In 2001, businessman Kishore Biyani wanted to cash in on the spending power of India’s growing middle class. Having successfully launched an apparel store called Pantaloons, he launched Big Bazaar, an Indian supermarket chain modelled after Tesco and Aldi. It was a huge success. By 2006 Biyani was reigning over some 200 supermarkets, discount stores, and department stores across the country earning him the title of India’s “retail king”.
The boom didn’t last long. Drowning in debt, Biyani and his Future Group empire are now embroiled in a messy legal battle with US tech giant Amazon. The wrangling focusses on Biyani’s attempt to sell his company to Reliance Industries, a multinational conglomerate owned by Mukesh Ambani, India’s richest man. At the heart of the dispute lies what both companies see as a prized commodity in the race to dominate India’s growing retail market: bricks and mortar. Or, more specifically, Future’s network of 1,500 stores spread across 400 Indian cities.
Last August, when Reliance announced its acquisition of Future Group’s subsidiary Future Retail for $3.4 billion, Amazon cried foul play. The company said such a deal breached an existing contract that gave it first rights to buy Future’s retail assets – if India’s foreign direct investment rules were to allow it. Future argues “unimaginable damage” – including bankruptcy and job losses – could occur if the Reliance deal doesn’t go through. To speed things along, both parties agreed to refer the matter to the Singapore International Arbitration Centre (SIAC), a not-for-profit organisation specialised in arbitration. SIAC has ordered an emergency stay on the deal until it delivers a resolution, a decision that was upheld by India’s Supreme Court after Future Retail filed a new case against Amazon in September.
It’s an important victory for Amazon, which has long been seeking a clear route into India’s e-commerce boom. The outcome of this struggle will likely reshape India’s coveted retail sector for years to come. “The two behemoths are coming at it from different angles,” says Himanshu Bajaj, Asia head of consumer and retail at Kearney, a consultancy. And the legal wranglings are far from over with the case now marred with accusations of contractual breaches, antitrust practices and nationalistic sloganeering.
Not too long ago, grocery shopping in India mostly happened inside mom-and-pop stores, known as “kiranas”, where hundreds of items are crammed onto glass shelves and handed over to customers by shopkeepers behind counters. To this day, more than 90 per cent of retail in India falls into this muddle of small stores and street vendors. Their success relies on customer loyalty: shoppers prefer to stick to their local neighbourhood store, buying everything from pulses and grains to cleaning products and stationery.
But Indian retail is changing – and fast. From Amazon to Reliance, international and local companies with deep pockets and big ambitions are successfully persuading more and more Indians to shop online. Sanjeev Kumar, a New Delhi-based analyst at advisory company Forrester Research, says that big players think India's retail market has grown more lucrative since the pandemic. Restrictions to movement and increased internet and smartphone use have won customers over to online shopping. In the next four years India’s retail sector is expected to grow to $1.3 trillion – with groceries accounting for $740 billion of that figure. What was an industry beset by wafer-thin returns and clunky logistics has now become both profitable and accessible.
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.”
One reason why Amazon is chasing the Indian market so aggressively is that it has already lost a big share of the market in Asia, says Kumar from Forrester. “It's virtually not present in China thanks to Alibaba, T-mall and Turbo; and in Southeast Asia, there’s Lazada and Shoppe, who command almost 70 per cent of the online retail market,” Kumar says. “The only market that has a lot of potential is India.”
A series of court battles followed SIAC’s decision to freeze the deal pending a final decision. Future’s lawyers have made heated legal arguments and patriotic appeals, going as far as to call Amazon an Orwellian Big Brother. “Please don’t allow this American giant to kill Future,” the lawyers urged a Supreme Court judge last November. “These allegations are just to grab headlines,” says the source close to Amazon. “Why let the same company invest in Future Retail before?” Sahni also thinks this line of argument is ineffective. “This plea that ‘livelihoods will be lost and India will lose’ is too emotional,” he says. “Arbitrators may listen to them, the courts will not.”
In another attempt to get clearance for its deal with Reliance, Future Retail submitted a new case against Amazon in September. In the 6,000-page filing, it argued that “unimaginable” damage could be caused to the group, including job losses for nearly 36,000 employees and $3.81 billion at risk in bank loans and debentures, if the deal didn't go through. But India’s Supreme Court dealt another blow to the company by upholding the arbitrator’s decision once again.
“We welcome the order of the Supreme Court to direct all regulators to stay the Future Reliance Deal, given the imminent announcement of the order of the Arbitral Tribunal,” an Amazon spokesperson says. The company asked the chairman of the Securities and Exchange Board of India (SEBI), the regulatory body that previously approved Future’s sale to Reliance, to revoke its approval. Future and Reliance did not respond to requests for comment.
The legal standoff between the companies will continue to stall until SIAC delivers its final verdict after a months-long arbitration process that may not start until November. As India’s grocery sector continues to grow, Amazon’s bid to block the Reliance deal may just be a way to stop its biggest competitor from getting even bigger. But, ultimately, the big guy always wins. And experts say the tussle between Amazon, Future and Reliance is indicative of a missed opportunity to take a different path. “India is still a developing economy,” says Sahni. “It should not have two or three players dominating the industry.”
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This article was originally published by WIRED UK
