Future Group is in advanced talks to acquire the retail business of Heritage FoodsBSE 0.93 %, a deal that would give Kishore Biyani sway over a network of more than 100 grocery outlets in Hyderabad, Chennai and Bengaluru, according to people aware of the development.
The Rs 2,381-crore Heritage Group was founded in 1992 by N Chandrababu Naidu, who is currently chief minister of Andhra Pradesh.
If the transaction goes forward, this will be Biyani’s fourth acquisition in as many years, as his Future Group consolidates its position, especially in grocery retail.
Other purchases since 2012 include the Easyday network from Bharti Retail, New Delhi-based Big Apple and Hyderabad-based Nilgiri’s supermarket chain.
“Contours of the deal are still being worked on —how Heritage Fresh will be merged within Future Group and whether the transaction could involve any share swap, apart from cash component,” said one of the people cited above.
Heritage Foods did not respond to an email sent on Friday. A Future Group spokesperson said it wouldn’t comment on speculation.
Hyderabad-based Heritage Foods operates two flagship divisions — dairy and retail — and has interests in small businesses, including bakery and animal feed. Retail accounts for nearly a fourth of the overall business, with sales of Rs 583 crore, up 18% last fiscal.
It operates more than 115 Heritage Fresh stores of 2,500 square feet each on average, serving more than two million customers every month in the three southern cities.
Dharmender Matai, COO for retail and bakery at Heritage Fresh, told ET last month that the company had hired KPMG to advise it on a search for a strategic partner or investor for its retail business.
Adeal would mark a bounce-back for Biyani, who was forced to sell the Pantaloons department store chain in 2012 to the Aditya Birla Group to trim ballooning debt that threatened his empire. Biyani also exited non-core businesses such as financial services and office product retailing to to service debt that exceeded Rs 8,000 crore five years ago. Its debt-equity ratio was at 0.60 on March 31, against 1.35 in the previous year.
Push for private label
With the Heritage Fresh chain, Biyani will take the Future Group’s total store count to more than 850 outlets. It now operates around 13 million square feet of retail space in 221 cities, with an annual customer footfall of 295 million. Consolidation in the grocery space will help Future Group push its private label consumer products, which earn higher margins than other items.
“Apart from pushing its own label, the deal will also help the company operate a bigger network of stores that will come handy for bulk sourcing and, in turn, more bargaining power to squeeze extra margins from consumer product companies,” said Abneesh Roy, senior vice-president at Edelweiss Securities. “So his consolidation strategy is a smart move.”
While modern trade accounts for about 10% of overall consumer goods sales, the contribution of large supermarkets in several southern cities is as high as 25%, indicating growing acceptability of modern store formats.
Future Consumer Enterprise, the fast-moving consumer goods (FMCG) arm, currently has brands such as Tasty Treat, Nilgiris, Golden Harvest, Sunkist, Kara, CareMate, Clean Mate, Think Skin and Fresh & Pure.
The group expects its own food brands to account for nearly 70% of earnings from corresponding product categories at its supersmarkets, part of the larger strategy to reach Rs 20,000 crore in sales from in-house brands by 2021.
Preparing for FDI
Such a strategic buyout will make Future Group more attractive to foreign investors, especially as experts believe India will fully open up its supermarket segment to overseas investment in future.
As a precursor, India in June allowed 100% foreign direct investment (FDI) in brick-and-mortar as well as online retailing of food that’s locally sourced and produced.
However, foreign retailers are shying away, saying food-only stores won’t be viable and non-food general items should also be allowed in such shops.
Credit Economic Times
