Dear Shareholders
"Tell me what you eat, and I’ll tell you who you are." Those words are
attributed to the French politician, Jean Anthelme Brillat-Savarin, but holds true just
for any Indian.
Food is not just distinct in India, but also so diverse that it is today a complex
cultural product shaped by climate, geography, the pursuit of pleasure and increasingly -
the desire for health. It represents the largest share of expenditure for almost all
Indian families and acts as a marker of identity and culture as much as aspiration, change
and lifestyle. Demand for value-added, branded food products have grown tremendously in
the past two decades. Yet, the overall market has remained largely unbranded and
fragmented. Beyond a few categories like beverages, biscuits, chocolates and dairy, seldom
does one find food brands in India doing more than a thousand crores of business.
Having been in the business of retailing for almost two decades, we in Future Group
believe this a reflection more on how food is branded and sold, rather than lack of
consumer demand. The arrival of the first crates of Sunlight soap bars in the summer of
1888 in the markets around the Kolkata harbour possibly marked the advent of fast moving
consumer goods (FMCG) in India. It took more than sixty years, before Hindustan Lever
under its first Indian chairman, Prakash Tandon, strengthened the multi-layered
intermediary based distribution network to reach products of daily convenience deep inside
rural and urban households in India. Since then, there have been multiple innovations to
increase the reach of this network - today Hindustan Unilver, like many of its peers reach
over 9 million retail outlets. But broadly, this distributor-led network has remained the
same. It is also the reason why food brands has had a stunted growth in India and in fact
surpassed by growth of brands in home and personal care.
The network though robust, suffers from multiple disadvantages. It has between two to
five layers - distributors, stockists, carrying and forwarding agents, wholesalers -
making it expensive and very time consuming or new randtor ideonit More mportantly, its
consumer touch point is the neighbourhood kirana store that can barely stock 300 to 500
SKUs, lacks the ability to showcase range or facilities like refrigeration or storage. In
order to cater to diverse Indian tastes and preferences, food brands need to showcase
range and depth. Food retailing and distribution also requires maintaining multiple
temperatures for different categories - dairy, frozen food, ice creams or fresh produce.
It often doesn’t live up to high standards of quality checks, health and hygiene that
are required for food retailing.
Modern retail has brought in the third wave of change in the distribution of FMCG
brands in India. Today, despite the share of modern retail being almost one-tenth of
general trade, the fastest growing categories in India have a much higher share of
sale-through in modern trade. From pasta to packaged rice, cheese slices to canned
beverages and fruit drinks, assorted Indian snacks to banana chips, modern retail captures
the demand of India’s middle class like no other. The share of the modern trade in
these categories range from a quarter of the market to more than three-fourths of total
trade. In fact, modern retail is often constrained by the lack of variety and brands in
the food segment that reflect a deep understanding of the diversity and tastes of
India’s communities.
Big Bazaar provided the initial platform for the nurturance and growth of your
Company’s brands. Most of sales were from basic food items or staples. The future
however is going to be far more evolved. By combining a far wider portfolio of brands and
products - both in basic and processed food - with a fast growing modern convenience
network, your Company is set to usher in a new era for growth of food brands in India. The
Company has laid the foundation for this transformation and is now entering a phase of
rapid evolution, growth and profitability.
The acquisition of Nilgiris brings with it a large convenience store network in
Southern India and expertise in managing and expanding this network through the less
capital intensive franchisee route. The Company is now using this expertise to also grow
its existing convenience store network in Delhi and Mumbai through the franchisee route.
There lies a vast potential to grow this convenience store network from its current size
of 324 stores and upgrade neighbourhood stores in urban centres.
The Company intends to use this convenience store network as a key distribution
platform for its growing portfolio of brands and products. We are ready with a number of
new brands and products and these include, Veg Affaire and Tasty Treat for frozen food and
frozen fruits and vegetables, Sangi’s Kitchen for dips and sauces, Karmiq for premium
edible oils, dry fruits and energy bars, Desi Atta Company for a scores of varieties of
fiour and Soo Fresh and Go Bananas for fresh produce. Nilgiris has also brought with it a
104 year old FMCG brand and manufacturing facilities for dairy, bakery and confectionery
products. These brands join our existing portfolio of brands such as Golden Harvest,
Premium Harvest, Fresh & Pure and Ektaa in basic foods, Tasty Treat in processed food,
Sunkist in beverages and jams and CleanMate and CareMate in home care and hygiene
products.
We believe that with the portfolio of brands that we have created, it is possible to
reach a stage wherein more than 70% of sales from our convenience store network can come
through our own brands. It is a symbiotic relationship wherein the convenience store
benefits from a wider portfolio of products and the brands grow from the ready access to
consumers that the convenience stores provide and together this could be a game changer in
the FMCG landscape in India.
Oats is a very filling food that also has large health benefits. We have invested in
setting up an oats factory in Sri Lanka that can enable us to launch a range of food
products that will have the goodness of oats in them.
The commissioning of the India Food Park is enabling the manufacturing of many
products. We have envisioned it as a rasoi or kitchen for our stores and the Company is
realizing its dream of having a facility wherein it can manufacture almost anything the
consumer wants at the stores. The merger of the Company’s sourcing arm, Future
Agrovet Limited, during the year, has further enabled a full integration of the
agri-commodity sourcing business that the Company has already built.
We understand that what will remain crucial is our ability to execute this plan. The
foundation has been created and we are using our learnings, insights and knowledge gained
from decades of observing consumers within and outside our stores, serving them to choose
and buy products and building partnerships with key stakeholders in the Indian food and
FMCG industry as sellers and buyers of their products to execute this.
Sharing lies at the heart of food in India , we are thankful to everyone who has joined
us in this journey and helped us reach where we are. We hope to share the joy of food with
many more of you in the years to come.
Rewrite Rules, Retain Values
Kishore Biyani