Nilgiri's to boost Future grocery plans
By Chaitanya Muppala | Vjmedia Works | April 15, 2014
The expected acquisition to widen southern presence, even after likely rebranding
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.
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.