What led your recent foray into food processing business? How will the business pan out in the coming years?
The idea was to create a 'modern rasoi' for our front end thus allowing us to manufacture anything and everything that is currently demanded by consumers in the market. Investing in the India Food Park initiative was hence made to help us achieve this objective. Another reason being, the kind of margins a retailer gets selling a glucose biscuit, chocolate or any FMCG product is significantly lower. Companies manufacturing these FMCG products have treated retailers like us very badly by not giving us the desired margins. That was also the key driver for getting into making FMCG products on our own.
Secondly, do you ever get Indian food in modern stores? No multinational company (MNC) makes products that suit Indian palette of taste. Somebody has to do it. There has to be an Indian company that creates products that Indians like and MNCs are not launching such products. Can a MNC create tastes differently for north, east, west and south India? We will do that. Besides, one also needs scale to do something like this. If you don't have a massive front end you cannot do it.
We went to Japan, Europe and the US to understand/learn how this model works and with our food processing facility in place now, aap jo bolo, main bana sakta hunn yahaan (you name anything, I can manufacture here).
We are very excited about food processing and by 2018 we are of the view that 80% of all the food and FMCG products being sold from our stores will be our own brands.
With Rs 1,000 crore going in just one facility and two more planned, how are you going to fund these initiatives?
The Tumkur facility is getting part funded internally and funding will also come from entrepreneurs who will partner to set up their units. We are still working out the modalities of how much will the total investment in these three projects be. While I can bring in external investors I don't want to because the thought becomes impure then. We have enough capital to fund this initiative and if required we will sell some of (non-core) businesses like Home Town, Amar Chitra Katha, Indigo Nation, Celio (35% stake) to raise additional capital.
So food and FMCG is the next growth story as compared to retail for Future Group?
It already is. From what I gather, we have either crossed that Rs 1,000 crore mark already or will soon do so. As for India Food Park operations are concerned, approximately 40% will be captive initially and 30% will be sold to various wholesale operators and the balance 30% will be exports. Between the three units we will produce goods worth over Rs 20,000 crore by the year 2020.
Do you think e-commerce players are posing significant challenges for bric-n-mortar retailers?
Online retailers are spending huge sum on advertising and customer acquisition and, we really wished we had that kind of cash to burn. Having said that, I think it's (online retail) an interesting space and offers convenience of shopping for sure. However, there are challenges still in the area of overall customer experience and that gap will still take time to be bridged.
That said, e-commerce banks on discounts and the business model reminds me of the song from the film Sholay, Jab tak hai Jaan, Jaane jahaan, main nachungi. Till such time they are getting funding and are able to offer discounts they will remain in the business. You can check with any of them if they are making any money or whether their gross margin is positive. Is ka matlab, dus rupaey mein cheez khareedi hai aur usko dus ke upar bech rahe hain ki nahin (This means, if the purchase cost is Rs 10 you have to see whether selling price is above Rs 10). Ya fir dus rupaey mein bhi bech rahe hain ki nain (Or need to see whether they are selling at Rs 10). Jis din unka gross margin positive hoga, to kuch hope hai survival ka. (If their gross margin becomes positive any day, there is some hope of survival).
Could you share some of the new developments that are currently under-way in the group?
We are leveraging on technology and will be a completely data driven company by 2018. Like Google knows all about the people on the internet, Future Group will have all the intelligence about the customers in terms how/what do they consume and how we make them consume. Through our loyalty programme, we now have data on 24 million customers, which is pretty much the size of people shopping online today. All this science is something that we are working on and once all the technology gets implemented, I can very confidently say that productivity of our stores will increase by over 30%.
