Welcome Readers !
I am Sheerapthi Ramiya, 2nd Year MBA from Amrita School of Business, coming back with this week's read ! Hope my readers are doing well and I hope you enjoy :)
This is hot news! The Future group has reached out to Reliance Retail to buy their business for an overall transaction value of Rs. 27,513 Crores! Future group owns well known brands such as Big Bazaar, Brand Factory, Buffalo, DJ&C, FBB, etc. The transaction takes place as a three-step deal:
-
All
Listed Future Group companies to be merged into Future Enterprises Ltd.
-
Future
Enterprises to transfer assets of retail and wholesale undertaking and
logistics and warehousing business to Reliance Retail entities
- Reliance Retail will also invest Rs. 2,800 crores for an up to 13% stake in Future Enterprises.
But why did Future Group sell out ?
The Kishore-Biyani founded Future group has been seeking funding support for several months as around Rs 15,000 crore is in debt to the company as well as substantial decrease in sales and cash flow on the account of pandemic and lockdown. The loss for Future Group was its excessive leverage. It did win a very small investment from Amazon Retail several months ago, however India's FDI (Foreign Direct Investment) rules restrict foreign ownership of multi-brand retail. This deal with Reliance Retail will avert any further financial crisis at the Future Group, which last averted a debt default at the minute. The Future Group deal is a big relief to banks like Bank of India, SBI, Axis Bank, Canara Bank and RBL Bank.
What in it for Reliance Retail ?
Reliance Retail runs several retail
formats in the grocery, electronics and apparel space but it does not have a
large reach as that of Future Group, especially in the grocery Business. With
household retail brands like Big Bazaar, Fashion at Big Bazaar, Easy Day and
Brand Factory going to Reliance, an in-house multi brand retail product will be
obtained giving Reliance Industries an immediate edge in the retail market. The
deal will lead to an stronger organised retail market giving Mukesh Ambani led
Reliance Industries’ retail venture pole position in the close to over $700
billion retail sector in India. The deal will also add over 1,700 retail stores
to Reliance's footprint of 10,900 stores across groceries, electronics and
other formats. The deal gives a positive cash flow and will also make Reliance Retail become the
largest grocery player in the country.
What does this mean for Reliance Retail?
This deal includes - store front, warehousing and logistics. Future Groups loss is Reliance gain as it gets a readymade reach and supply chin built over the years and ready for further execution by Reliance. The execution in retail will be rolled out in months to come and also promise growth from an established platform. Access to Tier 2 and Tier 3 towns where the Future group has inherent presence in shall develop and build the overall franchise footprint in grocery, retail and lifestyle and other businesses. Over a period of time, warehousing and supply chain dynamics should aid in cost synergies and overall digitization of the Jiomart Platform. The opportunities to make a 360-degree presence through digital mediums, brick and mortar stores, supply chain backward operations should ensure Reliance Retail are able to take over the competition from global players. That's not all. The important part with the deal coming in is that they are not only acquiring the front-end stores but also the backend for retail, which is highly important because we will have the ability to earn a margin out of it unless we have a proper backend if we want to start a grocery business. Reliance doesn't have to only use warehouses, but can also use the available brick and mortar as small warehouses to strengthen their supply chain and logistics network.
The Windup
India's retail market is highly fragmented and dominated by corner stores or Kirana stores. However there is large headroom for the top 5 retailers to increase their market share from the current less than 5% to 10% - 12% in the next decade (BCG Report). Isha Ambani, Director, Reliance Retail Ventures says that the transaction will help in the evolution of modern retail in India. The will actively collaborate with small merchants and kiranas as well as large consumer brands to help grown momentum in the retail industry. This will help accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during challenging times says the press release.
We can see how Reliance is trying to grab every single opportunity, to strengthen its position in the retail sector with the purchase of Sri Kannan Departmental Stores a few months back which is a local departmental store in across Tamil Nadu, the Purchase of the leading retailers - Future Group Retail and collaborating with technological companies to gain a dominant position in the Indian Retail Landscape. With Reliance's introduction of Jiomart and the availability of a large network of warehouses and brick and mortar stores and also the backend suppliers, logistics and supply chain will be seamless and digitized while reducing the delivery time in the modern age of India.
What are your thoughts about this
? Give your comments below :)
If you haven't check out my last week's read, which is about Chennai being self sufficient and self reliant during lockdown, click the link below !
https://logisticsmatters.blogspot.com/2020/08/will-chennai-become-self-sufficient-by.html
No comments:
Post a Comment