Kishore Biyani’s Future Group is exploring a new model for its neighbourhood convenience store chain, KB's Fairprice, in which the company will own the stores and not leave the onus of initial investment on the franchisee partner. The company may put in an initial investment of R40 lakh per store and have a revenue-sharing model with the franchisee partner.
“We are opening stores that are managed by franchisees but owned by us. This is different from our earlier model, where the franchisee owned as well as managed the stores,” CP Toshniwal, chief financial officer of Future Group, said. The exact revenue-sharing details could not be ascertained.
In the earlier model, Future Group sold products to the entrepreneur as a wholesaler and the entrepreneurs claimed they got higher margins than those in a regular kirana store. Most part of the investment was borne by the entrepreneur.
Contrary to the expansion plans the group had for KB's Fairprice, the format's footprint has not gained much momentum. Currently, there are 200 Fairprice stores in Delhi, Mumbai and Bangalore, a number that Biyani plans to scale up to 1,000 over the next two years. In 2009, the company had 160 stores and it planned to increase the count to 225 by 2010. However, the expansion plans did not take off in a big way.
Earlier this year, the company announced its plans to have 1,000 FairPrice stores by 2015.
“We are only looking at having franchisee stores, and this holds true even for Big Bazaar Direct. We do the back-end work while the front-end is managed by the franchisee partners,” Toshniwal said.
An executive at Franchise India, who advises companies on licensing and franchisee opportunities, says the franchisee model works for the company as Future Group will only put in the initial investment and does not have to incur costs like rentals, which make up a chunk of a retailer's costs. These stores — which have an area of 400-550 square feet — are generally housed in prime residential localities.
K Radhakrishnan, who was recently appointed as the chief executive officer of KB's FairPrice, has maintained that the first priority is to strengthen the supply chain management of the stores.
Meanwhile, the retail baron expects the FairPrice format to drive the growth of his new FMCG company, Future Consumer Enterprises. In July, Biyani listed Future Ventures on the stock exchanges after changing its business from that of a non-banking finance company (NBFC) and an investment arm. Last month, the company's name was changed to Future Consumer Enterprises.
Private labels currently contribute 40% of KB’s Fairprice’s turnover but, going forward, this is expected to increase. In-house brands, such as Golden Harvest (staples), Sach (toothpaste, juice, ghee) and Tasty Treat are housed in the stores.
The company strengthened its reach in the convenience store format after it acquired the Big Apple chain of food and grocery stores last year for R62 crore.