SUBHIKSHA-A saga of ups and downs

Subhiksha – a saga of ups and down 7 September 2010

 2

HUM 14

ADITYA KHEITAN

BBA 2nd year

LOVELY PROFESSIONAL UNIVERSITY

Subhiksha – a saga of ups and down 7 September 2010

Content –subhiksha –a saga of ups and down

1. WHAT IS SUBHIKSHA?

2. Entering into the retail
scenario 10 year ago

3. First store- Establish in
chennai

4. The Expansion of the
stores

5. Cut Price Strategy

6. The Triumphant Journey
Of Subhiksha

7. Risk In Retailing And
Expansion

8. Turn Down at Subhiksha

9. Raising new competitors

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WHAT IS SUBHIKSHA?
A literal translation of the

Word subhiksha means ‘one that gives all good things

in life’ This vision was started in India about 10 year
ago by Mr. R. Subramaniam .The journey from a single
small store in chennai to about 760 stores in 10 years
has been phenomenal growth for the company in India
. This made subhiksha India’s largest chain of retail
store (in terms of number of stores)

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Entering into the retail scenario 10 year ago

The history of subhiksha dates back to year 1997 , when Mr. R Subramanian
thought of idea of entering into retail industry in India . Back then in Indian
Retail industry was almost a nonexistent one .India characterized based by
small mon and pop retail stores known as “KIRANA” stores .

Subhiksha felt that as India was growing

and so was a middle class .They realize
that if they have to volumes then the top
end consumer will not be the target ,and
so they chose to focus on the growing
middle class income consumer s generally
referred to as the “aam admi”

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 Business Vision & Mission

Vision‐ “To emerge as the largest retailer in the 'Food Grocery
Pharmacy' segment in all the geographical regions we operate from”.

Mission‐ To deliver consistently better value to Indian consumers,

has guided Subhiksha to deliver savings to all consumers on each and every
item that they need in their daily lives, 365 days a year without any
compromise on quality of goods purchased.

The logo of Subhiksha portrays that it’s the right of an average Indian to
save money and its Subhiksha that helps him in achieving this.

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 First store- Establish in chennai
In the year ,1997 Subhiksha opened
its first store at thiruvanmiyoor in
Chennai with an investment of
around Rs 4-5 lakh, with the
theme,”

“why to pay more when you can

Get it for less at subhiksha.”

This was about a 1500 sq feet big

store . The size of the storewas
relatively bigger then the size
of a local mom and pop store in
India But was smaller than that
of the major Organize players in
the retail market like Big bazar
etc

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Product profile

Supermarket:
Includes quality groceries, packaged foods, cosmetics and
toiletries, household provisions, etc

Pharmacy:
Subhiksha stores generally have a in store pharmacy which
stores mostly basic medicines. All medicines are made
available to consumers at a flat 10% discount

Telecom:
Subhiksha is recently forayed into mobile retailer business
and offers handsets, recharge cards and accessories from all
leading cell phone manufacturers’ at lower prices
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Fruits and
Vegetables:
Includes fresh fruits and
vegetables sourced directly
from farms on city
outskirts by Subhiksha and
made available to the
consumers at very
reasonable prices.
Consumers get fresh
produce at best prices

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The expansion:

In March 1997 Opening of the first retail store in Chennai,
with 5 lacs Initial investment.

March 99-14 stores in Chennai

June 2000- 50 stores in Chennai, ICICI ventures joins
Subhiksha

June 2002- 120 stores in whole of Tamil Nadu

June 2006-420 Stores in other big states in India namely
Gujarat, Delhi, Mumbai, Andhra

Pradesh and Karnataka.

Feb 2007-500 stores across country

Dec 2007- 1000 stores across India

October 2008- 1600 stores across India

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The People:
1) Chairman -R Subramanian (IIM-A Alumnus)
2) Ms.Rama Bijapurkar (IIM-A Alumnus),Board of Director
3) Mr. Kannan Srinivasan (a professor of marketing at
Carnegie Mellon University’s Tepper School of
Business),Board of Director
4) Mr. S.B. Mathur, former LIC Chairman,
5) Ms. Renuka Ramnath, Managing Director of ICICI Venture
6) Ms. Rajeev Bakshi, Deputy Managing Director of ICICI
Venture and a former CEO of PepsiCo India.
7) Mr. Ajem Premij as Board member

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The Retail Strategy:

Subhiksha focuses on two factors for its model. These
are called the two C's:
1. Criticality of Cost.
2. Convenience of Buying

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The following points will make it much clearer
as to how Subhiksha is integrating all that it has
to achieve the above 2 C’s:-

1) Opening a chain of no-frills stores-no air-conditioning,

no fancy lighting, and no touch and-feel experience
(customers have to ask for products at Subhiksha
stores)-was a deliberate strategy.

2)Their approach combines the local low-overhead front-end

of Indian kirana shops with the efficient supply chain of a
large retailer.

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 3) Shops are located not on
the main road, but just
off it, to take advantage
of vastly lower rentals.
4) The catchment area of
customers is rarely
beyond a two-km radius,
since its customers
usually come on
two-wheelers or on foot.

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 5) Their USP is a Walmart-style
everyday-low-price (5-10% less
than MRP and/or their nearest
competitor), enabled by
combining centralized buying
and an efficient supply chain,
with their simple (and
inexpensive) store format.

6) Subhiksha follow an Every Day

Low Price Scheme (ELDP) where
they offer the lowest prices every
single day of the year on almost
everything that is sold from the
stores.

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The Triumphant Journey Of Subhiksha

Until little over three years ago, Subhiksha was only a local
player with 150 stores (sep 2006) operating mainly in tamilnadu .

The retailer begain growing rapidly out side the state ,soon after
infusion of private equity capital by I-venture , the venture
capital arm ICICI .

I-venture took 24% stake in the company’s equity which until

then was primarily held by Subramanian and his associates .

Riding on the back of rapid expansion , Subhiksha tern over

grow from Rs330 crore to Rs4,300 crore in year 2000-2007

And looked for rising its tern over to Rs 4,300 from 2,300 stores

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 The Triumphant Journey Of Subhiksha

7 September 2010 Subhiksha – a saga of ups and down 17


“However, as it
happens with many
growth stories , the
retailer could not
keep pace with them
its growth and got into
liquidity trape as in
the hope increasing
its valuation ,it kept
posting posting
infusion of equity
funds. Same case is
with Subhiksha”

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Now, we have the case of Subhiksha which is battling for survival.
Subhiksha which was started with 1 store in 1999 has grown to more
than 1,500 stores by the end of 2008-9.

Its founder R Subramanian is a IIT Chennai and IIM Ahmadabad

alumnus. That the best combination of pedigree from India there can
every be. Subhiksha has ICICI Ventures and Wipro’s Aziz Premji as
its investors.

Everything seems to be in the

right place. What could
possible go wrong?

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Turn Down at Subhiksha

The management has committed some eventual
mistakes which has led the company towards the
downward position. The first and big mistake committed
by the management of Subhiksha is expanding the
number of stores rapidly without sufficient funds in
hand. They thought of raising equality
during September -2008
but the things had gone too
far before they woke up .The
global markets were started
collapsing and there were no
possible chances of raising
Funds
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 Consequently , in the following month (October,2008)
the company ran out of enough funds to run the
organization. Thereafter ,Subhiksha has been
continuously besieged by a set of problems from all side .

1) Over expenditure on Advertising

Subhiksha Trading Services has come under fire from
television channels for not clearing advertising dues that
run around Rs 8 crore.

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2) Over expenditure on Wages and Rent:-

Subhiksha is belived to owe

Rs 35 crore against goods ,
RS 8 crore against wages,
and Rs20 crore against
lease rents . The company,
according to the report ,is
also carrying a debt of
Rs700 crore at an average
interest cost of 12 % annum

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3) Expansion of Stores without adequate system control
and IT Support:

Expansion of stores
without adequate system
control and IT support .
That’s why there was a
huge Audit and adnormal
losses in the system .And
when they have started
implement ion of SAP the
time has gone for survival
of Subhiksha

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4) Government Intervention :

Maharashtra FDA, the state
government’s regulatory
authority for food and drugs,
had asked Subhiksha to
suspend operations of its
warehouses at Bhiwandi
(Mumbai) for 20 days as well
as had cancelled licences of
three of its vendors, charging
that they had failed to
maintenance health and
hygiene norms as prescribed
by the regulator.

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5. Supplier Bargaining Power :

Many wholesale suppliers in Azadpur subzi mandi, or
vegetables market, have stopped supplying fruits and
vegetables to Subhiksha’s outlets in the National Capital
Region (NCR) surrounding the national capital. This comes
in the wake of the company holding up payments for two to
six months against normal credit period of one month.

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 6) Lack of strong HR policy and Staff :
Due to this Shubiksha was not able to retain the talent
which he initially bring into Junior, Middle and high level
management. Whatever was remaining with it is all family
bound with no commitment policy.

7) Huge Rental and Lease Bills :

They were paying huge rentals for these stores, which was a huge
drain on the company's finances.. There are huge frauds while
entering in to rental agreements by their own management
people. There was no proper check and control on this cost
though this is a very crucial part to defeat competitors and to
gain profitability in future. This, coupled with less than-
expected footfalls, drove the operational costs to unsustainable
levels.

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8. The wrong assumption that telecom segment is a
sound, and profit making segment.

The CEO never looked in

to system losses arise from
telecom. Subhiksha stores
always sell handsets at
below DP while its
benchmarking is to match
DP. No control on
inventory of mobile
accessories and there stock
value and were unable to
circulate the working
capital.

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 9) Strong Competition :

Thus sinking into unrepaired conditions Subhiksha has to
compete with its high profile competitors like RPG, Reliance
retail and Future group etc. Reliance Retail has set up
700-odd stores in the past two years, almost at the rate of
one store per day, Future Group
has begun opening a new no-frills discount retail chain
called KB’s Fair Price Stores, a format that is similar in
concept to Subhiksha stores. Reliance’s food and grocery
format Reliance Fresh on the other hand is high-end in
terms of display, ambiance and size.

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10) Over confidence and Aggressiveness:

The raise of the company thus gradually started sinking

down step by step and now stands on the verge of collapse.
The management frankly admits that their over confidence
and aggressiveness are the main reasons for their loss. They
should have gone for an IPO when the things were well and
good to prevent such downfall. If they had responded in
right time they wouldn’t have been put through such bad
phases

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Meanwhile, the company has
closed around 90 grocery
stores across the country over
the last one month or so. The
company has also significantly
reduced the inventory levels in
its mobile retail arm
-Subhiksha Mobile stores. The
company had also closed the
super markets in most of the
places and is on the verge of
bankruptcy.

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 By - HUM 14

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