Case Study- Subhiksha: A Saga of Ups and Downs

Subhiksha: A Saga of Ups and Downs

Contents
Entering the retail market ten years ago: ................................................................ 2
he e!pansion of the stores: ................................................................................... "
Cut pri#e strategy: ..................................................................................... .............. "
he triumphant $ourney of Subhiksha: ..................................................................... "
%isk in retailing and e!pansion ................................................................................ &
Supply #hain woes bare Subhiksha shel'es ............................................................. (
urndown began at Subhiksha: ........................................................................... ..... (
%eferen#es: ......................................................................................................... .. )

..
he 'iews and opinions e!pressed in this Case Study are those of the author and do
not ne#essarily refle#t the 'iews or opinions of any %etail *roup +ndia. he fa#ts and
figures mentioned in this #ase may not refle#t the a#tual figures of #ompany. he
#ase is meant solely for the purpose of a#ademi# use and study and not for
#ommer#ial use. ,or any info pl# #onta#t the author on -indurathore.gmail.#om.
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
We are a golden egg laying duck, we are in trouble. We need their (bankers and lenders)
support and upon getting it we will restart operations and repay all debt. It is not easy,
but we have to make it happen, says !ubramanian, "ounder, #romoter, and
$anaging %irector o& !ubhiksha 'rading !ervices, which owns !ubhiksha( the
India)s largest (in terms o& number o& stores), &ood and grocery, small &ormat,
neighbourhood, convenience, discount retail chain. !ubhiksha (prosperity) which
means prosperity in !anskrit is on the verge o& bankruptcy today, as on * "eb, *++,.
Entering the retail market ten years ago:
!ubhiksha in !anskrit means the giver o& all good things in li&e.
!ubhiksha with a pioneering approach and giving new de&initions to the retailing
ventured into the Indian retail industry. !ince, their predecessors are already e-isted
and doing well in the market, they had to come up with an innovative approach to
compete with them. 'hey have made an e-tensive research on customer behavior and
Bindu Rathore
!ubramanian wasn.t thinking this big when he kicked
o&& !ubhiksha/a retail value chain in 0,,1. In &act, he
wasn.t even thinking retail when he passed out o& II$
2hmadabad in 0,3,. 2&ter a two/week stint at his &irst
employer 4itibank, !ubramanian 5oined his mentor
(late) !. 6ishwanathan, who then ran 7n&ield Industries.
2t 7n&ield, !ubramanian helped pro&essionali8e a
hitherto &amily/run set/up and rope in 7icher as a
buyer. 2&ter working &or two years at 7icher, he started
his &irst company called 6iswapriya, and made pro&its
up to *9 crores, until the share market collapsed in 0,,9.
Case Study- Subhiksha: A Saga of Ups and Downs
&ound that offering the branded goods at a lower price than their competitors could
make them stand in the competitive retail industry.
:e wanted to pioneer a new trend; because o& what he had &ound out about the retail
industry< that the =o.0 retailer makes the most money, the =o. * makes some money,
while the third (and the others) has to eventually shut shop.
In the year 0,,>, !ubhiksha opened its &irst store at 'hiruvanmiyoor in 4hennai with an
investment o& around s ?/9 lakh, with the theme, why pay more when you can get it
for less at Subhiksha
!he e"pansion of the stores:
@y $arch 0,,,, !ubhiksha started e-panding rapidly. "rom 0? stores, it was e-panded
to 9+ stores by Aune *+++. In the ne-t two years, it had 0*+/0B+ stores across 'amil =adu.
'hey decided to look at every part o& India which is signi&icantly literate and is a
signi&icant consumption market. 'elecom companies are their role model. 'hey
employed capable regional managers and e-panded. In *++?/+9, they decided to have
?*+ stores in places like Cu5arat, %elhi, $umbai, 2ndhra and Darnataka by *++1. In
*++9, !ubhiksha started recruiting people in various regions.
!ubhiksha is currently operating over 0,9++ supermarket stores across more than 0++
cities selling &ood, grocery, drugs, and telecom products across I=%I2
Cut price strategy:
Epening a chain o& no/&rills stores/no air/conditioning, no &ancy lighting, and no touch/
and/&eel e-perience (customers have to ask &or products at !ubhiksha stores)/was a
deliberate strategy. !hops are located not on the main road, but 5ust o&& it, to take
advantage o& vastly lower rentals. 'he catchment area o& customers is rarely beyond a
two/km radius, since its customers usually come on two/wheelers or on &oot.
!he triumphant #ourney of Subhiksha:
Fntil little over two years ago, !ubhiksha was only a local player with 09+ stores
(!eptember *++1) operating mainly in 'amilnadu. 'he retailer began growing rapidly
outside the state, soon a&ter in&usion o& private eGuity capital by I/venture, the venture
capital arm o& I4I4I. I/6enture took *? per cent stake in the company)s eGuity,
which until then was primarily held by !ubramanian and his associates.
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
iding on the back o& rapid e-pansion, !ubhiksha)s turnover grew &rom s BB+ crore in
*++9/+1 to s 3BB crore in *++1/+>, and then to s *,B+9 crore in *++>/+3 (year ending
$arch B0, *++3). Hikewise, having grown &rom 09+ stores in !eptember, *++1 in
'amilnadu to 0,1++/odd stores across the country in !eptember, *++3, !ubhiksha has
been the envy o& its competitors. @y the end o& this year, it was looking at grossing a
turnover o& s ?,B++ crore &rom *,B++ stores. Interestingly, all the growth was,
however, &uelled &rom a small net worth base o& s *9+ crore having eGuity
component o& s 03+ crore (&ace value o& s B* crore).
$isk in retailing and e"pansion
We are not mad risk takers. We are not producing movies. We do a lot o& research be&ore
starting business in an area, and we have back/up plans in place. We work with very
good people, and i& something goes wrong, we try to take corrective steps.
'he big advantage we have is, we are not creating products. !o there are no worries
about whether it would succeed or not. 4onsumers are smart and they are all price/
conscious and they want to &inish the work as &ast as they can. 'hey don.t go to a
provision store &or &un.
:owever, as it happens with many growth stories, the retailer could not keep pace with
its growth and got into liGuidity trap as in the hope increasing its valuations, it
kept postponing in&usion o& eGuity &unds.
%eed for an &! Solution
'he need was &irst &elt when the company began to &ace problems managing its &ront/
end and supply chain operations using its e-isting local 7nterprise esource !olution
(7#).
;We were &acing a lot o& di&&iculty in accessing data across di&&erent regions using this
local solution,; concurs 2nkur !aigal, vice president ('ech Initiative), !ubhiksha
'rading !ervices. ;@esides business e-pansion brings its own comple-ities and we
needed a robust plat&orm to streamline our operations and control.;
"urthermore, the company needed a solution to manage the payroll system. 2lthough it
didn.t have any : issues at the ground level, sending the payroll to employees on time
was getting di&&icult. 'he system worked manually, with a central team taking care o&
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
running */B payroll systems in a month depending on the availability o& the bandwidth
and the entire process.
Deen to avoid &urther problems, the company decided to invest in a more e&&ective 7#
solution and 8eroed in on the !2# 2ll/In/Ene solution in Auly *++>.
Supply chain woes bare Subhiksha shelves
Inventory management is austere, too. 2ll goods are bought on cash to e-tract the
ma-imum discount &rom suppliersI !DFs (stock keeping units, or the number o& items
on display) are restricted to the &astest moving ones o& about 0,9++. $ost o& the !DFs
are bought directly &rom the manu&acturer, cutting the intermediary out. 2 supply chain
so&tware, developed in/house, keeps track o& what.s selling and what isn.t. $anagement
is divided into two simple sections< operations, which is centrali8ed and looks a&ter
everything &rom ordering to accounting, and stores, which is responsible &or all store/
level activity. 'here.s one manager &or every three stores, and he reports to a chie&
manager responsible &or business development, who in turn reports to a vice president.
'he 6#s are responsible &or sales targets.
$r . !ubramanian, $anaging %irector, admits to a communication &ailure in
in&orming customers why store shelves are empty. 'here is a lot o& pain around !2#
(being implemented by '4!). We didn)t think it would take so long. 2ll our 0,19+ stores
are being converted and we cannot run a legacy system alongside !2#. 2n intermediate
system in place means we will lose control. :e says that the stock outs in the stores
could lead to some business losses but says the chain will bounce back soon.
!urndown began at Subhiksha:
'he management has committed some eventual mistakes which have led the company
towards the downward position. 'he &irst and big mistake committed by the
management o& !ubhiksha is e-panding the number o& stores rapidly without su&&icient
&unds in hand. 'hey thought o& raising eGuity during last !eptember but the things had
gone too &ar be&ore they woke up. 'he global markets were stated collapsing and there
were no possible chances o& raising &unds. .
We got into trouble during the second hal& o& last year, when we were unable to tie up
&unds &or our ongoing operations. 'hat slowly started choking and has lead to paralysis
o& operations completely now, said !ubramanian.
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
4onseGuently, in the &ollowing month (Ectober, *++3) the company ran out o& enough
&unds to run the organi8ation .'herea&ter, !ubhiksha has been continuously besieged by
a set o& problems &rom all sides.
0. !ubhiksha 'rading !ervices has come under &ire &rom television channels &or not
clearing advertising dues that run around s 3 crore.
*. !ubhiksha is believed to owe s B9 crore against goods, s 03 crore against
wages, and s *+ crore against lease rents. 'he company, according to the report,
is also carrying a debt o& s >++ crore at an average interest cost o& 0* per cent per
annum.
B. 7-pansion o& !tores without adeGuate system control and I' !upport. 'hat)s why
there was a huge 2udit and abnormal losses in the system. 2nd when they have
started implement ion o& !2# the time has gone &or survival o& !ubhiksha.
?. $aharashtra "%2, the state government)s regulatory authority &or &ood and
drugs, had asked !ubhiksha to suspend operations o& its warehouses at
@hiwandi ($umbai) &or *+ days as well as had cancelled licences o& three o& its
vendors, charging that they had &ailed to maintenance health and hygiene norms
as prescribed by the regulator.
9. $any wholesale suppliers in 28adpur sub8i mandi, or vegetables market, have
stopped supplying &ruits and vegetables to !ubhiksha)s outlets in the =ational
4apital egion (=4) surrounding the national capital. 'his comes in the wake
o& the company holding up payments &or two to si- months against normal credit
period o& one month.
1. Hack o& strong :r policy and !ta&&/// %ue to this !hubiksha was not able to retain
the talent which he initially bring into Aunior, $iddle and high level
management. Whatever was remaining with it is all &amily bound with no
commitment policy.
>. 'hey were paying huge rentals &or these stores, which was a huge drain on the
company.s &inances.. 'here are huge &rauds while entering in to rental
agreements by their own management people. 'here was no proper check and
control on this cost though this is a very crucial part to de&eat competitors and to
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
gain pro&itability in &uture. 'his, coupled with less than/e-pected &oot&alls, drove
the operational costs to unsustainable levels
3. 'he wrong assumption that telecom segment is a sound, and pro&it making
segment. 'he 47E never looked in to system losses arise &rom telecom.
!ubhiksha stores always sell handsets at below %# while its benchmarking is to
match %#. =o control on inventory o& mobile accessories and there stock value
and were unable to circulate the working capital.
,. $eanwhile, the company has closed around ,+ grocery stores across the country
over the last one month or so. 'he company has also signi&icantly reduced the
inventory levels in its mobile retail arm / !ubhiksha $obile stores.
'hus sinking into unrepaired conditions !ubhiksha has to compete with its high pro&ile
competitors like #C, eliance retail and "uture group etc. eliance etail has set up
>++/odd stores in the past two years, almost at the rate o& one store per day, "uture
Croup has begun opening a new no/&rills discount retail chain called D@)s "air #rice
!tores, a &ormat that is similar in concept to !ubhiksha stores. eliance)s &ood and
grocery &ormat eliance "resh on the other hand is high/end in terms o& display,
ambiance and si8e.
'he raise o& the company thus gradually started sinking down step by step and now
stands on the verge o& collapse. 'he management &rankly admits that their over
con&idence and aggressiveness are the main reasons &or their loss. 'hey should have
gone &or an I#E when the things were well and good to prevent such down&all. I& they
had responded in right time they wouldn)t have been put through such bad phases.
!ubramanian is con&ident o& reviving the business o& his company. 'he market is tough
and banks are cautious about lending, but, i& we are to get back on track, I cannot
predict a time&rame, but we will, believes !ubramanian
$eferences:
/. http<JJwww.indiaretailbi8.comJblogJcategoryJindian/retalersJsubhiksha/
subramaniansJ
2. http<JJwww.livemint.comJsubhiksha.htm
". http<JJwww.&inanciale-press.comJnewsJsubhiksha/charts/rs/0/+++/crore/
investmentJB>B+0,J
Bindu Rathore
Case Study- Subhiksha: A Saga of Ups and Downs
&. http<JJwww.redi&&.comJmoneyJ*++>J&ebJ+9bspec.htm
Bindu Rathore