NEGOTIATION PROBLEM FOR THE CHALLENGERS

THE 24/LULU DILEMMA

Ruritania is a democratic country with a population of more than

1 billion people. 34% of the Ruritanian population resides in the
urban areas whereas the remaining resides in the rural areas.
The nation has embraced technological development, especially
in the urban areas, where aggregators have started delivering
groceries and other items of daily use to the consumers in half-
an-hour. However, the rural population is still technologically
handicapped and relies on local shops for the purchase of items
of daily use. purple Mango, was established in 2003 as a single-
store retail outlet. The CEO of purple Mango realized the
potential in the rural retail market and developed a robust supply
chain and opened various outlets in the rural areas. Currently,
the company operates 50,000 outlets across the nation. The
company is able to attract customers to its outlets by giving hefty
discounts on essential items, which other retailers are unable to
match. Given that purple Mango has been in business for almost
50 years, it has been able to establish itself as a trusted brand
among the rural customers. Its sales are valued at Rs. 50,000
crores per month and the company generates a profit of Rs.
33,000 crores per month.

The Dispute

Sensing competition from new startups looking to expand into

the rural offline retail market, purple Mango took loans worth Rs.
80,000 crores to aggressively expand into the untapped regions
 NEGOTIATION PROBLEM FOR THE CHALLENGERS

before the other retailers are able to do so. Some amount of this
money was also to be used to capitalize on its robust supply
chain and test the urban market by promising deliveries of
groceries and other essentials within 5 minutes. If the test proved
to be successful and profitable, more money would be pumped
into this segment. The loan, which was sanctioned in February,
2017 is spread over a period of 9.5 years and has to be paid back
at an interest of 8% per annum. purple Mango relies on its
earnings to pay back a certain amount of money to the banks
every month and has paid back Rs. 40,000 crores over a period of
20 months. Even after paying almost 600 crores as interest to the
banks per month, the company was able to generate a decent
amount of profit and the shareholders and banks were satisfied
with the vision and goals of the company.

On 5th July, 2020, the Ruritanian Prime Minister announced a

complete lockdown to curb the spread of a new, dangerous virus
known as Common fever. The lockdown lasted for six months
which affected the sales of the company as it had no online
presence in the rural regions. Further, the footfall at Purple
Mango went down drastically as the Government started home
delivery of ration in the rural area so that the movement of people
could be restricted. The revenue of the company had reduced
significantly and this resulted in heavy losses for Purple Mango
rendering it unable to service its debt. The virus mutated several
times and this led to closure of the retail outlets for another few
months due to which the debt has risen substantially and the
banks are considering taking action against the company. The
price of the share has fallen from Rs. 1,700 to Rs. 200 and the
 NEGOTIATION PROBLEM FOR THE CHALLENGERS

shareholders are worried that if the Board does not look for
solutions, there is a real risk that the company would incur even
heavier losses in the future. Even after suffering a 90% loss on
their holdings, the shareholders are rallying behind the CEO of
purple Mango as they believe that the fortunes of the company
can still be turned around. Further, the banks have declared a
moratorium on the loan amount and not initiated any action yet
as the CEO of purple Mango is one of the most-trusted
businessmen in the country and has had good relations with the
banks for the past 40 years. He has a track record of paying back
his dues on time and the banks realize that the debt has risen
due to the impact of Common fever and not because of a lack of
business acumen of the CEO. Like the shareholders, they also
believe that the company will be able to overcome the problems
and are in talks with the CEO to increase the time duration for
the loan with the total amount to be paid remaining the same, as
a gesture of goodwill on their end. Lulu Retail, world’s largest e-
commerce marketplace, started its operations in Somalia, the
world’s largest country, and has been expanding to other parts of
the world. It has an online presence in Ruritania since June 2014
and caters to the urban population of the country but given that
majority of the population resides in the rural areas and does not
use its e-commerce platform, it wants to enter the rural offline
market. Due to common fever, the cost of real estate has fallen
sharply and hence, Lulu Retail wants to use this opportunity to
enter the Ruritanian rural offline retail market. Lulu Retail is the
most valuable company in the world and has a very high cash
reserve. This reserve is used by the company to give steep
 NEGOTIATION PROBLEM FOR THE CHALLENGERS

discounts and flush out competition from the market. Further,

since Lulu Retail relies solely on online deliveries, it does not
have to bear the cost of operating a retail outlet which allows it to
price its items at an even lower price. The Indian arm of Lulu
Retail has not posted a profit till date as it relies on aggressive
marketing and discounts to ensure that it gains the trust of the
consumers and that the small retailers are unable to compete
against it. As has been seen in other countries, once Lulu Retail
is able to establish a monopoly, it would increase the price of
goods and start earning profits. Lulu Retail has come under
criticism for its business model as several offline retailers have
had to shut their shop because they could not match the prices
offered by Lulu Retail (Ruritanian wing). The Retailers’
Association, representing 1,00,000+ small retailers, has been
writing to the Government and Lulu Retail expressing its
concerns regarding this business model. There has been no
response from the Government and the response from Lulu
Retail, that they will not establish a monopoly, has been deemed
“vague” since it is not backed by the Government or a local
influential person. Due to this, the retailers have surrounded
numerous warehouses of Lulu Retail. This has led to disruption
in the supply chain of LULU Retail and allowed other e-commerce
platforms to capitalize on the situation. However, much to the
delight of LULU Retail, in the 2021 Budget, it was announced
that Foreign Direct Investment would be allowed in the offline
retail segment, given that an Indian company would have to be a
part of the venture. Having a stronghold in the urban market
already, Lulu Retail wanted to get a head start in the offline rural
 NEGOTIATION PROBLEM FOR THE CHALLENGERS

retail segment. After holding talks with several banks, it has

made an offer of Rs. 75,000 crores to purple Mango in order to
acquire a majority stake in the retail chain and has expressed an
interest in helping it to pay off its debt. Further, LULU retail
wants to pump in more money to ward off competition from the
start-ups and other established companies like F-Mart. Facing
immense pressure from the Board and the Banks to discuss the
offer, the CEO of purple Mango along with purple Mango’s
General Counsel has decided to meet the India Head of LULU
Retail and their Legal Counsel.