Amid mounting debt, the Future Group is seeing a silver lining as Japanese retailer Lawson is in advanced talks to purchase a stake in one of the units of the Kishore Biyani-led retail network.
A person familiar with the situation told FE that Lawson is in advanced stage for a stake buyout in the Future Group?s low-frills KB Fair Price store chain, and that the foreign company has already conducted a due diligence of the 225-store chain network.
Meanwhile, the KB Fair Price chain is in the process of shedding its low-frills image and is currently undergoing a change to a convenience format in pursuit of a better fit with the kind of stores the Japanese firm operates elsewhere. ?The process has already started in Mumbai and Bangalore by adding a better range of merchandise, fruit and vegetables to suit the Lawson model,? the person said.
However, Damodhar Mall, director of food strategy at the Future Group and the man behind KB Fair Price, termed the change in KB Fair Price as a ?natural evolution?.
?Adding categories and more items is a normal routine and no big changes,? he said. But KB Fair Price was conceived with the idea of being a low-frills chain with only about 3,000 stock-keeping units that the company thought are most relevant to their target customers. Since the target is going to change from lower middle class to middle class consumers, the re-branding is necessary, the person quoted above said.
A Japanese newspaper report last month said Lawson is planning to open a training centre in Singapore to hire and train Indian students there for its India foray.
Lawson, with an annual turnover of about 17 billion yen, runs about 10,000 stores in Japan and more than 300 convenience stores in China, where the Tokyo-based retailer entered in 1996 through a local joint venture partner.
The person said the deal seems set to go ahead irrespective of whether the government allows foreign direct investment (FDI) in supermarket chains, a decision that is currently hanging fire after a political outcry forced the government put in cold storage its November decision to allow 51% FDI in multi-brand retailing.
If the government allows 51% FDI in multi-brand retail, Lawson would come in as a foreign multi-brand partner. If the FDI issue remains in a flux, the Future Group could carve out a wholesale retailing set-up, paving a back-door entry for Lawson as 100% FDI is allowed in cash-and-carry retail. Mall declined to comment on a possible deal with Lawson.
The money received from Lawson could provide a vital lifeline to Biyani, helping him retire a portion of the group’s debt of more than Rs 7,800 crore. Biyani has in recent months been frenetically trying to sell non-core assets such as Future Capital Holding and even hawking stakes in the core retailing business in a bid to prune the group’s ballooning debt that has lately started weighing heavily on the company’s profits. On a standalone basis, flagship arm Pantaloon Retail (India) spends almost 60% of its Ebitda on interest payouts on the Rs 5,000 crore its has piled up over the years.