Fixing Big Bazaar is top priority for India’s
retail king. But first let’s rewind a bit. As we explain in our current cover
story, Kishore Biyani’s empire had tacked on an incredible amount of debt. The
Future Group with Rs14,000 crore in sales had accumulated Rs9,000 crore in debt
resulting in interest payments that nearly wiped out profits. This was fine
when times were good but once consumer spending slowed down and interest rates
rose, Biyani realized something had to be done. And so he went about selling
assets with the stated aim of getting his debt down to a manageable level. In
April, he sold Pantaloons while last
week Future Capital Holdings left his stable.
Now, that he’s down to about Rs2,000 crore in debt
he reckons he’d be able to make interest payments and still have some cash for
expansion.
This process of hawking his assets around afforded
him one important insight – discovering the true worth of Big Bazaar. At
165 stores spread over 90 cities, Big Bazaar is definitely the most successful
hypermarket format in the country. It is also one that the likes of Walmart or
Carrefour would love to get their hands on. But in the absence of foreign
direct investment being permitted by the government both are loath to do a deal.
Now, what emerges is that Biyani is equally loath
to do a deal as he realizes that in the absence of FDI he is unlikely to get
the valuation the business deserves. He is recently said to have avoided a
meeting with former Walmart CEO Lee Scott. Instead he’s now spending time in
small workshops with Big Bazaar employees telling them that he’s here to grow
the business. People in business say that there had been a serious loss of
morale among Big Bazaar employees due to regular rumours of the business being
sold.
For now Biyani has decided to expand Big Bazaar and
work on fixing the back end. And he has the capital needed for expansion. This
year the Pantaloon India Retail, Big Bazaar’s holding company is expected to
bring in Rs15,000 crore in revenue with a profit of about Rs900 crore. (Last
year Pantaloon India made a profit of Rs1,200 crore and paid half that in
interest payments. With a slowdown in sales this year Rs900 crore may seem a
stretch but it is a target that may just be achievable.) Now, set aside Rs350
crore for interest payments and Biyani is still left with over Rs500 crore for
expanding. Biyani plans to add 2 million square feet of retail space every
year. This fits in neatly with the Rs2000 he needs per square feet to expand.
So in all he needs Rs400 crore a year to expand the Big Bazaar franchise. Money
that he now has.
What will be more of a challenge for him will be
fixing the back end and making Big Bazaar profitable. During the last slow down
in 2008-09 Rakesh Biyani had been given the task of getting this part of the
business in shape. Warehouses were set up and inventory tracking systems
(standard operating procedure at other retailers) were set up.
We now know that Rakesh was removed from the job
before his task was complete. While he cooled his heals things went awry and
Big Bazaar is now saddled with as much as three months of inventory. Fixing
these operational issues will be key.
The good news is that Rakesh is back in the saddle
and is working hard at fixing the operations. Meanwhile, Biyani is now rallying
his troops for what promises to be the mother of all retail battles. This time
he’ll be going head to head with Reliance, Aditya Birla and Bharti’s Easyday
format. It’ll be tough going but don’t count Biyani out. As we say in our story
“It is only when he’s pushed to the wall that it brings out the best in him.”
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