The Reliance-Future Deal Decrypted

Reliance Retail acquired Future Group

In August this year, Reliance Retail Ventures Ltd. (RRVL), subsidiary of Reliance Industries Ltd. had announced the acquisition of some of the businesses of Kishore Biyani’s Future Group for ₹24,713 crore. These include the retail and wholesale business and therefore the logistics and warehousing business from the Future Group. Future Group’s Financial and Insurance business isn’t an element of this deal.

With this Reliance Retail will now have access to close to about 1800 stores of the Future Group which include Big bazaar, Fbb, Easyday, Central, Foodhall which are functional transversely in 400 cities and towns of India.

What led Mr. Biyani to sell his homegrown retail business?

In the past few months COVID-19 has become a major problem for several businesses in India and also the world. Same was the case with the retail business of the Future Group, because of the Covid-19 pandemic Future Retail nearly lost ₹7000 crore of revenue within the first two-three months of the pandemic which led to closure of shops due to lockdown imposed by the government in several cities of India. Aside from very low revenue generation what further adds up to the matter is rent and also the interest (on debt). Mr Biyani, in an interview stated, it absolutely was very difficult for him to continue the operations of the retail and wholesale business of the Future Group and was left with no other option but to exit.

Reliance’s take on the Deal

Isha Ambani, daughter of Asia’s richest man and Director, Reliance Retail Ltd. shared her thoughts on the deal with Future Group-

Reliance Retail will provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played a vital role within the evolution of recent retail in India. We hope to continue the expansion momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands.

How good is the deal for Reliance?

With over 12000 retail stores and annual revenue of about $22 billion, it is quite difficult to grasp that why did Reliance Retail acquired Future Retail which incorporates a debt of around $2 billion.

The Future Group is a well-known established brand in two major sectors, fashion and food & grocery. In the fashion sector, Lifestyle Stores owned by the Future Group has become an eminent name, while in the groceries segment brands like Big bazaar and Easy day are quite popular and present in various cities & towns of the country. According to recent reports it is believed that the market share held by modern trade formats like supermarkets and hypermarkets is expected to double from two to four percent by 2020 as stores fulfil the evolving needs of consumers. Private independent estimates forecast Indian food retail sales to surpass $800 billion by 2023.

Now Mr Ambani is an opportunist, who does not want to miss the chance of creating his dominance in the retail sector. Reliance Retail is now going to enter into competition with companies like Amazon Inc. which is currently ruling the retail market. As a result of this deal, Reliance’s newly launched JioMart which has received huge investments from top international companies, is aiming to acquire the majority online grocery sales in the country by 2024.

A very important fact in a retail business is Retail Area. Before entering into the deal with the Future Group, Reliance Retail operated around 12000 stores across 6700+ cities with a total retail area of around 28.5 million square ft. But, after the acquisition, it now has near to 52 million square feet of space in retail area. Reliance has been able to double its capacity with just a single deal.

Future Business Operations of Future Group

After the deal with Reliance Retail the Future Group will retain a number of its businesses under Future Enterprises Ltd. (FEL). These include manufacturing and distribution of FMCG goods, integrated fashion sourcing and manufacturing businesses, its insurance JVs with Generali and a venture with NTC Mills.

A proclamation made by The Future Group stated that post this deal with Reliance Retail, FEL will emerge strong with businesses in manufacturing and distribution of FMCG products and integrated fashion sourcing and merchandising. This deal will enable FEL to target the creation of new-age brands within the FMCG and fashion space and expand its reach.


 

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