SUBHIKSHA RETAIL STORES

Presented by Group 4

Subhiksha- Background
Founded in 1997 by R. Subramanian

Subhiksha means Giver of all things Good

Ideology: Customers prefer to buy groceries and other items from shops close to their home, and they like to get it cheap

Initial Investment of 4 lakh

Tag line of Bachat mera adhikar, Subhiksha mera Abhimaan In 2000, ICICI ventures bought 15% stake for Rs. 15 Crore In 2008 , Azim Premjis Zash Investments bought 10% stake for Rs 230 crore

Business Model
Low cost Network: Large number of stores per city Moderate assortment Every Day Low Pricing (EDLP) Deep discount Closeness to customers location Investments in furniture and fixtures: Minimum Purchases were done on cash to get maximum margin

Subhiksha stores- in numbers

First Store in 1997 Opened 9 more stores in that year 1999- 19 stores 2000 50 Stores 2003 140 Stores

2004 -Decided to Expand to outside Tamil Nadu

2006- 160 Stores 2007 670 Stores 510 Stores 2008 March -1320 Stores 650 Stores in 1 year 2008 Sept - 1650 Stores 330 Stores in 6 months Aggressive Expansion Phase

The Rise
1 shop in 1997 grew into 1650 shops in 2008 largest retailer in India at that time Revenue increased by 700% in the period 2006-2008 (Rs 3.3 bn to Rs 23.05 bn In March 2008, Subhiksha was named as one of the worlds top 50 Local

Dynamos by the Boston Consultancy Group.

The Stumble
August 2008- Reports of Subhiksha not paying salaries to staff and defaulting on rent

By the end of 2008, most suppliers backed out from supplying

Could not rise enough capital for its operations Stopped operations in 2009

The Case
Case Objective
To Understand Subhiksha business model To understand the benefits of revamping a store and opening a new store To use decision making criteria under risk and uncertainty to determine the decision made by Subhiksha was a sound one

Case Questions
1. With reference to the Indiranagar store and Shastri Nagar stores, was the decision to expand to new regions instead of revamping the existing stores and generating revenue from them a sound one? 2. Can any of the decision making tools, if employed, show that the decision was wrong?

Case Methodology
The operations of two stores are explained New store at Indiranagar and Revamped store at Shastri Nagar The case analysis focuses on the aggressive expansion phase where they deviated from their previous norm & started 300 new stores in every 6 months on average The cost of operating of each store is found out from the data, and profits calculated Possible decisions and outcomes are formulated

Payoff Matrix is created and analyzed the decisions based on it

Analyzing the decisions marked as favorable in each of the decision making criteria

Decision Analysis: Assumptions & Calculations

Category of item Supermarket F&V Monthly Sales 900000 300000 Exhibit 6: Monthly Store cost Particular Amount Rental 40000 Wages 60000 Electricity 10000 Security 10000 Dump 30000 Allocation of warehouse 34000 % Gross Margin 15 30 Gross Profit in Value 135000 90000

Monthly warehouse cost of 2000000

Decision Analysis: Assumptions & Calculations

Possible Decisions
Revamp existing 50 stores Open 50 new stores Open 150 new stores Open 300 new stores Do Nothing

Decision Analysis: Assumptions & Calculations

Possible outcomes
High Gross profit (For High Sales)

Moderate Gross profit (For Moderate Sales)

No Gross profit (For Low Sales)

The Payoff Matrix

Alternative Revamp 50 stores Open 50 new stores Open 150 new stores Open 300 new stores Do Nothing

Outcomes(Gross profit) High Moderate None 16142500 7861635 -8700000 4541650 183300 -8533350 13624950 549900 -25600050 27249900 1099800 -51200100 0 0 0

High sales value =1.5x(moderate sales value)

Decision Analysis : Decision Tree

Revamp 50 stores 5101378 Open 50 stores -1269467 Open 150 stores -3808400 Open 300 stores -7616800 Do Nothing 0

Highest EMV

Revamp 50 Stores
0.3333 16142500 High

Revamp 50 Stores
5101378

0.3333 7861635 Moderate

0.3333 -8700000 Low

Decision making under uncertainty

Maximax Criterion
Outcomes(Gross profit) Alternative High Moderate None Revamp 50 stores 16142500 7861635 -8700000 Open 50 new stores 4541650 183300 -8533350 Open 150 new stores 13624950 549900 -25600050 Open 300 new stores 27249900 1099800 -51200100 Do Nothing 0 0 0 Selection Criteria MAXIMAX Criterion 16142500 4541650

13624950
27249900 0

Maximin Criteria
Outcomes(Gross profit) Selection Criteria MAXIMIN Criterion -8700000 -8533350 -25600050 -51200100 0

Alternative High Moderate None Revamp 50 stores 16142500 7861635 -8700000 Open 50 new stores 4541650 183300 -8533350 Open 150 new stores 13624950 549900 -25600050 Open 300 new stores 27249900 1099800 -51200100 Do Nothing 0 0 0

Pessimistic approach suggests to do nothing

Equally Likely Criteria

Same outcome as the decision tree

Outcomes(Gross profit)

Selection Criteria

Alternative High Moderate None Equally Likely Revamp 50 stores 16142500 7861635 -8700000 5101378.3 Open 50 new stores 4541650 183300 -8533350 -1269467 Open 150 new stores 13624950 549900 -25600050 -3808400 Open 300 new stores 27249900 1099800 -51200100 -7616800 Do Nothing 0 0 0 0

Minimax Regret Criteria

Revamping stores minimizes potential loss

Opportunity loss table Outcomes(Gross profit) Selection Criteria Alternative High Moderate None Minimax Regret Revamp 50 stores 11107400 0 8700000 11107400 Open 50 new stores 22708250 7678335 8533350 22708250 Open 150 new stores 13624950 7311735 25600050 17066700 Open 300 new stores 0 6761835 51200100 42666750 Do Nothing 27249900 7861635 0 27249900

Conclusions
From the result of our analysis, we can conclude that their decision of aggressive expansion was based on a highly optimistic perspective of the outcome This backfired on them as the optimistic view is not suited for the retail business scenario in India A fairly safe option would have been to revamp their already established and prosperous stores In early 2008, when they were in serious debt, they should have gone for

the pessimistic approach and halted the expansion

Recommendations
Also, the current retail business scenario in India has changed.

Organized retail has grown significantly and retail stores are now easily
accessible. They no longer possess their old stores as they used them to pay off their debts Not only do they not possess their initial competitive advantage in terms of accessibility and first mover advantage, they also have to start from scratch by obtaining new stores Thus we recommend that they start with a new model designed on the basis of the current retail scenario

References
1. Chabra, P. (2008). Subhiksha Failure: On the wings of some vanity & wax. Retrieved October 13, 2013, from Business & Economy: http://www.businessandeconomy.org/29042010/storyd.asp?sid=5192&pageno=2 2. Dr. L. Suresh Mallya, D. P. (2012, jan-jun). CRITICAL EVALUATION OF A FEW INDIAN ENTREPRENEURS. AMET International Journal of Management , 65-66. 3. Dr. S. Mani, A. S. (2011, MArch). SUBHIKSHA THE RETAIL PHENOMENON THAT FLATTERED TO DECEIVE. PRERANA -Journal of Managementthought and Practtices , 47-49. 4. Goswami, D. P. (2010). Subhiksha: To Make-over or not to Make-over? Journal of Case Research , 81-98. 5. H.M. Jha Bidyarthi, A. K. (2010). From Subhiksha (Prosper) To Iksha (Perspire):The Topsy-Turvy Story of Indian Retail Business Model. American Journal of Economics and Business Administration , 153-156. 6. Janat Shah, R. P. Subhiksha: Managing store Operations. Boston: HArward Business School. 7. K. Suvarchala Rani, D. S. (2013, June). Small Format Retail Chain: The case of Subhiksha. Pacific Business Review International , 5 (12), pp. 56-60. 8. Sriram, R. (2011, Aug 25). Why Subhiksha Trading Services collapsed. India.