You are on page 1of 18

Journal of Case Research

vol: 1

issue: i

Subhiksha: To Make-over or not to Make-over?

By

Dr. Paromita Goswami Associate Professor, Marketing Xavier Institute of Management, Xavier Square, Bhubaneswar, Orissa-751013 paromita@ximb.ac.in

81

Delhi. last accessed on July 3. deep-discount.hindu. the chain is expected to expand to 2000 stores2 (See Exhibit 2 for operational indicators).com/rp/2008/01/13/stories/2008011350140400. he needed to focus his attention on private labels and handed over the baton of upgradation to the new recruit. Organized by Technopak at the Taj Palace. The Shastri Nagar store in Chennai now sported a swanky look (See Exhibit 1). http://www. While Mohit had started the upgradation drive. Susmita. Vice-President. Background Subhiksha had come a long way since it began operations with the opening of the Thiruvanmiyur store in Chennai in March 1997. ‘Asia’s Retail Markets: An Overview’. Subhiksha had 1100 stores. supermarket retail chain. 2200 crores annual turnover (company sources). Proximity to the residence of the target market is a major advantage for supermarkets and Subhiksha wanted to get the first-mover advantage. The entrepreneur of the chain was Ramaswami Subramaniam (RS). 2008 82 .J. In March 2008. Subhiksha being a veteran in the trade with its eleven-year long experience. modern trade grocery business grew at 49 per cent in India1. 9th Marketing and Retail Conclave. (2008). the only Indian deep-discount supermarket chain. Feb 19-21. She was anchoring the upgradation drive of Subhiksha stores and the Shastri Nagar store was the first store to get a make-over.htm. Susmita had joined Subhiksha three months back in the Marketing and Private Label team headed by Mohit Khattar.Journal of Case Research vol: 1 issue: i Subhiksha: To Make-over or not to Make-over? Susmita Misra. ‘Value Concepts’. an alumnus of the premier IIT Madras and IIM Ahmedabad (IIMA). 14000 employees and Rs. went on to leverage its experience curve and grow out of its home town Chennai. It was one of the oldest stores of Subhiksha. In 2003-7. The format 1 Gregory R. (2008). By March 2009. Marketing Services of Subhiksha adoringly looked at the changed ambience of the Shastri Nagar store of Subhiksha in Chennai. The razor-sharp RS was known as thalaivar (Tamil for chief) at IIMA for consistently topping his class at the business school and consequently went on to win the gold medal at the premier institute. It did not even have self-service format in the initial years of its operation. It started as a no-frills. India 2 Gilon C.

The low margins of this business along with high rental costs and lack of retail space in high population density areas has led to opening of smaller stores. 2008 4 Chatterjee P. with Hypercity Express. which opened outlets across various formats. However. 2008 5 Rediff.rediff. 3 Euromonitor Report on Indian Retail dt April 4. Reliance Retail achieved 20% value share in supermarkets second only to Subhiksha in 13 months4. since costs for an organized chain are higher than those of a kirana’5. http://specials. the ability to scale up with only a small format store is less than it is for a chain that has both large and small formats’ .com (2007). Raman Mangalorkar.com/money/2007/oct/01sld2. August 7. Unlike other retailers.thehindubusinessline. Ltd. Low vehicle ownership and lack of basic infrastructure like quality roads have been detrimental to hypermarket growth in India.Journal of Case Research vol: 1 issue: i Small is beautiful in the chained grocery business in India.com/catalyst/2007/08/16/stories/2007081650010100. RPG with its Spencers Express and Spencers Daily.htm. AT Kearney. As Ernst & Young Partner Pinakiranjan Mishra commented ‘the small store format is obviously a viable model. In 13 months it took a 0. Among the domestic players. 2008 83 . Aditya Birla Group with More. (The) trick is to leverage purchase efficiencies. observed that ‘although the small format is in no way logically flawed. ‘Retailer’s home runs’. otherwise the kiranas would not exist. This is evident with 58 hypermarkets added in 2007 as opposed to 380 convenience stores launched3. ‘Subhiksha’s incredible growth story’. Pantaloon Retail India Ltd with KB’S Fair Price and Hypercity Retail India Pvt. http://www. such as Pantaloon Retail India Ltd and Reliance Retail Ltd. The competition in the grocery business in India is intensifying with all major multinationals showing interest to enter the market.htm. (2007).3 per cent value share in the grocery business with as many as 325 stores in 20074. Retail Practice. Subhiksha so far has concentrated on the supermarket format. With its deep pockets and ability to take losses for long periods. with the exception of exclusive mobile outlets4. Domestic players to reckon with in the small format are Reliance with its Reliance Fresh. Reliance Retail Ltd started its journey with the first Reliance Fresh supermarket in Hyderabad in November 2006. last accessed on July 10. Head. last accessed on July 5. They have also stuck to the small store format unlike other players like Future group and Reliance Retail who have presence across both small and large formats. Wal-Mart has commenced operations in India in a tie-up with the Bharti Group.

Subhiksha is my pride’). (this differs from one state to another depending on state-level regulations) keeping only fast-moving medicines. Subhiksha added 550 outlets in 2007. March 28. The chain currently operates in four verticals-fruits and vegetables (F&V). 2008 7 Verma S. In addition to savings. Thakkar K. Drug stores generally have a margin of 17-20%. with outlets in cities with high real-estate cost like Mumbai having around 800 sq ft area. The media advertisements of the chain are generic in nature emphasizing lower prices and savings (‘Bachat meri adhikar.Journal of Case Research vol: 1 issue: i Continuing with its strategy of having smaller outlets. especially those of chronic ailments are required by the old and infirm 10 per cent discount is provided on pharmaceutical products (See Exhibit 3). September 24 84 . media buying and overall communication initiative of the chain. pharmaceuticals and grocery. Typically Subhiksha outlets were of 1000-1200 sq ft area. (2004). In Hyderabad. Business Today. In cities like Vadodara their outlets could be around 1800 sq ft. With this 6 Varadarajan N. mobiles. ‘The big myth and reality of retail groceries’. She is mainly involved in the in-store branding. (2007). http://www. the percentage margin is double that of grocery and ten times of fruit 6.indiatoday. improving its outlet share from 19% to 28%. one air-conditioned exclusive F&V store is coming up with 1200-1500 sq ft area. Subhiksha mera abhimaan’ meaning ‘Savings is my right. rising consumer expectations about store ambience and increasing number of modern trade outlets in the vicinity of existing or upcoming Subhiksha stores. Private labels are also priced 30-40% cheaper compared to national labels 7 and the stores need to provide cues to the customer on the lower prices. ‘The Discount Warrior’. there is generally a small pharmacy of 100 sq. the in-store communication has to be focused on private labels. Her earlier assignment was with IMRB where she was mainly into qualitative research. and even by providing a discount of 10%. In a Subhiksha supermarket.. Mohit felt it was imperative that they improve the lackluster ambience of the stores of the chain.html. The idea is to make customers to shift to private labels where the margin of the chain was substantially higher. ft. The Dilemma Susmita has joined Subhiksha as VP of Marketing Services three months back. last accessed on July 10. Times News Network. She was involved with Subhiksha in the capacity of a researcher for about a year before joining it. and that of value sales from 17% to 22%4.combtoday/20040328/cover3. With rapid increase in the number of stores in a short duration of time across regions. Subhiksha is also planning a foray into consumer durables with an estimated prototype store of 15000 sq ft area.

Socio-Economic Class (SEC) B1. Store upgradation was a challenging assignment as the RS has himself done the store layout of 700 of their 1000+ stores. Layout pattern was changed from grid layout to ‘snake’ layout. Susmita insisted that the store-front glasses should remain transparent so that customers may see the store interiors (See Exhibit 9). An obvious disadvantage for Susmita was that she did not belong to the target group of Subhiksha’s customers.Journal of Case Research vol: 1 issue: i idea. B2 to lower SEC classes was the target group of Subhiksha.m. change the flooring in old stores when tiles are broken.m. Interiors of the changed store had more brightness with lowered fluorescent tubes and store-signage regarding savings were placed strategically near the cash-counter instead of separate communication about different products strewn throughout the store (See Exhibit 10-12). This was an innovation by RS which assumes clock-wise movement of store traffic (See Exhibit 4 for the Snaking Layout). s Stores remain open from 8:45 a. he convinced Susmita to take up a pilot project of improving the store ambience of one of the oldest stores in Chennai-the Shastri Nagar store (See Exhibit 4 for the floor plan of the Shastri Nagar store and Exhibit 1 for a tour of the Shastri Nagar store). To Susmita. the chain would gain in both the long and the short-term. Susmita was pleasantly surprised with the results of the upgradation effort of the Shastri Nagar outlet. Susmita felt with a modest budget of Rs 2-3 lacs for a 1000 sq ft store. This pilot project included installation of air-conditioning in addition to changed interiors. to 8:45 p. Store design and layout has so far been decided by President (Ops) of a state as well as the Projects Division who scout for property. For all practical purposes. the store is closed for 4 hours in the afternoon for lunch of store personnel. 365 days a year. Hence the typical Subhiksha customer did not think like her. The sales of the outlet increased 90% post-upgradation. Mohit wanted Susmita to anchor the store upgradation effort of Subhiksha. fit GE lighting which provide better illumination. and clear the glass storefront from posters of store brands (See Exhibit 5-8). she could give the stores a fresh coat of paint. 85 . the problem was whether the target customers cared about ambience or only about price. The grocery section was fitted with white tiles and the F&V section was fitted with brown laminated flooring to hide dirt and minimize visible signs of pulled crates. do renovation of stores when required as well as order manufacturing of bays. She felt that if stores across the country were upgraded. The up gradation effort involved many challenges: s The first ten days of the month has heavy customer traffic making any up gradation work during this time impossible.

the famous traditional sweet confectioner. Competition from Reliance Fresh. Spencers Express and More was building up. The shapes of stores are not same. But she was not sure whether RS would agree to her proposal. stores in muslimdominated areas of Indore have bakeries. For example. For example. s Customization is required in stores of different regions.Journal of Case Research vol: 1 issue: i s Store sizes are also not uniform across the country. Should they go for the make-over? 86 . who would buy ingredients for their merchandise like sugar and flour from Subhiksha. Subhiksha is a deep discounter in the small store format. nor are the square footage or alignment (one/two storey) (See Exhibits 13-14). Reliance is also likely to go for a cold chain in another 2-3 years’ time which would totally change the supply chain mechanics and cost advantage which Subhiksha has been meticulously building up over the years. while in Indore large stores of around 1800 sq ft are present. Could they afford the ‘frills’ at this stage? Or should they continue with the existing store ambience? The rapidly increasing number of stores required more capital investment. She strongly felt there was a need for standardization of store layout. in Mumbai the stores are smaller in size. With SAP up gradation underway. RS has been constantly emphasizing on the need to cut out frills. while Kolkata stores would have shop-in-shop of Ganguram. and bring down cost. In the supermarket business with razor-thin net margins. placement of products in store and mechanized planogram (See Exhibit 15 for lack of standardization in placement of products in store). Subhiksha has made profits from the very first year of its operations. Store layouts are not uniform across stores even in the same city. She was supposed to meet RS that evening with her proposals. Would RS agree to such major changes in view of the rapid revenue increase at Shastri Nagar outlet? The layout of rapidly increasing new stores could no longer be handled by RS. Mohit or even Susmita for long. the store staff required training. The much-hyped IPO of Subhiksha was delayed due to erratic trends international stock exchanges although Indian stock market was comparatively less affected by the downturn in the US economy in particular.

Journal of Case Research vol: 1 issue: i Exhibit 1: A Tour of the Shastri Nagar Outlet at Chennai Flute Board Direction Signage outside outlet Store Front as seen from the road… Store Front at First Floor On entering the store. to the left….... On entering the store.the F&V section to the left..…. 87 . …. to the right….

And the left….Journal of Case Research vol: 1 issue: i Looking to the left of F&V section. the atta station… Then to the Snaking Interior… To the right… And a little Beyond…. 88 . And left and then….

Exhibit 2: Operational Indicators of Subhiksha Trading Services Pvt Ltd 2006 2007 Year end (March) Net sales (Rs million) Operating profit (Rs million) Outlets Selling area (‘000 square meters) 3.8 – – 1.Journal of Case Research vol: 1 issue: i Towards the glass store-front….2 89 ..300 100 450 41.000 91. Glass-front to left…towards the cash counter… Towards the cash counter… people can be seen shopping from outside the store….

Journal of Case Research vol: 1 issue: i Exhibit 3: Pharmaceuticals targeting the old with chronic ailments Exhibit 4: Floor Plan of Shastri Nagar Store PHARMA M O B I L E F & V F&V F & V Back room Entry Exit Cash counter Atta Stand Glass front 90 .

Journal of Case Research vol: 1 issue: i Exhibit 5: Store lighting (Old) Exhibit 6: Store lighting (New) with lowered heights Exhibit 7: Old Flooring Exhibit 8: New Flooring 91 .

Journal of Case Research vol: 1 issue: i Exhibit 9: Store with transparent Glass Front Exhibit 10: Old Price Savings Signage 92 .

Journal of Case Research Exhibit 11: Old Price Savings Signage vol: 1 issue: i Exhibit 12: New Price Savings Signage Exhibit 13: Floor Plan of a Mumbai Store Pharma Comp F&V Cash Cash Atta Station Gate Keeper Exit Entry Atta Station Entry 93 .

Journal of Case Research vol: 1 issue: i Exhibit 14: Floor Plan of a Chennai Store Back room M O B I L E Cash Counter Blank Rack Exhibit 15: Store brand above eye-level. below eye-level and at eye-level Store brand above eye-level Below eye-level At eye-level 94 .

. pp 564-593 Annexure 1: Competitive Position of Subhiksha in 2007 Format/channel Retailing Share (%) 0.. Telegraph.330. company research.0 1.000.2 Rank 3 Supermarkets 22.0 332.200. Business Standard.683.0 1.0 39.0 200. Weitz B. trade associations.F.1 980.0 2. New Delhi. trade press. Euromonitor International estimates Annexure 2: Supermarkets: Value Sales.0 249. Retail Biz.298.0 18..617.368. trade interviews.2 '000 sq m Source: Official statistics. Lusch R. Outlets and Selling Space 2002-2007 2002 Value sales Rs million Outlets 2003 2004 2005 2006 2007 14.600.2 69. Levy M.380. India Edition. The Times of India.M. Tata McGrawHill Publishing Co. company reports.0 3. trade interviews. Dunne P.4 1 Source: Euromonitor International from trade press (The Economic Times. (2008). The Hindu Business Line.0 Selling Space 150. Hindustan Times). Retail Management.0 28..0 1. Ltd.0 481. (2002).A. Cengage Learning.108. pp 322-347 (special attention to pp 325-326) 2. Pandit A. Retailing Management.0 22. Images Retail. The Financial Express.500.4 746. Euromonitor International estimates 95 . Inside Franchising.Journal of Case Research vol: 1 issue: i Annexure: Recommended Background Reading: 1.

Euromonitor International estimates Annexure 4: Supermarkets Company Shares by Value 2004-2007 % retail value rsp excl sales tax Subhiksha Trading Services Pvt Ltd Reliance Retail Ltd Spencer's Retail Ltd Pantaloon Retail India Ltd Aditya Birla Retail Ltd Nilgiri's Franchises Ltd Foodworld Supermarkets Ltd Radhakrishna Foodland Pvt Ltd Trinethra SuperRetail Ltd Great Wholesale Club Ltd Adani Retail Ltd B2C India Ltd Fabmall (India) Pvt Ltd Others Total 2004 12.8 8.4 6.7 7.0 5.4 4. trade associations.5 6.4 3.7 29.5 30.0 7.7 8.3 Selling Space '000 sq m 55.5 17. trade interviews.2 44.3 2002-07 CAGR 37.2 5. Outlets and Selling Space: % Growth 20022007 % growth Value sales Rs million Outlets 2006/07 75.0 96 .9 100.4 3.4 5.0 2005 11.Journal of Case Research vol: 1 issue: i Annexure 3: Supermarkets: Value Sales.5 5.9 3.3 0.4 Source: Official statistics.0 4.3 4.9 100.7 5.0 47.4 0.1 53.0 2006 17.6 100.0 51. company research.7 100.0 2007 22.2 0. trade press.0 37.7 6.7 2002/07 TOTAL 395.5 0.4 2.4 20.8 397.4 7.0 6.2 267.5 3.

0 22.0 63.683.0 55. trade press.0 47.0 37. trade interviews.0 85.0 3.0 2.0 20.0 35.0 70.368.0 54.0 2007 1.0 46.0 1.0 35.0 954. trade interviews.0 - 2005 150.0 2.0 55.0 146.0 Foodworld Supermarkets Ltd Nilgiri's Franchises Ltd Aditya Birla Retail Ltd Spencer's Retail Ltd Radhakrishna Foodland Pvt Ltd Trinethra SuperRetail Ltd Reliance Retail Ltd Trinethra SuperRetail Ltd Great Wholesale Club Ltd Adani Retail Ltd B2C India Ltd Fabmall (India) Pvt Ltd 94.0 1. trade press.0 76.0 1. Euromonitor International estimates 97 .Journal of Case Research vol: 1 issue: i Source: Official statistics.0 140.606.0 14.0 Pantaloon Retail India Ltd 23.0 1.000.0 12.0 250.600.0 1.0 Source: Trade associations.380. Euromonitor International estimates Annexure 5: Supermarkets Outlets by Brand 2004-2007 sites/outlets Subhiksha Reliance Fresh Spencer's Daily Trinethra Super Market Food Bazaar Food World Nilgiri's Fab Mall Spencer's Super Spar Trinethra Super Market Adani Supermarket Fab Mall Spencer's Daily Adani Supermarket Adani Supermarket Fab Mall Others Total Company Subhiksha Trading Services Pvt Ltd Reliance Retail Ltd Spencer's Retail Ltd Aditya Birla Retail Ltd 2004 142.0 1.0 8. trade associations.0 1. company research.0 110.217.0 31.0 325. company research.0 26.0 26.0 31.379.0 2.0 45.0 2006 450.0 146.

4 284.3 Ltd Trinethra SuperRetail Ltd Reliance Retail Ltd Trinethra SuperRetail Ltd Great Wholesale Club Ltd Adani Retail Ltd B2C India Ltd Fabmall (India) Pvt Ltd 19.1 2007 92.0 332.1 13.5 7.0 3.8 145.0 11.2 26. trade interviews.1 76.8 6.2 11.9 - 2005 14.3 9.2 Radhakrishna Foodland Pvt 0.9 92.4 Total 249.3 0.2 232.4 746.9 48.1 24.8 17.2 0.1 44.3 28.3 16.0 41.0 5.0 2006 52. company research.6 203.2 7.8 19.4 16.4 48.1 5.Journal of Case Research vol: 1 issue: i Annexure 6: Supermarkets Selling Space by Brand 2004-2007 surface area '000 sq m Spencer's Daily Subhiksha Reliance Fresh Food Bazaar Trinethra Super Market Food World Spencer's Super Nilgiri's Fab Mall Spar Trinethra Super Market Adani Supermarket Fab Mall Spencer's Daily Adani Supermarket Adani Supermarket Fab Mall Others Company Spencer's Retail Ltd Subhiksha Trading Services Pvt Ltd Reliance Retail Ltd Pantaloon Retail India Ltd Aditya Birla Retail Ltd Foodworld Supermarkets Ltd Spencer's Retail Ltd Nilgiri's Franchises Ltd Aditya Birla Retail Ltd 2004 13.9 0. trade press.2 19.0 2.0 481.1 33.9 86.1 11.7 17.2 Source: Trade associations. Euromonitor International estimates 98 .