Mumbai: Future Group chief executive officer Kishore Biyani expects the government to allow foreign direct investment in multi-brand retail chains. Any policy change should be aimed at the ultimate well-being of the consumer, the founder of Pantaloon Retail (India) Ltd, the nation’s biggest publicly-traded retail chain, said in an interview. He plans to sell stakes in some of the group businesses to unlock value and pare debt. Edited excerpts:
How concerned are you about high inflation?
Slowdown only happens if there is job insecurity or other fears. There is a fear of uncertainty of prices on few items. If we look at inflation, say of dry staples or groceries, it is not more than 4-7%. But for vegetables, inflation is severe, there people shift. Now the concern is cotton prices, metal prices are rising. There is more elasticity of demand there. The more you produce, the more you sell, the more benefit you can give to the consumers.
But won’t customers tend to shift to kirana stores, your main competition?
It’s not about that, it’s about what range you offer, what quality you offer and at what price you offer. It’s assortment, quality and price —you have to win on all three.
How will you manage this?
Where do you get fruits in the country? There are very few places where you get entire assortments. Modern retail will bring about the entire assortment. We will offer the entire assortment, through the year at good prices, good quality and consistently available. Availability is the first thing we will do.
Retail was expected to fill the farm-to-plate supply chain. What stage are you at?
We go as close as possible. We have created consolidation centres around farms. We have a fresh food company that is building supply and logistics for fruits and vegetables. In another six-eight months, we will be able to offer much cheaper products.
But the concept has not been successful in connecting with farmers.
The problem is that there are small farms, how do you consolidate? Retail is small and then there is the wholesale market. All three have to be of similar size for building a chain. We are trying to build a consolidation here at the buying level. Farmers will come and give us the goods, we sort it, package it, then ship it to our centres. What you will see in the next six-eight months is the opening up of various consolidation centres. Now we have started air lifting strawberries.
A year-and-a-half ago, you started restructuring your business. Is the process over?
It’s still going on. In between, we hived off the property and mall-management business. Then we sold off some of our non-retail assets such as brand and technology companies. Now, we are looking at further disinvestments. We have a lot of investments in the Pantaloons Retail balance sheet. We are looking at cashing in on some of these investments. We will unlock value, wherever we can.
Which are these investments?
Insurance is there, financial services is there, FCH (Future Capital Holdings), media, telecom, e-commerce, two NTC joint ventures...
Everyone will look at their own balance sheets. I am looking at Pantaloon Retail’s balance sheet. There is no target. It is a process, it’s a journey which is happening.
What is the mandate to the individual companies?
The financial services business is being run by Future Capital Holdings. It will open its own retail stores, which will be financial super markets. They are doing that. They have started gold loan, auto loan, housing loan, consumption loan, so they are growing in their own way.
The financial services business requires a lot of capital. What about retail?
That isn’t a problem. Their balance sheet has Rs600 crore. They have their own money, it’s a strong balance sheet.
What is the plan for FCH?
The best thing about FCH is that it has the lowest cost for acquisition of consumers. Look at the insurance week we are running with Future Generali, the number of people we have signed (up) is unbelievable. We are looking at the consumption services business. We are an investor there and we are seeing how we can get value out of this.
How do you get more value out of FCH?
I am a holder of shares. I need not be the holder of all the shares. Future Group has a holding company structure which holds different subsidiaries, which gives several options to raise money.
I can raise money anywhere. The holding company is a private company. That is where people would like to invest as they can enjoy the entire fruit.
What about the family holding company on top of the private holding company?
That is just the shareholding of the family.
Do promoters have leverage to raise money at the family holding company?
Forty-five to 46% is ok. We don’t want to dilute more than that.
What would you sell?
I can’t comment on that. We have taken a board decision. We have an opportunity to look at our investments portfolio and cash in on something to reduce our debt and grow in areas that are core. Retail is the core business and the rest is all non-core.
How comfortable would you be in selling the non-core businesses?
Any other company I am very comfortable up to 30%.
So, looking forward, you will be a pure-play retail player.
That is the direction. All the retail businesses will operate together. The back-end pieces such as logistics are an integral part of retail. It will be controlled by us.
You will be an ideal candidate for foreign retail chains to partner. A venture with Carrefour SA has been much talked about...
We are getting a feeling that multi-brand retailing will happen. FDI (foreign direct investment) will open up. We have never said anything. The regulations don’t allow us to tie up. I am not a person who will do back-end and front-end separately. Whatever we do, should do, should be good for the business. By good, it should bring either money, formats, consumer, otherwise it does not make sense.
What kind of retail growth do you see and how do you plan to capture it?
Today we are growing at 30-35%. I think we can grow at 40-45%. We have the square foot space in place, the management bandwidth in order. Our raw material is property. We have booked that well in advance. Five years down the line, we will look at 35-40 million sq. ft from 15 million sq. ft now. We have visibility of 25 million sq. ft space and an additional visibility of 10 million sq. ft.
How does this space play out in numbers and geography?
In five years, we will be 350-400 stores of Big Bazaar, Central (will have) 30-35, Pantaloons 100, Brand Factory 20-25.
Food Bazaar, Big Bazaar are national with a population of up to 300,000. Then there is rural with Aadhaar. The Aadhaar model is a franchise (one). We are prototyping this in Punjab and Gujarat. Aadhaar in five years will have 20,000-25,000 franchise stores.
Analysts are worried about rising debt in your company. Will this hamper growth?
After the next 12 to 18 months, it will be internal cash flow to a great extent. A debt ratio of 1.2 to 1.3 is comfortable. We are not comfortable with anything beyond that; 1.3 should be the outer limit.