Future-Bharti retail merger is an important milestone

Future - Bharti retail merger is one of the most important milestones in the relatively short history (of about 30 years) of modernization of India's retail. While there have been several acquisitions in the past, and some in the supermarket space too (e.g. Trinethra's acquisition by Aditya Birla Group and Nilgiri's acquisition by Future Group), none has the potential to disrupt the dynamics of India's supermarket (and hypermarket) retailing as this one.

India's merchandise retail spending in 2015 is estimated at about US$ 530 billion. Of this, more than US$ 365 billion is accounted for by food and grocery alone and hence the very high attractiveness of this particular consumer spending category.

Of course, this segment also has the maximum challenges that include availability of retail space close to where the consumers reside, the need to have localized and regionalized supply chains rather than a national one, and the inadequacy of India's cold-chain infrastructure as the top-3.

Hence, to succeed in India's supermarket (and hypermarket) space, the incumbent must have access to very large quantum of financial capital and also have access of retail business knowhow to manage the very complex operation of supermarket business. Unfortunately, India's politicians - across different parties - have been consistently resisting opening India's multi-brand retail sector to foreign investment and hence modernization of India's (brick & mortar) retail industry has been stymied so far.

With this merger, it is expected that both Future & Bharti will be able to pool together their respective learning relating to operations and leverage much more effectively their investment in supply chain / backend logistics and other infrastructure. There is also a near perfect complementarity of the two companies' front end retail foot print giving the merged entity a very strong pan-India footprint.

It would now be very interesting to see a tougher fight for the leadership position in this particular space between Future Retail and others that include Reliance Retail, D' Mart, Aditya Birla Retail, and Spar to name a few strong competitors.

Arvind Singhal is Chairman of Technopak. He can be reached at Arvind.singhal@technopak.com