year since you sold a stake in Pantaloon to the Aditya Birla Group. How do you look back on what that has achieved?
A: We are talking about double digit growth now in the same stores. We feel lighter. We believe in business we have to keep taking decisions and moving forward. We sold our NBFC business to Warburg Pincus, Pantaloon went to Aditya Birla Group. We have recently done some transactions in our insurance business. We feel comfortable now.
Q: Your debt level had reached Rs 9,000 crore and a lot of what you have been doing in the last few months has been to reduce that debt...
A: First, the notion of a Rs 9,000-crore debt was itself faulty because we had an NBFC business and the primary job of that business was to borrow and lend. So, the numbers (relating to our loans) got added to our balance sheet because of consolidation. That created a lot of wrong estimate of the debt. If you take out the NBFC, a large chunk of the debt goes out.
You can only grow business through equity or debt. The equity markets have their own challenges and being in a sector which has a foreign money cap of 24 per cent means the money dries up. To grow we can only look at deleveraging to a certain extent and that is what we did. Business is a long term game. We plan businesses for five, 10 years and so have to have a stronger capacity to do business. We created that capacity so that we could play our second innings in a much better manner than we would have played otherwise.
Q: You were not comfortable with the cost of real estate. That continues to be high. How does that affect the business?
A: India is 17 per cent of the world's population. But it has less than three per cent of the land mass. We are dealing with a different scenario now. Three years down the line we don't see many properties in India and the challenge will be how do to grow business without real estate per se. We will have to discover new models of doing business. It should be interesting to see how one brings down the cost by not using real estate, or by using real estate more effectively.
Q: Who is going to be your biggest competitors and how are you going to fight them? Is e-commerce your biggest competitor rather than the big store down the road?
A: There will be various way of selling goods. Earlier, people use to go door-to-door to sell goods. We had a barter model of doing business. There will be another form of distribution, which is e-commerce, using technology to deliver...
Q: So, is that something that you are going to drive into your existing stores?
You will see a lot of that coming from us in the next two to three years probably.
Q: E-commerce is something you have not been able to make much headway in.
A: We want to do it in a different way and we believe we have cracked the model. So, we are going to launch it for consumers by August 15 and we believe this model should work.
Q: The reason e-commerce works is the ability of the company to store the goods and deliver them much more cheaply than traditional retailers, who have to bear the cost of setting up stores.
A: I don't agree. Currently the delivery model (of an e-tailer) and the cost of acquiring a customer is much higher than while running a retail store. You can bring this down by scaling up. I think scale is not yet coming in.
Q: Why do you feel that e-commerce will not be able to stay ahead in the price war?
A: I am not saying that. I am saying that any business needs volumes and every new business needs a delivery model which has to be much better in terms of costs and efficiencies than existing ones. It is a journey which has just begun. There has been some success by some players, but the jury is not yet out on when do you reach that scale, when do you work out a cost which is the right cost at which to do this business.
Q: How do you see things happening in the future?
A: Nothing is permanent. Business has matured a lot in the last three years. It is not just knowledge which is going to help business, but wisdom as well... People are taking rational and good decisions. If you look at the fashion business this spring/summer season, if you look at any store, the collection is absolutely new. You will not see old merchandise anywhere. Consumers want new merchandise. The businesses have matured significantly.
Q: Is that another way of saying that businesses did not respond earlier and, therefore, they went through trouble in the last few years?
A: Nobody knows what the right thing is. Everybody is discovering e-commerce. Even the world discovered it not many years ago. So, it's a journey. Sometimes in India, the journey takes a little longer than expected. Sometimes the consumer matures earlier than the retailer and sometimes the retailer, looking at consumer responses, matures earlier. Both go hand in hand.
Q; Is this a good time for young entrepreneurs to set up businesses?
A: I have been a passionate entrepreneur. I believe in entrepreneurship. I believe entrepreneurship is the only thing which can drive India to its economic power or growth. And entrepreneurship has to be encouraged in a country of 1.2 billion-plus people. We have a country of lot of self-employed people and we have to encourage that and it goes without saying that without entrepreneurship this country can't reach its glory.
Q: What are the kind of things we could do more? What are the things that you would like to see that could make the environment better?
A: As a society we had very few resources earlier. So, we were always conservative in terms of taking chances, taking risks. As a society we also ridiculed failure. Failure has never been celebrated or looked well upon in this country. As a society we need to change our approach, to start taking risks and recognise failure as a stepping stone towards moving to the next level. That's how entrepreneurship will get encouraged and people will try to take up more challenges and risks. Second, capital availability itself is a challenge for a new entrepreneur. So, we will have to fix things in a way that entrepreneurship can be further nurtured. There is a lot in the history of corporate India of the last 60 years which can help us to build entrepreneurship. A lot of people want to promote entrepreneurship. There are a lot of good brains in the country and we can create role models, mentors and help entrepreneurs to grow… I am told there are many efforts being made, I think Harsh Mariwala has created something... We did something in our own way. There are many people wanting to create entrepreneurs in the country and there are moves being made in that direction.
Q: There is a feeling that corporate India is at the receiving end now for various reasons… It is embroiled in controversies, scams, court cases. Is that affecting business?
A: I'll be hypocrite if I say no. The macro-environment does impact an entrepreneur in terms of his decision-making ability to a great extent. Everybody is passing through this phase and everybody knows that it is not permanent. The mood of the entrepreneur changes with every passing day. One piece of positive news, and entrepreneurs start taking decisions very differently. This was a phase. But many people have overcome this phase and I expect the entire breed of entrepreneurs to change themselves. One positive decision and one positive outlook, and everybody will be back in the game in a bigger way.
Q: What is it about Indian consumers that inspires or gives you faith?
A: It's simple. India is a young country, a democratic country. The younger generation wants more than what their parents possessed and it's becoming more competitive in terms of social peers. We have moved into consumerism. The new media is also impacting consumption significantly. People are aware. Nobody can reverse the aspirations of 65 per cent of India, which is below 30 years of age. That is what is going to drive consumption.
Q: And that is what you will bet on?
A: We as marketers can influence consumption. We have done that earlier. I don't think India can become a major economy without consumption getting a boost. It is consumption which is helping economic growth, whatever we currently have.
Q: How does the economy look to you? The big numbers seem very disappointing.
A: If you look at the human race, it always wants more than it has. You always aspire for more. The current lot of people who are getting into the consuming fold were born to democratic parents. I was born to socialistic parents. I didn't get what I wanted. The younger generation doesn't have that guilt about consumption that we did. So, in a sense there are new categories which are emerging. There is an aspiration level. People want to consume more than what they are doing, more than ever before. So, as humans we want to consume more. Economic cycles come and go… But a base consumption level has been set now. Basic food, basic clothing, basic home products.
Q: And you are not seeing any pull back in that?
A: We are not seeing any pull back. We are seeing category shifts, maybe, but nothing to show that consumption is not happening or that people don't want things. Problems with consumption of basic items come up when job security issues come up. People's jobs are quite secure and there are no fears of job losses. But what is not happening is new job creation. That also adds to consumption. The basic food, clothing business seems to be quite okay… There are categories which are growing significantly - chocolates, beauty products, breakfast foods. There are some categories which are showing very good growth.
Q: And what explains that?
A: These are all categories which are related to vanity, or to children. Breakfast habits are changing in India. A child today has a different breakfast from his/her parents eat. We see a lot of variation in breakfast as a category. Chocolate is becoming the new celebration item. It is replacing mithai to a great extent and consumption is happening across all age groups. Beauty is a new emerging category. Everybody wants to look better. Old people want to look younger and young people want to look a little mature.
Q: How many people are walking into your stores today all over the country?
A: We have stores all over and customer entry is never a big challenge in a country as huge as India. We have close to 300 million footfalls a year, which is huge. We have around 70 million square feet of retail space.
Q: So, one-fourth the population is visiting or revisiting your stores?
A: Yeah, visiting and revisiting… We believe modern retail is a public space. Where do you go when you have some time? People go to malls, retail stores. You meet people, you do some looking around, you become relevant by being aware of what's happening around you.
Q: Is the fate of the retail industry dependent on a certain amount of base consumption?
A: Base consumption is not the challenge. The new consumption, the new categories, how much we launch, how much can we expect - those are the challenges. Modern retail is about selling new products and new categories and creating demands for new categories to the aspirational Indian consumers.
Q: If you look at big retail versus the kirana store, how has that battle played out in the last few years?
A: That was never a battle because India is a huge country of 1.2 billion-plus people and modern retail only caters to the value added selling of a product. We sell more than 60,000 to 70,000 SKUs (stock keeping units) and a kiranawala would sell 700 to 1,000 SKUs. So, he would compete with us in only 600 to 700 SKUs. What about the remaining SKUs? And second, I believe in the theory of India 1, India 2 and India 3. India 1 is the consuming class. All those who have a little bit of domestic help, I put them in the India 1 category, and they are the people who are going to modern stores. I think India 2 still shops from the local kirana stores and wholesale markets. India 3 is a struggling class. It is made up of people who are making ends meet by working as farm labourers, contract labourers. There is a different market for every kind of retail format.
Q: You talked about children, about breakfast. Those are the new trends that you are capitalising on in some sense. Are they reflected in other markets across the world?
A: I am talking of India as a market.
Q: Look at the advanced countries…
A: I don't understand any other country. We don't track data on other countries.
Q: So, you are saying India's organised retail is evolving independent of global trends?
A: iPads, iPhones are being sold everywhere. Smartphones are becoming the order of the day. India is picking up trends. In terms of our food habits we are very different from the rest. In terms of fashion, however, we are catching up with the world. We still don't wear as much as fashion as the world wears. In beauty products also we are now drifting towards the west. But our beauty concepts are still different from western notions of beauty. Our culture has its own nuances, the way we look at things. But on modern things we are the same as anyone else…
Q: You have been through a difficult phase. You have a debt problem and I will come to that in a moment. Where did things go wrong and what have you done to set them right?
A: We have been working for the last two years looking at how to reorganise our business, because we strongly believe in retail as a business. We believe retail will continue as a business and consumption will happen and we are well placed in terms of size and skills… We had gone into a lot of other businesses… We now want to stick to the core.
Q: Can you give me an example of one or two areas you went into which you now feel you shouldn't have?
A: There are many things. But I think that's behind us now.
Q: The reason I ask is a lot of people look at you for inspiration.
A: Financial services was a business we went into. We thought it was non-core. We have diluted our promoters' stake in one of our major entities as well, Pantaloon, so that we can run the rest of the business with renewed focus. I strongly believe that business has to be done by batting on the front foot. You can't be burdened by something and carry on doing business. So, we believe we are back to growth… The energy levels are high. We believe the market will support us.
Q: It's been a year since you sold a stake in Pantaloon to the Aditya Birla Group. How do you look back on what that has achieved?
A: We are talking about double digit growth now in the same stores. We feel lighter. We believe in business we have to keep taking decisions and moving forward. We sold our NBFC business to Warburg Pincus, Pantaloon went to Aditya Birla Group. We have recently done some transactions in our insurance business. We feel comfortable now.
Q: Your debt level had reached Rs 9,000 crore and a lot of what you have been doing in the last few months has been to reduce that debt...
A: First, the notion of a Rs 9,000-crore debt was itself faulty because we had an NBFC business and the primary job of that business was to borrow and lend. So, the numbers (relating to our loans) got added to our balance sheet because of consolidation. That created a lot of wrong estimate of the debt. If you take out the NBFC, a large chunk of the debt goes out.
You can only grow business through equity or debt. The equity markets have their own challenges and being in a sector which has a foreign money cap of 24 per cent means the money dries up. To grow we can only look at deleveraging to a certain extent and that is what we did. Business is a long term game. We plan businesses for five, 10 years and so have to have a stronger capacity to do business. We created that capacity so that we could play our second innings in a much better manner than we would have played otherwise.
Q: You were not comfortable with the cost of real estate. That continues to be high. How does that affect the business?
A: India is 17 per cent of the world's population. But it has less than three per cent of the land mass. We are dealing with a different scenario now. Three years down the line we don't see many properties in India and the challenge will be how do to grow business without real estate per se. We will have to discover new models of doing business. It should be interesting to see how one brings down the cost by not using real estate, or by using real estate more effectively.
Q: Who is going to be your biggest competitors and how are you going to fight them? Is e-commerce your biggest competitor rather than the big store down the road?
A: There will be various way of selling goods. Earlier, people use to go door-to-door to sell goods. We had a barter model of doing business. There will be another form of distribution, which is e-commerce, using technology to deliver...
Q: So, is that something that you are going to drive into your existing stores?
You will see a lot of that coming from us in the next two to three years probably.
Q: E-commerce is something you have not been able to make much headway in.
A: We want to do it in a different way and we believe we have cracked the model. So, we are going to launch it for consumers by August 15 and we believe this model should work.
Q: The reason e-commerce works is the ability of the company to store the goods and deliver them much more cheaply than traditional retailers, who have to bear the cost of setting up stores.
A: I don't agree. Currently the delivery model (of an e-tailer) and the cost of acquiring a customer is much higher than while running a retail store. You can bring this down by scaling up. I think scale is not yet coming in.
Q: Why do you feel that e-commerce will not be able to stay ahead in the price war?
A: I am not saying that. I am saying that any business needs volumes and every new business needs a delivery model which has to be much better in terms of costs and efficiencies than existing ones. It is a journey which has just begun. There has been some success by some players, but the jury is not yet out on when do you reach that scale, when do you work out a cost which is the right cost at which to do this business.
Q: How do you see things happening in the future?
A: Nothing is permanent. Business has matured a lot in the last three years. It is not just knowledge which is going to help business, but wisdom as well... People are taking rational and good decisions. If you look at the fashion business this spring/summer season, if you look at any store, the collection is absolutely new. You will not see old merchandise anywhere. Consumers want new merchandise. The businesses have matured significantly.
Q: Is that another way of saying that businesses did not respond earlier and, therefore, they went through trouble in the last few years?
A: Nobody knows what the right thing is. Everybody is discovering e-commerce. Even the world discovered it not many years ago. So, it's a journey. Sometimes in India, the journey takes a little longer than expected. Sometimes the consumer matures earlier than the retailer and sometimes the retailer, looking at consumer responses, matures earlier. Both go hand in hand.
Q; Is this a good time for young entrepreneurs to set up businesses?
A: I have been a passionate entrepreneur. I believe in entrepreneurship. I believe entrepreneurship is the only thing which can drive India to its economic power or growth. And entrepreneurship has to be encouraged in a country of 1.2 billion-plus people. We have a country of lot of self-employed people and we have to encourage that and it goes without saying that without entrepreneurship this country can't reach its glory.
Q: What are the kind of things we could do more? What are the things that you would like to see that could make the environment better?
A: As a society we had very few resources earlier. So, we were always conservative in terms of taking chances, taking risks. As a society we also ridiculed failure. Failure has never been celebrated or looked well upon in this country. As a society we need to change our approach, to start taking risks and recognise failure as a stepping stone towards moving to the next level. That's how entrepreneurship will get encouraged and people will try to take up more challenges and risks. Second, capital availability itself is a challenge for a new entrepreneur. So, we will have to fix things in a way that entrepreneurship can be further nurtured. There is a lot in the history of corporate India of the last 60 years which can help us to build entrepreneurship. A lot of people want to promote entrepreneurship. There are a lot of good brains in the country and we can create role models, mentors and help entrepreneurs to grow… I am told there are many efforts being made, I think Harsh Mariwala has created something... We did something in our own way. There are many people wanting to create entrepreneurs in the country and there are moves being made in that direction.
Q: There is a feeling that corporate India is at the receiving end now for various reasons… It is embroiled in controversies, scams, court cases. Is that affecting business?
A: I'll be hypocrite if I say no. The macro-environment does impact an entrepreneur in terms of his decision-making ability to a great extent. Everybody is passing through this phase and everybody knows that it is not permanent. The mood of the entrepreneur changes with every passing day. One piece of positive news, and entrepreneurs start taking decisions very differently. This was a phase. But many people have overcome this phase and I expect the entire breed of entrepreneurs to change themselves. One positive decision and one positive outlook, and everybody will be back in the game in a bigger way.
Q: What is it about Indian consumers that inspires or gives you faith?
A: It's simple. India is a young country, a democratic country. The younger generation wants more than what their parents possessed and it's becoming more competitive in terms of social peers. We have moved into consumerism. The new media is also impacting consumption significantly. People are aware. Nobody can reverse the aspirations of 65 per cent of India, which is below 30 years of age. That is what is going to drive consumption.
Q: And that is what you will bet on?
A: We as marketers can influence consumption. We have done that earlier. I don't think India can become a major economy without consumption getting a boost. It is consumption which is helping economic growth, whatever we currently have.
