India: FMCG makers tighten supplies to Future Retail over payment delays

Photo: Reuters

Large- to mid-sized household goods makers and their distributors have become wary of selling goods to Future group’s EasyDay and Big Bazaar chain stores, with some of these companies saying that they are facing unusually long delays in receiving payments for the supply of goods. As such, some of them are selling limited inventory until the outstandings are cleared.

This highlights the cash flow woes and debt-related troubles of Future group, said top executives at fast-moving consumer goods companies. Big Bazaar, which has more than 300 stores in the country, and EasyDay, with approximately 500 stores, are run by Future Retail Ltd.

“For the last few months, they are facing a severe cash crunch…our payments are pending for more than a few months now,” said a top executive at a packaged foods company on condition of anonymity. The company has not cut off supplies but is “pressing them hard for payments”, said the executive.

Most retailers work on a credit cycle of buying stock from manufacturers directly or through distributors and pay them after a stipulated period. In case of modern retailers, the credit period would ideally be between 25 and 45 days and can even stretch to 60 days in some cases. The credit period depends on the companies they deal with and the areas they service.

Covid-19 has pushed other retailers to also seek more time to make payments, but Future group’s grocery formats have been unusually late, according to several companies.

“We have been writing emails about our outstanding dues pan-India,” said a top executive at another mid-sized packaged foods company. However, there has been no response, said the executive. The company’s dues, which are typically cleared in 45 days, haven’t been cleared in more than 90 days, said the executive.

“Some retailers asked for extra credit. In some cases we have agreed to an additional 30-day period. However, their (Future group’s) delays go beyond that,” said the executive.

Future group accounts for a significant chunk of the company’s sale to modern trade formats, the executive said, adding that it is not considering pulling out its stocks.

There are, however, heightened concerns about the group’s ability to pay, especially as the stores are functioning amid tight restrictions and reduced timings, the executive said.

A Future group spokesperson did not respond to email queries.

Some other companies that supply goods to Future group said they will work within strict credit cycles and take “limited risk”. “We are more careful with them right now. We are following up on our payments. There were some problems earlier also, but March onwards, it is more critical,” said a director at another FMCG company who did not want to be named. Other retailers are seeking a relaxation in payment schedules, but those, he said, are for a few days.

“We only processed orders once our pending payments were released and only sent limited stocks,” said another executive at a diversified FMCG company.

The woes of FMCG companies come at a time when Future group is struggling with mounting debt. The covid-19 pandemic has caused long-term store closures across the group’s apparel, fashion, and other high-margin verticals, leaving only its grocery business to operate.

Group promoter Kishore Biyani’s debt-related troubles came to the fore in March, when shares of Future group’s listed company lost significant value, leading to a rating downgrade of his promoter holding company and invocation of pledged shares by lenders. The group has moved to find buyers for promoter shares in two group entities.

On 25 March, Mint reported that Future group had appointed investment bank Arpwood Capital to find a buyer for the apparel business, Future Lifestyle Fashion Ltd, which runs the Central brand of apparel retail stores. Bloomberg reported on 9 April that the group aims to raise 2,500 crore by selling its stake in an insurance joint venture.

“If within your portfolio you are only selling grocery and staples and you cannot sell all the profitable things such as apparel, the situation will become bad,” said the first executive cited above.

Distributors and vendors who are squeezed for sales would rather sell to retailers who are offering better terms or upfront cash payments, said a person who works with large distributors.

This article was first published on livemint.com.

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.