Inside Amazon’s epic fight for power in India
Biyani, who started out in the 1980s by selling men’s apparel, is widely regarded as a pioneer in India’s retail industry. In 2006 he triumphantly declared he would open 3,500 stores by 2010. The problem has never been Biyani’s ideas, but his execution. “He always built his businesses beyond his resources,” says Harminder Sahni, founder of management consultancy Wazir Advisors. Sahni says Biyani always borrowed money to scale up his businesses, an approach taken by many Indian businessmen in the past. But in the last decade, large businesses have begun building themselves on equity.
Although Future Retail never met its target of 3,500 stores, by 2018 it had become India’s biggest brick-and-mortar retailer with 1,550 outlets. Biyani also got into insurance, wealth management, and real estate. Future’s portfolio included its biggest winner Big Bazaar, along with other grocery stores like Foodhall and Heritage Fresh, a partnership with the news and convenience conglomerate W. H. Smith, and a joint venture with Italian insurance giant Generali.
But other, more deep-pocketed competitors soon entered the market. Amazon made a $2 billion investment in India in 2014, while Walmart spent $16 billion on e-commerce company FlipKart in 2018. In the meantime, Biyani was busy burning more cash: Future Group’s breakneck expansion led to soaring debt, followed by forced restructuring, acquisitions and dwindling assets.
In 2019, Biyani struck a $200 million deal with Amazon, giving the American company first dibs to buy into Future Retail in the next ten years, along with a 49 percent stake in Future Coupons, the group company that owned 7.3 per cent of Future Retail. “I’m sure that [Biyani] now looks back on his deal with Amazon and wonders why he gave them equity. It’s come to bite him back big time,” says Sahni.
Then along came Covid-19, battering businesses across India and shutting down nearly half of Biyani’s stores. By March 2020, he was struggling to keep his businesses afloat. Future Retail was given a negative rating by the rating agency ICRA, mainly on account of an increase in debt. Biyani’s own net worth fell from $1.7 billion in 2019 to $400 million the following year, according to Forbes India.
Biyani conceded his loss by speaking about the challenges of Covid-19 at a retail convention in Mumbai last October. “In the first three, four months, we lost nearly 7,000 crore rupees [$900 million] of revenue, and there was no way we would have survived,” he said.
And when Amazon didn’t offer to help out, presumably because a non-compete clause was already in place, Biyani went to Reliance instead. A source aware of internal discussions at Amazon says that Biyani never communicated Future Group’s woes to Amazon: “They said they were in a financial capital crunch because of the pandemic, but they never said that bankruptcy was imminent,” they say speaking on condition of anonymity as they are not authorised to speak to the press.
To stave off bankruptcy, Biyani turned to Reliance. While Reliance is already a dominant player with 11,000 retail stores, Future Retail presents an enticing opportunity to triple its 800 food and grocery stores and deal a blow to rivals Amazon and FlipKart. So when Reliance announced plans to acquire Future Retail, alarm bells began ringing at Amazon India’s headquarters. “And now, [Amazon] has changed its mind,” Sahni says. The source close to the matter contests this. “Amazon made a huge investment because they believed in the company’s model,” they say. “It was not looking at the immediate investment, but twenty to thirty years down the line.”
Published at Wed, 20 Oct 2021 08:48:25 +0000