Kishore Biyani, popularly perceived as the pioneer in the organized or modern retail business in India, has now set his eyes on a new frontier he’d like to explore, maybe even conquer: e-commerce.
A month after Pantaloon Retail (India) Ltd launched its digital platform—sales through telephone, television and the Internet—Biyani, the chairman of the Future Group, of which Pantaloon is a part, said this business could reach Rs 1,000 crore in revenue within “15 months” against the earlier estimate of “two to three years from launch”.
And in the next six months, Biyani hopes to launch a home delivery service for groceries. The move, which will see Pantaloon addressing a challenge that has been the Waterloo for many firms in India and elsewhere, will also see the company competing head-on with neighbourhood grocery shops, or so-called kirana stores, that have used home delivery to good effect to survive the onslaught of modern retailers and which account for almost 95% of India’s $400 billion (Rs 17.8 trillion) retail business.
Futurebazaar.com already clocks sales of Rs 3 crore a day (which would translate into more than Rs 1,000 crore on an annualized basis) and Biyani is confident that India’s experience with e-commerce will be similar to China’s—a slow start, followed by rapid growth.
Online transactions are estimated to grow to roughly 7% of China’s overall retail market by 2013 from about 2% now, according to Deutsche Bank AG analyst Alan Hellawell quoted in a 2 November story in The Wall Street Journal. In India, according to a yet-to-be-published report by a body representing companies in the Internet and mobile marketing space, the e-commerce market was worth Rs 20,653 crore in 2009 and is estimated to grow to Rs 33,591 crore in 2010 and Rs 55,593 crore by 2011.
For Biyani, there is another attraction: “There is no competition, it’s zero. There might be a few, third-party providers, but hardly anything. There are some in specific categories like travel, but no real competition.”
According to the report mentioned earlier, travel (including airline and railway tickets) accounted for 69% of e-commerce in India in 2009, followed by sales of electronic products such as computers, cameras, and mobile phones (a total of around 7.5%). Sales trends at Futurebazaar.com indicate a similar trend: consumer durables and IT products lead, followed by an unlikely candidate—pillows. They also indicate the medium’s reach. The website has so far received orders from 1,127 towns, with the top 10 cities accounting for 60% of sales and the remaining 1,117 towns accounting for 40%, a split that, to Biyani, proves the existence of “a customer who is not being serviced and is taking to this medium”.
But Biyani is convinced that groceries hold the key.
Future’s discount chain KB’s Fair Price will play a key role in the delivery of groceries with orders received online and by phone being passed on to the nearest store depending on the customer’s pin code (the ordering service will also be available as an application on T24, the mobile telephony service launched by Future in association with Tata Teleservices Ltd in some parts of India, and which the group plans to take national very soon).
Future Group and Biyani aren’t the first to experiment with online delivery of groceries. India’s largest consumer products company Hindustan Unilever Ltd did something similar with Sangam Direct, but the initiative didn’t succeed. An expert said Future Group may succeed because it is already in the retail business and has sufficient reach. By the end of 2010, Future will have 150 KB’s Fair Price stores; by mid-2012, it will have 200 Big Bazaar hypermarkets; and by the end of this month, Pantaloon will have 50 stores. All told, Future has a footprint across 85 cities.
“In the long term this model definitely will work as more people get online. In the short term though, I am not sure,” said Pinakiranjan Mishra, partner at audit and consulting firm Ernst and Young.
Pantaloon has invested Rs 120-150 crore in the business and Biyani is now building a hi-tech 120,000 sq. ft office in Powai, Mumbai, to oversee the online operations. And he has roped in venture capital firm Sherpalo Ventures as an investor.
Pantaloon Retail reported a net profit of Rs 52.57 crore on sales of Rs 1,642.41 crore for the quarter ended 30 June. The company is yet to declare its results for the quarter ended 30 September.
This recent quarter has been good for retailers. Shoppers Stop Ltd and Tata group’s Trent Ltd reported a growth in net profit of 44.1% to Rs 17.38 crore and 128.1% to Rs 12 crore, respectively, and a growth in revenue of 23.1% to Rs 503.25 crore and 26.5% to Rs 172.53 crore, respectively (over the corresponding quarter a year ago).