Nilgiri's to boost Future grocery plans
The expected acquisition to widen southern presence, even after likely rebranding
Kishore Biyani has the south India-based supermarket brand, Nilgiri's in the cross hairs, according to media reports. If he follows through with the acquisition, the brand is expected to boost his growth prospects in the food and grocery segment.
While Biyani, group CEO, Future Group, has flagship Big Bazaar as his largest retail chain brand, he has more number of grocery chain brands such as Food Bazaar, KB's Fair Price, Big Apple and Aadhaar.
The obvious benefits Nilgiri's, which clocked Rs 700 crore in sales, would
bring post Biyani's likely move is expand Future Group's footprint in the
south. Though it runs around 230 Big Bazaar and Food Bazaar stores in the
country, south India houses only a fifth of the count. Nilgiris has around 140
stores, mostly franchisees.
"It (buying Nilgiris) will definitely help Future grow stronger in south.
It will help them access new markets and intellectual assets of
Nilgiri's," says Susil Dungarwal, founder at Beyond Squarefeet, a mall
management firm.
Dungarwal likens the move with Aditya Birla Retail buying Thrinetra in south in 2006.
A chief executive of a retail firm says that not only is the contribution of
the southern states to Future's food and grocery revenues the least, in states
such as Andra Pradesh, Kerala and Tamil Nadu, the group's presence is feeble.
"Buying a chain in the south will plug that gap," the executive adds.
He says Nilgiris stocks 6,000 products, nearly 50 per cent more the number of
products stocked by other retailers but its sales per sq-feet is 25 to 30 per
cent higher than the industry.
"Since Nilgiris has its own manufacturing in dairy and bakery products,
and 26 to 27 per cent of its revenues come from private labels, any buyer is
buying a very profitable venture," he says.
Faster rate
Many in the industry believe acquiring a chain of small format stores will make
Future's grocery business grow faster. "When you want to penetrate deeper,
you need smaller formats. If you want to build it from scratch, it will take a
long time.
Hence, strong regional players in this segment become good acquisition
targets," says Devangshu Dutta, chief executive of retail consultancy
Third Eyesight. "Big Apple (which Future bought earlier) was strong in the
NCR. Nilgiris has a good brand image, strong operations making it a good
acquisition target," Dutta says.
A senior executive of a Chennai-based retail chain says that Future is likely
to buy Nilgiri's for almost half the valuation expected by Actis, the private
equity firm which invested in Nilgiri's in 2006. "Actis was expecting Rs
600 crore but they had approached many people in the last two years. But finally,
Future managed to get it half the valuation," says the executive.
Stir in the neighburhood
A source in the group and the CEO quoted earlier believe that Biyani would
rebrand Nilgiris into KB's Fair Price stores eventually. "Since the group
is looking to grow KB's Fair Price through the franchisee model in a big way,
Nilgiris is an ideal option, given that they also follow the same route,"
says the source within the group.
KB's Fairprice focuses on a small, neighbourhood format to sell food and
grocery. Future group wants to take its count from 170 to over 1,000 in the
next two years.
The CEO of the retail firm says the low supply chain costs, robust franchisee
model and in-house manufacturing of Nilgiri's only adds to the brand's appeal
for a buyer.
"Nilgiris is the only decent franchisee model in food and grocery which is
working in the country and Future is yet to get its model right with KB's Fair
Price," he adds.
A strong brand's hurdles
But some say it will be difficult for Future to rebrand the Nilgiris due to its
strong brand recall. Dutta says in a post-acquisition scenario, any buyer can
rebrand stores or not change it, depending on the perception.
Kishore Biyani
Nilgiri\\\\\\\\\\\\\\\'s
Future Group
Big Bazaar
Food Bazaar
KB\\\\\\\\\\\\\\\'s Fair Price
Big Apple
Aadhaar
Susil Dungarwal
Beyond Squarefeet
Aditya Birla Retail
First Published : April 15, 2014 12:00 am