Business - Kishore Biyani aims to be a branded player across segments by 2012

Rajiv Banerjee & Ratna Bhushan

It was like any other press conference, yet quite unlike any other. It was to announce the Future Group’s decision to create brands in the FMCG,
consumer durables and apparel spaces. However, beneath the typical hurlyburly of power point presentations, projections , numbers, speeches and product displays, something else was evident: a calm, cold, calculated call to battle from Kishore Biyani, founder CEO, Future Group.

Any doubts of Biyani’s intent were laid to rest at the sight of those accompanying him at the press conference. From Rajan Malhotra to Damodar Mall, Santosh Desai to Shashi Kalathil, Sadashiv Nayak to Sandeep Tarkas, every trusted lieutenant was in attendance, as Biyani threw down the gauntlet of notching up revenues of Rs 10,000 crore from these new businesses by the end of 2012. Four years from now, that is.

It’s anything but unusual hearing corporate honchos bandy all sorts of fancy figures around and make lofty projections. But when someone like Biyani, who’s often been hailed as the Rajah of Indian Retail, talks about these things, one tends to listen. That said, the sheer nature of the task ahead for the Future Group makes the entire proposition interesting — and extremely challenging.

Creating a retail network and controlling the performance of store labels within a protected environment is one thing. But creating brands that will compete with rivals in the rough-and-tumble of the marketplace is quite another. Could the Future Group have bitten off more than it can chew? Biyani doesn’t think so. “We are attempting to do what was long considered the preserve of manufacturing companies — creating brands. Let’s see how it pans out,” he answers.

The demeanour may seem nonchalant, but the man and his team are definitely following a plan. Own labels like John Miller, Bare, DJ&C (all apparel), Tasty Treat, Care Mate, Fresh n Pure (all FMCG), Dreamline (general merchandise category) and Koryo (consumer durables) are already up and running within the Future Group formats.

So it’s not as if everything has to start from scratch. “It is a statement of ambition. We have already done 20 brands and now we want to aggressively scale up in the next three-four years,” asserts Damodar Mall, group customer director, Future Group. The sentiment is echoed by Santosh Desai, CEO, Future Brands. “Conventional classification is melting down. The whole notion that manufacturers create brands is an outdated one,” he says, adding that the overall belief stems from the fact that in certain categories , there are very few strong brands. “In categories like footwear and apparel, there are no national brands. And even if there are, they are shallow brands. They have some recall but minimal connect,” Desai explains.

Biyani also believes the announcement couldn’t have been made at a better time. “Commodity prices are down and there’s always the opportunity to create a niche in a depressed market,” he says, adding that in times of a slowdown , consumers look up to brands for direction . “It’s this sentiment which we want to tap,” Biyani explains

The incubation of brands in a controlled manner is possible within the Future Group formats. The stores, shelves and the footfalls enable tweaking
and necessary course correction . Thus, the conventional ‘brand creation’ time gets crunched within the Future Group ecosystem. “We have volume through many stores across 100 cities across a dozen formats. So if demand is there and point of connect is there, creating brands is definitely possible,” says Shashi Kalathil, CEO, Future Consumer Products Ltd (FCPL), which is working on brands like Sach, a label that the group has created in association with Sachin Tendulkar.

The real challenge, though, will arise when the brands start getting retailed outside the Future formats, where each brand’s traction will be severely challenged by already established brands. That the free-for-all that ensues will test the mettle of Future Group is an understatement . “Right now the Future Group has the advantage of price, but it’s more ‘commodity’ than in the branded category space,” says Shripad Nadkarni, founder director, Market-Gate Consulting, adding that open-market competition will be severe.

Nevertheless, in the wake of Biyani’s announcement , there are telltale signs that the group’s moves are being watched with interest by manufacturers. While some are understandably nervous, others are confident of being able to hold their ground. Says Chander Sethi, CMD of Reckitt Benckiser: “In the face of any competition , Reckitt Benckiser will continue to build equity and work on making our brands the No 1 choice of consumers. We will also continue to utilise our global resources and be the leaders through market innovation.”

Many, though, are typically skeptical about the entire game plan. According to a senior marketing official from a leading FMCG company, significant contribution from outside the owned-and-operated stores is the key to building a consumer goods business on the scale that’s been envisaged . “It could also fall into the trap of building a business of scale that delivers only to the topline,” says the official. Executives at Future Group seem unfazed by such remarks, though.

“As of now they (the manufacturers) don’t understand what’s being attempted. Most marketers rely on past relationship or international standards as benchmarks. So they don’t know how to react to this development. Nervousness will come later,” remarked one senior group official . Another executive points out that since it’s an expanding pie, it’s a zero-sum game with no threat perception as of now. “But it’s possible as our objective is to be a branded player. The brands add 10 percentage points to the margins which is helpful to us,” the official states.

Despite all the hoopla, most marketers believe that the Future brands will remain, at best, own labels within the Future Group formats. “Private labels can succeed if Future Group or Reliance Retail or Shoppers Stop can go beyond mere price differentiation. If they can identify gaps in the branded space, that would help improve margins and contribute to store-pull ,” says one senior official from an FMCG company.

Officials at Future, however, refute that the fight will be fought on just the pricing plank alone. Desai believes that the crux of taking the
brands outside will be based on establishing a strong consumer connect — and not just on price. “We won’t fight on price alone; we will spend on advertising and marketing investments as well,” he says. Mall, for his part, says that it’s only in the manufacturers’ minds that these are own labels. “These brands don’t carry the crutches of the format’s labels with them. So, in a sense, they are competing against others on shelves on their own steam,” he states.

In private, manufacturers are also scornful of the kind of market shares that these own labels purportedly have within the Future formats. For instance, the group claims that snacking label Tasty Treat chips has a 22% share and is ranked No 2. Tasty Treat nankeens, on the other hand, has a 21% share and is the top-seller , the group says.

Fresh n Pure cooking oil has 9% share while Fresh n Pure ghee has 33% share. “They do a lot of consumer promotions and look to liquidate the stock. So when there’s an offer, the customer might take it. But the pull will last only for those 6-10 days,” remarks a senior official from a beverage company.

Observers believe that the stiffest challenge for the group will be establishing a distribution network that can reach across the length and breadth of the country. “The challenge would be setting up efficient, large-scale , trade-level and distribution models because that’s where the clout of established players (ITC being a good example) comes into play, giving them the edge,” remarks an official from a consumer durable company.

An analyst from a leading consultancy firm adds that setting up a distribution setup means incurring huge costs. “It is 1000 stores versus distributing across one million outlets. When costs balloon and margins shrink, suddenly it doesn’t seem so attractive,” he states. A senior official from ITC points out that the group has to keep in mind the cost of logistics as the products are in the highspace-occupying category. “So in a wholesale market, they can succeed only if there’s brand pull or fantastic margins,” he says.

Officials at Future Group believe that the company’s own logistic network — through Future Logistics — will come in handy while distributing the brands. Mall believes that the distribution plan doesn’t have to be through normal trade.

“The distribution paradigm will also undergo a transformation. Modern trade will undertake the change and we will ride it,” he says. While the plans are still being firmed up, Mall indicates that brands will be distributed either through cash-n-carry , modern trade or general trade. “Retailers are being served by cash-n-carry formats, so that’s one unconventional way. Also, brands are being retailed through Aadhar, and KB’s fair price shops are targeting a different set of customers,” he explains.

Industry observers state that instead of enveloping the entire market, the company could decide to undertake focused distribution, sticking close
to the areas near its retail formats.

The next four years will be critical not only for the Future Group, but also for marketers of brands that Future’s brands will run up against. The attempt clearly is to move the cheese, but what would be worth watching is who rises to take the bait. And also who, if anyone, decides to bell the cat.