Kishore Biyani spotted the coming-of-age of India’s consumer class, which was aspirational and unwilling to play by the rules of their parents’ generation. Photo: Mexy Xavier It was around the turn of the century that the then 39-year-old Kishore Biyani made a bold bet. Phoenix Mills, an up-and-coming mall in Lower Parel, Mumbai’s mill district, was looking for anchor tenants. Biyani, who had tasted success with Pantaloons, which he had launched in Kolkata a couple of years earlier, was keen to locate his value retail format Big Bazaar within the mall. By then, the astute observer of consumer behaviour had realised that Indian shoppers were unwilling to pay for parking. Malls were not part of the retail landscape and the idea of driving a few kilometres to buy groceries was unheard of. Paying for parking could have been a deal breaker. It was only after Phoenix Mill’s owner Atul Ruia promised to waive parking fees for the next five years that Big Bazaar agreed to set up shop. The store went on to become among the highest grossing Big Bazaars in the country. Passionate. Instinctive. Impatient. These are a few of the adjectives his colleagues and peers use to describe Biyani. His story is of a home-grown entrepreneur with no inherited capital going on to create what was once India’s largest retail empire. He spotted the coming-of-age of India’s consumer class, which was aspirational and unwilling to play by the rules of their parents’ generation. Always on the prowl for his next big idea, he renamed his businesses as the Future Group. “He was very fast in conceptualising an idea and getting it off the ground,” says BS Nagesh, founder of Trust for Retailers & Retail Associates of India (TRRAIN), who has known Biyani for the last three decades. But his story is also a cautionary tale of how a large board of ideas needs patient capital—something Indian entrepreneurs don’t always have access to. India continues to disallow dual classes of shares, which mean entrepreneurs either need to dilute their shares quickly or raise large dollops of debt. Biyani chose the latter. Every time this reporter met him over the last decade, Biyani had a new narrative for business. One year regional food was big, the next year it was an expansion into online and omni-channel retail. Debt worries cast a pall in 2012 when he sold Pantaloons to the Aditya Birla Group. Soon after, he set a stretch target of achieving Rs1 lakh crore in sales. Neighbourhood stores were another bet. Fuelling sales through instant financing and personal loans got him his most profitable year in 2018. “We’d finally hit the nail on the head. Big Bazaar was our cash cow, and other businesses were all showing signs of maturing,” says a former employee. The Covid-19 outbreak brought an end to that. Biyani, a regular on the Forbes India Rich List, is a prominent dropout this year, as the pandemic resulted in his companies being unable to make interest payments on time. As things stand, the business has been sold to Reliance Retail for Rs24,713 crore. Amazon, an erstwhile partner, has challenged the sale and won an interim stay. Those close to him say that the Raja of Retail is undaunted. Soon after the Reliance deal took place, Biyani addressed employees. There was relief that the business would see no job losses, that they’d be able to pay partners, vendors and landlords, and that the sliver of business that Biyani retains (private label food and fashion brands, through which he will supply to Reliance Retail as well as other retailers) can be scaled up. Those who were on that call got the distinct sense that the man who once raised money from investors through a single video clip of crowds waiting outside Big Bazaar was not done. Biyani declined to be interviewed for this article. Big Bazaar’s Success It’s easy to overlook the challenges India’s first modern retailer faced. As late as 2010, a good decade after Biyani set up Big Bazaar, the required ecosystem had still not developed in the country. Vendors lacked the systems, warehousing infrastructure barely existed, landlords were out to squeeze every last bit of rent, and terms like ‘fill rates’ and ‘inventory turns’ were barely heard of. “In the early part of the business, the ecosystem was inefficient and he [Biyani] did a lot of experimentation on formats as well as creating the ecosystem,” says Pankaj Jaju, who runs Metta Capital Advisors LLP, and in his previous avatar at Enam, did several rounds of fundraising for the Future Group. The Future Group also ended up building retail infrastructure: A training school, a warehousing company, a mall management business, a supply chain company, and all this proved to be both time consuming and expensive. But it was in understanding consumer tastes that Biyani was in his element. He knew that Indians had a propensity to save, and when incomes rose, they didn’t automatically go towards discretionary spending. These occasions had to be incentivised. Marketing campaigns like ‘Sabse Sasta Din at Big Bazaar’, which was usually a five-day blow-out sale period that coincided with Republic Day and Independence Day, marked his first decade. On the fashion side, John Miller, a brand that was both aspirational and affordable turned out to be a big success. This was also the time when Biyani evolved as a retailer. The 2008 global financial crisis was a humbling experience, and made him more circumspect and guarded. When Forbes India met him in 2010, he spoke about the pre-Lehman period excesses, saying, “Everyday your stock price is rising and you look into the mirror and think you’re so smart,” he recalled. The credit crunch forced him to start thinking about business economics and profitability. There was a realisation that the man who had understood the art of retail needed to appreciate the science too. It was during this period that cousin Rakesh Biyani proved to be a valuable partner. A numbers-driven person, he had a sound operational background. [Kishore] Biyani is known to have said, “I leave the science [of retail] to Rakesh and focus on the art.” Investors who met with the company pointed to how Rakesh could rattle off expected Ebidta numbers to the correct tenth of a percentage point. (Company insiders say that recent reports about Rakesh entering the retail business are incorrect as the non-compete clause Reliance Retail has signed includes all members of the Biyani family.) Rakesh Biyani, a numbers person with a sound operational background, proved to be a valuable partner to his cousin Kishore. Indeed it was during this time that he spoke about how he wanted Big Bazaar to be the most efficient and not merely the cheapest. Competing on price alone was not an infinite battle he planned to fight. The blend of both food and fashion—he launched a value fashion brand, Fashion at Big Bazaar, which inspired Lifestyle to launch Max and also proved to be the inspiration for the Aggarwals at V-Mart and V2 Retail—would prove to be an unbeatable combination. But despite the optimism of the early part of the last decade, the wheels of the undoing of the Future Group were also set in motion soon after the post-Lehman period. Limitless capital (and competition) The decline in global interest rates and the access to large pools of capital to Indian ecommerce players proved to be tough for Biyani to fight. He often bemoaned the fact that global funds were proving to be the most efficient ‘direct cash transfer service’ to Indian consumers. “He had a very strong view against foreign capital, and though he voiced them repeatedly in public forums, that didn’t stop the money from coming in and distorting the economics of the business,” says a former company employee. The Future Group made a valiant attempt to fight with Futurebazaar.com but by 2011 they understood that this was not a business they could compete in. There were myriad regulations for foreign capital: Investors could fund single-brand stores but not multi-brand ones; they could invest in back-end operations, but not front-end; cash-and-carry was permitted, but stores that sold directly to consumers were not allowed to receive investments from aboard. Press notes 3, 5 and 18 that dealt with rules for foreign investment in retail sought to clarify but only muddled the regulations further. The net result was that companies like Amazon and Flipkart operated unhindered, with the distinction between front-end and back-end not apparent to the Indian consumer. Low interest rates and the fact that they have been shut out of China have meant that Amazon and Walmart have been able to put up with losses in the name of building the businesses in a market of the future. “Indian entrepreneurs who don’t have capital have been hit by the pandemic. Global firms that have capital and the technology and learnings in retail as well as staying power are well placed” says Jaju. For the Future Group, this meant an inefficient structuring of businesses. Future Consumer, the company that supplied private label products, was kept separate as it could receive foreign money. So was Future Lifestyle Fashion. Foreign investors were allowed to invest up to 26 percent in Future Retail, the company that ran the Big Bazaar hypermarket. This quota was always full and whenever a window arose on account of someone selling their quota, it was filled within hours. “Ultimately the Indian market has only so much capital, and the heavy lifting has to be done by overseas investors,” says the former employee. With investors shut out, raising expensive debt was the only option. The Unwinding Around 2012, Biyani found himself in a real fix. Debt payments were high and cash flows could barely support the interest outgo. Investors were losing faith in his flagship Future Retail stock, making it hard for him to raise money. He began a furious deleveraging exercise. No business was too holy to touch and as he scouted for buyers he had to sell the business he started his journey with. Pantaloons was sold to the Aditya Birla Group as was Future Capital to Warburg Pincus. That business is now IDFC First Bank. A deleveraged balance sheet gave him the elbow room to focus on his cash cow Big Bazaar. Around 2015, Biyani had finally evolved the Big Bazaar model into an efficient retail chain. Companies would supply to his network of distribution centres at negotiated prices, cheaper than kirana stores. From there the goods would be sent to the Future Group network of stores. Fill rates, industry parlance for the availability of a particular product, were well above 90 percent. Private labels provided the margin kicker. Fashion brands that were sold to India’s 150-million strong aspirational class were doing well. Fashion at Big Bazaar had evolved into a significant business. In all, his listed businesses were making Rs1,000 crore a year in profit, taking his net wealth to $2.1 billion on the 2017 Forbes India Rich List. The store in Lower Parel's High Street Phoenix mall, now shuttered, went on to become among the highest grossing Big Bazaars in the country. Credit: Jeffrey Greenberg/Universal Images Group via Getty Images But it was a bet on neighbourhood stores that proved to be ahead of its time, and also proved to be a distraction. In 2015, the Future Group bought Easy Day and also the operations of Nilgiris, both retail supermarket chains. Biyani had bet that neighbourhood stores would give him the geographical heft to take on ecommerce players. Nagesh of TRRAIN recalls him saying that deliveries cost Rs70 per order and therefore it was very difficult to make money in an online business. It was better to do Big Bazaar Direct, which was an assisted franchisee model. There were also plans to rope in the Bharti Group from the telecom sector, for a tie-up with its 309 million subscriber base. But, with the Jio onslaught, its Bharti’s chairman Sunil Mittal decided to focus on his core retail and enterprise telecom offering. By the time the pandemic hit, Future Group was already struggling. High fixed costs—employee expenses, interest and depreciation—meant the business was vulnerable to even a modest disruption in cash flows. All retailers use low-margin food and groceries to bring shoppers into the store. Once inside, they are also given the option to buy clothes, crockery and household items. These high-margin sales allow them to reach a blended Ebidta margin of 8 to 10 percent. When the pandemic hit, stores were closed for 30 to 45 days in various parts of the country. And when they opened, general merchandise sales were disallowed. This meant Future Group had to default on its commitments to lenders and landlords. “In the end, [Biyani] had to take a call on whether to continue to run this level of business for the next 12 to 18 months or to get out,” says an insider. He chose the latter. For now, Biyani is on course to hand over a well-running operation to Reliance Retail. He’s told employees to ensure the businesses continue to run smoothly, and has implied that everyone’s job would be protected. There has been no hint of rancour at having to sell out to a rival. “Dena hai toh de denge [if we have to give, we will],” is what he had told a long-time associate. Indeed, he is among a minority among entrepreneurs who always said every business is built to be sold one day. Equally unlike other entrepreneurs in the recent past, his failure was not on account of corporate fraud. His companies did not end up in bankruptcy court proceedings. But somewhere the system, with its repeated policy flip flops, also failed him. No doubt as entrepreneur he was constantly distracted and moving on to the next big idea before perfecting the previous one. In a recent conversation at the Phygital Retail Convention, he said that he’d learned not to experiment too much with one’s own capital, especially when the payoff was a few years away. The Big Bazaar at Phoenix Mills has since shut down but shoppers continue to browse its aisles at other outlets across India just as they have done for the last two decades. Biyani proved that he could take on the best retail models in the country. But the fight against global capital was always an inherently unequal one. In the end, the bar was set so high that even a small stumble (one caused by an external event) proved ruinous.