Here’s why Mukesh Ambani bought Future Retail even though Reliance is almost ten times bigger

Here’s why Mukesh Ambani bought Future Retail even though Reliance is almost ten times bigger
BI India/Wikimedia commons
  • The answer lies in Kishore Biyani’s stronghold in two sectors – grocery and fashion.
  • The food and grocery and fashion account for a high margin, that Ambani doesn’t want to miss.
  • On late Saturday evening, Reliance Retail acquired Future Retail for ₹24,731 crore.
Reliance Retail has almost 12,000 stores under its wing, with an annual revenue of over ₹1.6 lakh crore, so why then did it buy out Kishore Biyani’s Future Retail which has just about 1500 stores and debt over $2 billion?

The answer lies in Biyani’s stronghold in two sectors – grocery and fashion. With grocery, Future Group has managed to create a name in the market as month after month families go out to buy their ration from the nearest Big Bazaar or Easyday store. In fashion too, Future group’s lifestyle vertical had made the mark.

The food, grocery and fashion segments offer high margin, that Ambani doesn’t want to miss..

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SegmentBrandsMargin (Source: BOB Capital Markets)
Food and GroceryReliance Fresh, Reliance Smart and Reliance Market6.5%
Consumer electronics Reliance Digital Jio stores6.2%2.2%
Fashion and lifestyleReliance Trends, Project Eve, Reliance Footwear, Reliance Jewels and AJIO.com. 24%

The need to win

Mukesh Ambani with his deep pockets has built stores in the length and breadth of the country but most of the money (61%) comes in through consumer electronics. Grocery currently accounts for just 8% of Reliance Retail’s revenue.

Here’s why Mukesh Ambani bought Future Retail even though Reliance is almost ten times bigger
BI India/BOB Capital Markets report

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But while consumer electronics ranks high with revenue, fashion and grocery segments are growing faster for Reliance.

SectorRevenue (FY20)Y-o-Y growth
Consumer Electronics₹44,625 crore 14%
Fashion and Lifestyle₹13,552 crore 24%
Grocery₹34,601 crore 48%

Grocery has become appealing for Ambani. Currently, food and grocery segment is pegged at $545 billion and in the next five years, it is expected to hit $850 billion – and Ambani wants the major share.

According to a Goldman Sachs report, Ambani’s e-commerce bet JioMart is poised to sell half of all online grocery in India, which is expected to see 5 million orders every day by 2024. It also helps that global tech players like Facebook and Google have invested billions in Jio and backed Ambani’s digital plans.
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With the Future Retail acquisition, Ambani gets hold of large format stores like Big Bazaar, FoodHall, FBB (fashion) and small format stores like Easyday and WH Smith.

Reliance Retail registers 640 million footfalls in a year (as of FY20), and the Future Retail acquisition will add to that with Biyani’s loyal customer base with 351 million footfalls – Big Bazaar alone saw annual footfalls of 244 million (as of FY19).

SEE ALSO:

Reliance Retail acquires Kishore Biyani’s Future Group for ₹25,000 crore in a ‘slump sale’
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