Future Retail scrip surges as firm announces deal with 7-Eleven

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Published: March 2, 2019 3:07:53 AM

FRL is expected to roll out the maiden store in Mumbai, Kishore Biyani, founder and group CEO of Future group, told a TV channel.

Future Retail (FRL) SHME Food Brands, 7-Eleven , kishore biyani, easy day, seven eleven india, seven eleven asia,The management expects the small stores to break even in two years and contribute more than 25% by FY20.

Shares of Future Retail (FRL) rose 1.96 % on Friday to close at `432.25 on the Bombay Stock Exchange as the retailer announced its master franchise agreement with 7-Eleven, world’s largest chain of convenience stores on Thursday.

Under the agreement signed with Future Retail’s subsidiary SHME Food Brands, which will be effective for 30 years, the Indian retailer will open and operate 7-Eleven convenience stores in India. As of now, 7-Eleven operates, franchises and licenses more than 67,000 stores in 17 countries. FRL is expected to roll out the maiden store in Mumbai, Kishore Biyani, founder and group CEO of Future group, told a TV channel. Sub-franchising is also allowed as part of the agreement, but Biyani clarified that it won’t happen in the first phase of the plan.

Biyani further said that new stores would be incorporated as 7-Eleven stores which won’t overlap with their target to open 10,000 Easyday neighbourhood stores in the next three to five years. Along with new stores, some of its existing locations would also be converted into the 7-Eleven brand.

However, the target to expand up to 10,000 small stores is aspirational and FRL’s main focus would shift towards driving the expansion via 7-Eleven, analysts from Jefferies said. Currently, there are 1,050 small stores under Easyday, Heritage fresh, Nilgiris and WHSmith store chain. Easyday stores are yet to break even and contribute 15% to the overall revenue in the retail business, the investors’ presentation of the quarter ended December 2018 recorded. The management expects the small stores to break even in two years and contribute more than 25% by FY20.

The analysts also observed that the Indian retail major is in a good state to infuse capital as FRL is focusing its own funding instead of depending on the retail infrastructure management arm of the group, Future Enterprises. The promoters of Future Retail had committed earlier in February to provide `2,000-crore through preferential issue of warrants and help the company to fund its own growth.
The stores will operate round-the-clock in feasible locations and would offer affordable breakfast, lunch and dinner options, Biyani said. The analysts believe that it would be difficult to make the convenience store format successful as India’s 80% retail market is still dominated by the mom-and-pop stores, which are much closer to the end-consumers. 7-Eleven still has a higher chance of success with offerings like 7-Eleven coffee, Slurpee, bakery items, sandwiches, cookies and thus, act as a quasi quick service restaurant.
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The youth today need everything faster, nearer and in a convenient manner. India is a huge market for such a convenience store,” Biyani said in an interview. The millennials drive the trend in the consumer market with better access to products and services and more spending power. As per a Deloitte report on the retail industry, the millennials constitute 34% of the total population in India, which is world’s largest millennial population in absolute terms.

While FRL is one of the pioneers in the retail segment and would share the expertise on Indian consumers, Texas-based 7-Eleven would provide better technology and processes to run and operate the stores. With this partnership, FRL would also gain access to the global suppliers and 7-Eleven’s private label brands such as Slurpee, Big Bite and Big Gulp, among others.

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