KOLKATA: Kishore Biyani’s Future Group is shutting 140 Easyday food and grocery neighbourhood stores, reversing the chain’s rapid-expansion strategy, as the parent seeks to cut costs.
This amounts to 10% of the total number of Easyday stores, said three senior industry executives with knowledge of the matter.
All 53 Easyday stores in the west — in Mumbai, Pune, Nashik and Ahmedabad — will be shut down in phases in this fiscal year, they said.
A Future Group spokesperson didn’t comment on the closures but told that the company was focusing on higher profitability over store expansion in the near term. “We want to be the cost leaders in the industry and are taking a number of steps to ensure we operate with high efficiency and an optimised store network,” the person said.
The company will be cautious about opening new Easyday stores and these will come up only in existing clusters such as the National Capital Region, Punjab, western Uttar Pradesh, Bengaluru, Chennai and Hyderabad. It has about 100-200 stores in each cluster.
Future Retail Ltd, which owns Easyday, Big Bazaar, HyperCity and Heritage Fresh, is battling increased debt and has initiated a cost-cutting exercise across functions such as supply chain, marketing, operation and rent, said the people cited above.
Profitability over expansion The reasons for exiting the west are high rentals in Mumbai and Easyday’s inability to gain scale in the region, delaying breakeven. The group acquired Easyday from Sunil Mittal’s Bharti Enterprises four years ago.
Future Retail has decided to prioritise profitability over-rapid expansion with Indian consumers either postponing or downgrading their fastmoving consumer goods (FMCG) and grocery purchases amid a growth slump, said the executives cited above.
According to a recent report by Edelweiss Securities, Future Retail has already closed 130 smaller stores this fiscal year as compared to its earlier strategy of opening 300 stores per year. It said Easyday has still not broken even and has a negative 2-3% year-on-year earnings before interest, tax, depreciation and amortisation (Ebitda) margin.
Future Retail will not open small stores until the format achieves operational profitability, which would mean no new store openings in FY21, the report said. “The margin will improve gradually led by better mix and turnaround at Easyday format with management’s strategy of rationalising Easyday stores to turn around,” it said.
The company currently operates about 1,200 small stores through the Easyday and Heritage Fresh brands. Of this, 1,150 were Easyday stores at the end of September. Investors aren’t too happy about small stores eating into Big Bazaar’s profit in the short and medium-term, an executive said.
“Big Bazaar churns out Rs 800-900 crore of cash profit every year,” the person said. “Small stores were a drag and a futuristic project. While debt remains an issue, it is not much of a problem in a falling interest rate regime.”
Future is also looking at its 295 Big Bazaar stores with cost rationalisation in mind, said one of the persons cited above. Unprofitable stores may be relocated but there are no plans to reduce the store count, he said.
“Future Retail wants to take Easyday profitability to the level of Big Bazaar,” he said. “The company wants to generate Ebitda from the small format to the Big Bazaar level of 8-10% by FY21.”
Earlier this month, Future Retail touched a 52-week low with brokerages such as Morgan Stanley downgrading the stock due to a sharp rise in debt in the first half of the fiscal year. It has cut Future’s FY20 earnings estimate by 8.5%.
About 67% of the promoter holding in Future Retail was encumbered as of September, as per Bombay Stock Exchange (BSE) filings. The promoter holding in the company is 47.02%. Future Retail fell marginally to close at Rs 332.6 on the BSE.
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