Kishore Biyani lines up loyalty-driven convenience stores to beat Amazon, Flipkart in discounts
MUMBAI: India’s retailing pioneer is planning another first in an industry now spoilt for choice: Loyalty-driven convenience stores. The Future Group, which brought organised retailing to India, will open in the next four years about 10,000 convenience stores where member-shoppers will get more discounts than those offered by brick-and-mortar chains such as D’Mart, or online rivals Amazon and Flipkart, which recently entered groceries.
"No one can match the prices we will offer. We have built the entire ecosystem such as logistics, partnership with FMCG companies and customer database around the stores. The concept is a hybrid between the kirana (neighbourhood) store, connected commerce and large supermarket," said Kishore Biyani, CEO, Future Group.
"Each store will also have merchandise suited for that locality and consumer base. Data analytics will help us determine what to stock."
Each store will enrol 1,500 customers for an annual fee: Shoppers will get 10 per cent additional discount on each bill apart from existing applicable offers, consumer credit, home delivery options, and access to the online shopping platform. These smaller stores will have three badges — Easy Day, Heritage Retail, and Nilgiri’s — that have been acquired by the group in the past few years. Since last month, the company has been opening about 15 smaller stores a week. Over the past few weeks, Future Group has been piloting a similar programme at Easy Day and has managed to enrol one-lakh members so far.
The target is to have five-lakh members this fiscal. By doing so, Biyani hopes to achieve sales of Rs.40,000 crore through these stores by 2021, double the earlier target of Rs.20,000 crore he had set few years ago.
"The knowledge of the local market, insights into local consumer behaviour, and a strong private-label presence across food categories supply the building blocks for a viable neighbourhood store business, in our view," write Nillai Shah and Indira Badrinarayan in a recent Morgan Stanley investor note.
Biyani’s push comes in a market where disruptive online companies have been challenging brick-and-mortar retailers. In India, food and grocery accounts for almost 50 per cent of the overall retail basket, although online penetration is still less than 1 per cent, an indication of the growth potential.
Morgan Stanley expects the grocery and food delivery market to reach an online penetration rate of 4 per cent by 2020, touching gross merchandise (GMV) of $19 billion, making it the largest category after electronics and apparel.
"Biyani has acquired almost all convenience-store format brands that existed in India in the past five years, while rivals have been focusing on big-box formats. Also, the Future Group has its own FMCG and logistics company to support the stores. The rivals, by contrast, are generally pure-play retailers," said a senior analyst with an international brokerage firm.
Globally, corner shops such as 7-Eleven in Japan, Taiwan and Singapore, Lawson in Japan and Oxxo in Mexico are among the largest retailers in their respective countries, reflecting the growing business of small outlets in several countries despite the markets being opened for retail giants. Even in India, rival Tata that has partnered British retail giant Tesco, launched a neighbourhood convenience store format, Star Daily, modelled after Tesco Express. Tesco runs more than 1,500 convenience stores averaging 2,200 sqft in small shopping precincts in residential areas and the countryside in the UK.
In India, the mom-and-pop neighbourhood stores generate about 85 per cent sales of the consumer products industry. The new initiative also dovetails into Biyani’s wider strategy to generate about 70% of its sales from in-house brands in four years, and establish itself as a standalone consumergoods company by enhancing the brand recall of its private labels.
"No one can match the prices we will offer. We have built the entire ecosystem such as logistics, partnership with FMCG companies and customer database around the stores. The concept is a hybrid between the kirana (neighbourhood) store, connected commerce and large supermarket," said Kishore Biyani, CEO, Future Group.
"Each store will also have merchandise suited for that locality and consumer base. Data analytics will help us determine what to stock."
Each store will enrol 1,500 customers for an annual fee: Shoppers will get 10 per cent additional discount on each bill apart from existing applicable offers, consumer credit, home delivery options, and access to the online shopping platform. These smaller stores will have three badges — Easy Day, Heritage Retail, and Nilgiri’s — that have been acquired by the group in the past few years. Since last month, the company has been opening about 15 smaller stores a week. Over the past few weeks, Future Group has been piloting a similar programme at Easy Day and has managed to enrol one-lakh members so far.
The target is to have five-lakh members this fiscal. By doing so, Biyani hopes to achieve sales of Rs.40,000 crore through these stores by 2021, double the earlier target of Rs.20,000 crore he had set few years ago.
"The knowledge of the local market, insights into local consumer behaviour, and a strong private-label presence across food categories supply the building blocks for a viable neighbourhood store business, in our view," write Nillai Shah and Indira Badrinarayan in a recent Morgan Stanley investor note.
Biyani’s push comes in a market where disruptive online companies have been challenging brick-and-mortar retailers. In India, food and grocery accounts for almost 50 per cent of the overall retail basket, although online penetration is still less than 1 per cent, an indication of the growth potential.
Morgan Stanley expects the grocery and food delivery market to reach an online penetration rate of 4 per cent by 2020, touching gross merchandise (GMV) of $19 billion, making it the largest category after electronics and apparel.
"Biyani has acquired almost all convenience-store format brands that existed in India in the past five years, while rivals have been focusing on big-box formats. Also, the Future Group has its own FMCG and logistics company to support the stores. The rivals, by contrast, are generally pure-play retailers," said a senior analyst with an international brokerage firm.
Globally, corner shops such as 7-Eleven in Japan, Taiwan and Singapore, Lawson in Japan and Oxxo in Mexico are among the largest retailers in their respective countries, reflecting the growing business of small outlets in several countries despite the markets being opened for retail giants. Even in India, rival Tata that has partnered British retail giant Tesco, launched a neighbourhood convenience store format, Star Daily, modelled after Tesco Express. Tesco runs more than 1,500 convenience stores averaging 2,200 sqft in small shopping precincts in residential areas and the countryside in the UK.
In India, the mom-and-pop neighbourhood stores generate about 85 per cent sales of the consumer products industry. The new initiative also dovetails into Biyani’s wider strategy to generate about 70% of its sales from in-house brands in four years, and establish itself as a standalone consumergoods company by enhancing the brand recall of its private labels.
