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Rashmi Pratap, The Hindu Businessline

Mumbai, 28 August 2015

As online shopping grows more popular by the day, Kishore Biyani, the man who catapulted brick-and-mortar retail to new heights in India, found himself scouting for the next big idea. The founder and chief executive officer of Future Group has now identified a new frontier to conquer — customers at Rajasthan’s public distribution system (PDS) outlets. This group of buyers includes those below poverty line and beneficiaries of various food programmes of the state government. All of them get a monthly quota of sugar, wheat and kerosene at subsidised rates. Biyani wants to sell them deodorants, mosquito repellents and floor cleaners, besides fairness creams and noodles, at the hundreds of PDS outlets across the state.

“Consumer aspirations are rising and they want to try new products. You can sell a lot more through fair price shops,” says Biyani, explaining the potential inherent in the Annapurna Bhandar Yojna, a public-private partnership (PPP) scheme between the Rajasthan State Food and Civil Supplies Corporation and Future Consumer Enterprise (FCEL).

Rajasthan has nearly 25,000 fair price shops. As much as 67 per cent of the state’s 6.8-crore population, about 4.5 crore, visit PDS outlets at least twice a month.

That presents a huge business opportunity for Biyani’s Future Group.

To begin with, the company will tie up with 5,000 PDS store owners, turning them into entrepreneurs. Currently, these stores operate not more than six to seven days a month, and remain closed after the monthly ration has been distributed. After the tie-up with Future, the store owners will have an incentive to remain open longer and sell more.

“It is an experiment, but the results so far have been encouraging,” says Biyani, referring to the five stores that have been launched in Jaipur on a pilot basis.

“This is a different market. (The products) in these stores will be limited to just 250 SKUs (stock keeping units),” he adds.

So rather than every kind of household item, the shops will initially stock grocery, personal healthcare and homecare products.

Although other brands will be available too, a majority of the products will belong to the group’s own brands, as that will allow it to offer competitive pricing and drive volumes.

Margins on private label goods are, on average, about 10 per cent higher than those on similar branded products. Retailers pass on the benefit of higher margins to customers in the form of lower prices. So those using Rajasthan’s PDS services will now have access to a wider range of products at prices that are lower than those of national brands.

“It is a good opportunity for both Future Group and the customers, who get much more variety on the shelves. Mr Biyani is an experienced retail entrepreneur and he would be able to select the right merchandise for this segment,” says Arvind Singhal, chairman at consultancy firm Technopak.

Devangshu Dutta, chief executive at retail consultancy Third Eyesight, says the tie-up gives the company a phenomenally stronger presence through the additional outlets. “They get a vast geographic reach through these stores,” he says.

The second advantage is the access to a different segment of customers. “The customers coming into PDS shops are different from the people visiting the modern retail outlets that the Future group has. It gives the group a better critical mass and can help it grow the business more efficiently and profitably,” he adds.

The group is also ready with the supply chain for the backend, as it is present in Rajasthan through its Big Bazaar and Food Bazaar formats. “We have the backend operations already in place,” says Biyani

This new experiment, for Biyani, is an attempt to ride the storm of competition whipped up by e-commerce players and corporate giants such as Reliance and AV Birla group in the retail sector. If it succeeds, the Rajasthan government might invite bids to bring more PDS stores under the ambit of the tie-up. Eventually, other state governments are likely to follow suit.

“That is what we want — to replicate this model in other states,” Biyani says.

And when that happens, the Indian retail sector will get to chase a new and bigger opportunity — this time, right at the bottom of the pyramid.

(Published in The Hindu Businessline.)