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RISE AND FALL OF A RETAIL CHAIN

REVIVAL OF SUBHIKSHA

Prepared by

Abhik Bhattacharya

Astha Gupta

Ravi Ranbir

Team: Credit Crunchers

(IMT Ghaziabad)

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TABLE OF CONTENTS

1. Executive Summary

1.1 Introduction

1.2 Proposed Products and Services for revived Subhiksha

1.3 Goals and Objectives

1.4 Target Segment

2. Company Summary

2.1 Vision

2.2 Mission

2.3 Background

3. Strategy and Implementation

3.1 Positioning of Subhiksha

3.2 The Retail Strategy

3.3 Product Wide Selection of Goods

3.4 Competitiors

3.5 Buying Procedure

4. Branding

4.1 Brand Analysis

4.2 Brand Positioning

4.3 Brand Strategy

4.4 Branding through Advertisement

4.5 Brand Perception

4.6 What did Subhiksha Expect

5. Problems Encountered by Subhiksha

5.1 Financial Crisis

5.2 Reasons for Downfall

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THE REVIVAL OF SUBHIKSHA

6. Market Analysis

6.1 Market Segmentation

6.2 Target Market Segment Strategy

6.3 Retail Market needs

6.4 Recent Retail Market Trends

6.5 Retail Market Growth

6.6 Retrail Industry Analysis

6.7 Growth Potential

6.8 Future Outlook

6.9 Industry Participants

7. Business Prorposition of New Transformed Subhiksha

7.1 Objective

7.2 Value Proposition

7.3 Competitive Edge

7.4 Market Segment

7.5 Market Needs

8. Strategy and Implementation

8.1 Positioning Strategy

8.2 Criticality of Supply Chain Management in Retail Industry

8.3 Modus Operandi of Transformed Subhiksha

9. Porters Five Force Analysis

10. Conclusion

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1. Executive Summary

1.1 Introduction: Background of Subhiksha before it closed down

Subhiksha Trading Services Pvt.Ltd. was one of the largest Indian retail chain which
opened its first store in Thiruvanmiyur in Chennai in March 1997 with an investment of
about Rs. 50 lacs. It was started and managed by R. Subramaniam, an IIM Ahmedabad
alumnus.

On the basis of extensive research on the customer behavior Mr. Subramaniam found
that offering branded at goods at lower prices than their competitors could make them
stand in the highly competitive retail industry. The key features of Subhiksha were:-
Low Prices - The theme why pay more when you can get for less positioned
Subhiksha as a value retail chain/ discount retail chain.
Savings - Subhiksha focused on the concept of constantly sustainable low pricing
so that regular customers see the same low prices month after month(below
MRP) and were able to buy with the assurance that they stand to save on any
given basket of household goods on any day.
Trust - Subhiksha in Sanskrit means prosperity. The name inspired trust and its
customers relied on it through all times to deliver larger savings as compared to
any other retail chain.
Subhiksha had entered into all of the major segments of retailing namely:

Fruits and Vegetable


Pharmacy
FMCG products
Groceries
Telecom

Subhiksha strategy was based on 2Cs model:-


1) Criticality of cost
2) Convenience of buying

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The Deliberate strategy Subhiksha adopted was that of opening a chain of no frills
stores and no air conditioning, no fancy lighting and no touch and feel experience. Due
to this it was able to compete with the big retail stores on regular discounts and also
with the traditional stores which stood in the proximity to the consumers. Thus it was
able to strike a balance between its expenses and low cost offering to the customers.

Their approach combined the essence of local low overhead front end of local Kirana
stores with that of the efficient supply chain of a large retailer.
Subhiksha followed an Everyday Low Price Scheme (EDLP) strategy where they
offered the lowest prices every single day of the year on everything that was sold from
the stores. The discounts were not restricted to specific days and specific items.

Shops were located off the main road to take advantage of lower rentals.
The catchment area of customers was rarely bound beyond a 2 km radius, since the
customers usually came on two wheelers or on foot. With establishing a vast network of
small stores it established itself as a neighborhood store where people could do
shopping on a daily basis. Thus it provided both convenience and cost benefit to its
customers. This also helped them to penetrate further into all markets where they
operated. Subhiksha was not a destination store but a frequent shopping location for the
daily household needs of the customers.

The other method adopted for the cost reduction was centralized purchasing for a large
number of stores. This gave them a greater bargaining power and helped them in
getting greater discounts from the manufacturers which they could pass further to their
customers.
Because of Subhikshas2C model it gained immense popularity in South. Riding on this
popularity Subhiksha started for aggressive expansion. It started with 14 stores in
March 1999 and ended up in 1600 stores all across Indian in March 2008.But it did not
have enough money to finance this growth as a result Subhiksha plunged into deep
financial crisis. It closed down 90 stores in one month i.e. during November 2008. The
various reasons of the failure of Subhiksha are

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Over expenditure on advertising
Over expenditure on rent and wages
Overexpansion without adequate system control and IT Support
Lack of strong HR policy and Stuff
Huge rental and lease bills
The wrong assumption that Telecom segment is a sound and profit making
segment
Strong completion from Rival retailers
Over Confidence and aggressiveness

1.2 Proposed products and services for revived Subhiksha

The new Subhiksha will be majorly acting as a supply chain outsourcing agency. In this
format it will utilize its already developed supply chain to cater to the needs of the other
Major retailers and restaurateurs, a core shift of its business strategy from
B2C(business to consumers) to B2B(Business to Business) .

Before Subhiksha closed down it had already a huge chain of retail stores. They had
already developed a very robust supply chain model in the lines of Walmart. The Brand
image of Subhiksha still persisting in the minds of Indian consumers is that of a low cost
retail outlet based on EDLP model (everyday low pricing). We want to cash on this
brand equity to shift its core business from Customer retailing to Business retailing.
The brand image will immensely help in drawing cash flows which is the most important
part in the revival of Subhiksha.

As an Supply chain outsourcing agency it will be complete supply chain solution to its
clients which includes:

Centralized Bulk purchase at the lowest minimum price possible


Transportation of the purchased goods from Vendors to its centralized Ware
houses

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Efficient Warehousing of the Purchased Goods at the most optimum inventory
level
Packaging and distribution of the goods to its clients at the most optimum SKUs
so that its clients maintain minimum Inventory level at its end at the time
demanded.

1.3 Goal and Objectives

The short term objective is to revive Subhiksha as a business entity and to set it back
on its foot by providing complete supply chain solution to Retail industry and always be
ahead of its competitors.

The long term objective will be to become a complete Supply chain solution provider not
only to retail but also to all the major business segments like iron and steel, automobile,
telecommunication etc

1.4 Target Segment

The target segment of Subhiksha will be the business segment. It will cater to all the
Major Retailers like Big Bazaar, Pantaloons, Reliance fresh and food chains like big
restaurants, hotels like Taj Hotels and big restaurants.

The Ex factor

In the last few years there has been a flood of new retail space, not only there are more
stores, but many offer similar products, same brands. To survive in such competitive
market, it is no longer enough to buy the right goods at the right price but it also should
be at the right place, at the right time with right operational costs, which requires the
best possible logistics efficiencies & processes. Logistical expertise should be used not
only to survive, but also to sustain real competitive advantage. Retailers need to focus
on effective logistics with an effective information system as well as good transport,
distribution centre and store handling capacity. The entire supply chain needs to be

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integrated as managing logistics requires close coordination across the network of
suppliers, manufacturers, co-packers, distribution centres, transportation providers and
stores. Developing any supply chain is expensive in terms both of capital and the
accumulated expertise that comes with managing any highly complex and evolving
system. So retailers need to design their logistics to give them real competitive
advantage, to support the goods and products that make them most distinctive to their
customers.

Subhiksha will provide the following advantages to its clients:-

Before closing down, Subhiksha was itself a low cost retailer and had already a
robust supply chain in place to cater to its own procurement needs. They can
leverage this advantage to act as a supply chain outsourcing agent.
It can transfer the benefits the advantages of bulk purchase of commodities such
as FMCG goods, fruits and vegetables to its customers.
Complete single point ownership ensuring total control and confidentiality of
processes.
Organizations can make investments in productivity improvement measures &
training through use of appropriate tools & techniques like Lean Six Sigma
Standardization of services and sharing of best practices across locations.
Better prices in products where there is no MRP attached for eg: Food articles
Reduction in Logistics Cost by consolidation of assets, manpower & other
resources.

Moreover there are not many players in this supply chain outsourcing sector having the
scale and rich experience of the likes of Subhiksha.

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2. Company Summary: Subhiksha as a low cost customer retail chain

2.1 Vision
To make Subhiksha, the dominant supermarket player built on trust by world-class
people and service.
This it hoped to achieve by:-
Understanding the needs of customers and offering them superior products and
services.
Leveraging technology to service customers quickly, efficiently and conveniently.
Developing and implementing superior management and investment strategies to
offer a good satisfaction to their customers.
Providing an enabling environment to foster growth and learning for their
employees.
And above all, building transparency in all their dealings.

2.2 Mission
To deliver constantly better value to Indian customers by delivering savings to all
customers on each day on every item that they needed in their daily lives, 365 days a
year, without any compromise on quality of goods purchased.

2.3 Background
The Indian retail industry is divided into organized and unorganized sector. Organized
retailing refers to the trading activities undertaken by licensed retailers, i.e. those who
are registers for the payment of taxes. These include the corporate-backed
hypermarkets and retail chains and also privately owned large business retails. The
unorganized sector comprises of traditional format of low cost retailing, for example,
owner manned general stores, local kirana store, hand cart and pavement vendors,
convenience stores, paan /ghutka shops.

With a compounded annual growth rate of approximately 45% retail is the fastest
growing sector in the Indian economy. Indian retail market is estimated to be at $350

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billion and organized retail accounts for only 6% of the total market. With such a huge
opportunity anybody would like to enter the retail market. Both domestic and foreign
retail players are interested in investing in Indian retail story.

Subhiksha Trading Services Pvt.Ltd. was one of the largest Indian retail chain which
opened its first store in Thiruvanmiyur in Chennai in March 1997 with an investment of
about Rs. 50 lacs. It was started and managed by R. Subramaniam, an IIM Ahmedabad
alumnus.

About the Owner


Subhiksha was an initiative of an IIT, IIM alumnus Mr.R. Subramaniam. In an interview
as published in Warrier (2007) Mr. R. Subramaniam confessed that, Going to the US
never fascinated me. I preferred doing something in front of my own people rather than
going to a foreign land because this gives you more satisfaction and recognition. And
the sense of achievement is far greater than doing the same thing in a far-off land. He
further opines, India is your country and you will get as much opportunity as anybody
else. If you dont do well here, you have only yourself to blame.
Mr. Subramaniam started working in the investment bank department of Citi Corp. After
working there for 3-4 weeks, he realized that that was not where he wanted to work. He
felt as if he was cut off from the world and living in a world of trading. He felt he was
doing more and more of the same and earning more and more money. That was not
what he wanted to do in life. He resigned from Citibank and came down to Chennai to
join Enfield which had given him an offer when he was a student of IIM-A. It was a
manufacturing company which had all the spectrums of a job. He worked for Enfield for
two years 1989-91.
The thought of doing something on his own came to Mr. Subramaniams mind in 1989.
He made a study of two areas: Software and Retail. Between software and retail, he
thought it was a bit late to enter the software sphere as Satyam, Infosys, Wipro and
TCS had already been established by then. He didnt want to be a small and late
entrant. In retail, he would be one of the early entrants, so he would have the learning
curve much to his advantage.

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Mr. Subramaniam allocated a $ 1 million corpus to it and entered the retail business.
There was a lot of thought process behind it. He wanted to attract not the top end
customer but the aam aadmi. From his research of three months, he found that
consumers prefer buying groceries from closer home. So, he decided to set up 1000 ft 2
shops all across the city and not a 10000 ft2 big store at one location in Chennai. He
decided to sell branded products at a lower price. He looked at all sorts of names and
finally he chose the Sanskrit word Subhiksham (giver of all good things) because it
reflected the Indian ethos and it was a word that could be understood all over India.
What he was trying to do was different from the western model (Warrier, 2007). There
was truly an Indian retail business model in place. The theme was why pay more when
one can get it for less at Subhiksha?

3. Strategy and Implementation

3.1 Positioning of Subhiksha


On the basis of extensive research on the customer behavior Mr. Subramaniam found
that offering branded at goods at lower prices than their competitors could make them
stand in the highly competitive retail industry. The key features of Subhiksha were:-
Low Prices: - The theme why pay more when you can get for less positioned
Subhiksha as a value retail chain/ discount retail chain.
Savings:- Subhiksha focused on the concept of constantly sustainable low pricing
so that regular customers see the same low prices month after month(below
MRP) and were able to buy with the assurance that they stand to save on any
given basket of household goods on any day.
Trust: - Subhiksha in Sanskrit means prosperity. The name inspired trust
And its customers relied on it through all times to deliver larger savings as
compared to any other retail chain.

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Subhiksha was a multi-locational, professionally managed and vibrant organization. The
retail chain had seen a considerable growth by offering goods at cheaper rates and
thereby increasing its customer base. It was also dubbed as Indias largest retail chain.
Vision to deliver consistently better value to Indian consumers, had 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 aggressive expansion of Subhiksha


March 1997:- Opening of first retail chain in Chennai with an initial investment of
Rs. 5lacs.
March: - 1999:- 14 stores in Chennai.
June 2000:- 50 stores in Chennai, ICICI ventures joins Subhiksha
June 2002:- 120 stores in Tamilnadu.
June 2006:- 420 stores in other big states of India namely Gujarat, Delhi,
Mumbai, Andhra Pradesh and Karnataka.
Feb 2007:- 500 stores across country.
Dec 2007:- 1000 stores across India.
Oct 2008:- 1600 stores across India.

3.2 The Retail Strategy


Subhiksha strategy was based on 2Cs model:-
3) Criticality of cost
4) Convenience of buying

The Deliberate strategy Subhiksha adopted was that of opening a chain of no frills
stores and no air conditioning, no fancy lighting and no touch and feel experience. Due
to this it was able to compete with the big retail stores on regular discounts and also
with the traditional stores which stood in the proximity to the consumers. Thus it was
able to strike a balance between its expenses and low cost offering to the customers.

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Their approach combined the essence of local low overhead front end of local Kirana
stores with that of the efficient supply chain of a large retailer.
Subhiksha followed an Everyday Low Price Scheme (EDLP) strategy where they
offered the lowest prices every single day of the year on everything that was sold from
the stores. The discounts were not restricted to specific days and specific items.

Shops were located off the main road to take advantage of lower rentals.
The catchment area of customers was rarely bound beyond a 2 km radius, since the
customers usually came on two wheelers or on foot. With establishing a vast network of
small stores it established itself as a neighbourhood store where people could do
shopping on a daily basis. Thus it provided both convenience and cost benefit to its
customers. This also helped them to penetrate further into all markets where they
operated. Subhiksha was not a destination store but a frequent shopping location for the
daily household needs of the customers.

The other method adopted for the cost reduction was centralized purchasing for a large
number of stores. This gave them a greater bargaining power and helped them in
getting greater discounts from the manufacturers which they could pass further to their
customers.

3.3 Product wide selection of goods


Subhiksha offered consumers a wide selection range to choose from: -

Supermarket
Quality groceries, packaged foods, cosmetics and toiletries, household provisions, etc.
sourced from the best brands in the country- available at a discounted price.

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Fruits and vegetables
A large range of fresh fruits and vegetables was sourced directly from farms on city
outskirts and made available to consumers at very reasonable prices. Consumers got
the freshest produce at the best prices.

Pharmacy
All medicines were available to the consumers at a flat discount of 50%.this was
specially helpful for the elderly consumers who were on continuous medication.

Telecom
Subhiksha was Indias largest mobile retailer and offered handsets, accessories and
recharge cards from all leading brands including Nokia, Motorola, Sony
Ericsson,LG,Samsung,etc, at the lowest prices.It offered amazing exchange offers on
old phones, spot finance offers along with the genuine company warranty.

Guaranteed Delivery
Subhiksha guaranteed to deliver the exact product one had selected.In case one had
received a different product, or if the product was damaged in transit, it ensured the
replacement/ refund at the earliest. It also had a simple return policy. The only conditon
for return of the goods was original packing accompanied by invoice with no questions
being asked.

3.4 Competitiors
Bata India Limited was one of the largest retailers, with 1,600 footwear stores
across the country, and a retail turnover of Rs. 6 billion in 2001. With almost a
monopolistic presence in the organized footwear market until the 1980s, Bata
was synonymous with footwear in middle-class India. The stores retail mainly
Bata products, with a marketing arrangement with Lotto and Nike as well.

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Spencer & Company Limited was another large retail group in the country with
supermarkets, music stores, and the beauty and health chainHealth & Glow.
Food world was operated by Food World Supermarkets Limited, while Health
&Glow by the RPG Group.

K Rahejas department store chain, Shoppers Stop, was the second largest
retailer in the country and became in retailing operation an Indian success story.
It also acquired the Crossword chain of bookstores.

Kishore Biyani of Pantaloons launched his new-format shopping mall called


Central Trent and opened the first Star India Bazaar.

New generation shopping malls, such as InOrbit in Mumbai and Forum in


Bangalore opened their doors. The year also saw a rapid scaling up of operations by
players such as Pantaloon, Big Bazaar, Shoppers Stop, Lifestyle, Westside and RPG's
Spencer's.

Subhiksha Supermarket
Subhiksha was immensely popular in the South, particularly in Chennai, where it sold
groceries and pharmaceutical products below the MRP. It expected to earn a total
turnover of Rs 1,200 crore in 2008-09 as it planned to expand outside Tamil Nadu and
Pondicherry. It planned for 550 stores in the next five years. Started in 1997, Subhiksha
Trading Services (meaning prosperous in Sanskrit) was a supermarket and pharmacy
chain, the brainchild of R. Subramaniam, a graduate from IIT and IIM, Ahmedabad.
Beginning its journey at Thiruvanmyur, this retail chain had 49 branches across different
parts of Chennai. Subhiksha was supported by an asset management company called
Venture Capital Partnership Fund, which belonged to the Vishwapriya Group,
specialists in financial services.

Subhiksha sold all its products all the time below MRP. It eliminated the margins in the
traditional supply chain consisting of the manufacturer-wholesaler/dealer-retailer

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network.On products like tea, which had no tax on small packs and an 8% tax on larger
packs, the customers were encouraged to buy multiple units of smaller packs to save
money.

Subramaniam said:
Everyone is looking to get a better quality of life, so the consumer is spending less on
daily necessities and more on products or services. And the money for the durables and
mobile phones will have to come from somewhereand it is coming from the budgets
for everyday products. So it would all come down to how the consumer chooses to
prioritize her/his spend. Today, the consumer doesn't think twice about spending Rs.
200 on a movie ticket in a multiplex, but will search for rice that is cheaper by Rs. 10/kg.
To the consumer, soap or toothpaste is not seen as providing much value or a better
quality of life, while a movie or a mobile phone is seen as doing that.

Chennai and its Shoppers- Tamil Nadu constituted the south-eastern extremity of the
Indian peninsula. Chennai, the capital of the state, had a population of 4,212,618. The
district city was one of the metropolises of India and served as the gateway of the
culture of South India.

The Chennai buyer had been exposed to the most varied and modern retail
experiences. Chennai had discount stores, lifestyle stores, Food World-type stores,
Saravana Bhavan restaurant chains, etc. This raised the buyers expectations and
contributed to their differentiating ability. The traditional image of the Chennai buyer that
they were very conservative and they took time to change was debunked. Across
income segments, all customers looked for a value proposition and were willing to try
anything that met their requirement.

Subhikshas Brands Versus Their Competitors


Private labels and home grown brands in the organized grocery and FMCG retailing
segment were beginning to pose a major threat to the brands of established players like
HLL, Nestle and Tata Tea. Private labels now had a more level playing field in

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distribution. The margins of these private brands were believed to be higher because
manufacturing of these products was outsourced.

Merchandise Mix
Subhiksha had a wide range of products in its storerice, dal, sugar, oil, butter,
toiletries (like Lifebuoy, Tide, Surf, Colgate, etc.), jam, sauce, tea, coffee and cosmetics
(like Ponds Dream Flower).

3.5 Buying Procedure


The customer chose products from the display and paid at the cash counter against a
composite bill, which did not contain item details. The stocking department processed
the order, keyed in the details, and a shop assistant collected the items and delivered it
at the delivery counter. The detailed bill was printed only if the data entered by the
stocking department matched the composite bill. The bill also showed the market rates
and the savings made.
Subhikshas strategy did not allow the customers the pleasure of feeling the goods
before purchasing as in supermarkets. But Subramaniam argued that Subhiksha did not
sell fashion, it sold food and grocery items which did not require touch and feel by the
customer. The closest that the store got to touch-and-feel was a store in Tambaram,
where there were wall to wall displays of samples of the products sold in the store.

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4. Branding

4.1 Brand Analysis


Brand Image and Identity
The brand image that Subhiksha aimed at portraying was of a trustworthy, reliable store
that cared for the customer and ensured the best deals or lowest prices for them. It
aimed at being perceived as a trusted source of household needs, easily accessible and
one that offered great prices and savings.

4.2 Brand Positioning


Discount retail chains like Subhiksha needed to position themselves against the
neighborhood stores, which were their major competition. The latter offered
personalized service and had small scale operations. However, they were not
technology savvy and did not have economies of scale. They were seen as profiteers
rather than relationship builders. The unique position of Subhiksha stemmed from the
relentless focus on value delivery.

4.3 Brand Strategy


By opting for smaller outlets, Subhiksha increased its presence. The aim was that no
one should be further than 2 km away from a Subhiksha outlet. The target obviously
was the masses. To succeed, the discount chain needed to integrate backwards into
the supply chain cut out middlemen and offer better prices to consumers. Organized
discount retailing was still relatively unexploited in India, and Subhiksha was cashing in
on this opportunity.
Subhiksha worked on the premise that it would do business with the customer for the
next 30-40 years. Therefore, the focus was on building a lifetime relationship with the
customer than merely a transactional one. In this respect, the company attempted to
know the customerswhere they lived and what exactly their needs were.

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4.4 Branding through Advertising
Subhiksha had initially used only print advertisements and mailers to promote its
services. It began advertising on television before the Diwali firecracker sale and also to
position itself as a retail store brand which gave a value offering to customers that
contributed to better savings and hence an improved lifestyle. The creative of the
Subhiksha TVC pointed out:
In Tamil Nadu, the reach of Tamil TV channels is phenomenal. And the response is
immediate. Stories are told of how a TV commercial today translates into queues of
customers the next morning. This turned out to be the case with Subhiksha as well. A
promotion for their firecrackers during Diwali resulted in such crowds that they ran out of
stocks well before the day. This success made them bring out a commercial on their
grocery store as well.
Colour coding was used in the television commercials. The housewifes clothes
reflected the brand colours, and the brand logo was shown prominently. As regards the
branding strategy of the commercial, the brand promised Subhikshamana vazhvukku,
meaning a prosperous life. The problem the agency faced with the brand image was
that Subhiksha was viewed as just a discount store. This in turn meant that it was
regarded as not really up there with the big stores. People could dismiss it as a place
where you saved just a few paise. The strategy was to convert these savings into
something much more. The route taken was to talk about how small amounts saved
today could mean a better life tomorrow. All the ten rupee savings taken together would
enable the housewife to indulge her husband with a new watch, her father-in-law with
his supari, her son with a computer! This value addition made the discount concept
more palatable, transforming it into a quest for a better life.

4.5 Brand Perception


One hundred respondents from Chennai were administered a questionnaire that tested
their perception of Subhiksha, their preferences during supermarket shopping, their
priorities regarding ambience, savings and so on. The results of the survey could help
determine the strategy that Subhiksha could follow to remain the undisputed leader of
retailing.

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The results showed that there was a perception among over 50% of the customers that
the quality of the stock at Subhiksha was not up to the mark. Two-thirds of the
respondents considered price to be an important choice driver for retail stores.
Over one-third did not have a favourable opinion of quality of Subhiksha. It was
perceived as a down-market store. This was a phenomenon particularly in higher
income groups.
Other observations were that customers found the lack of product display a
disadvantage but they were willing to travel ten minutes to reach a Subhiksha store.
People who visited Subhiksha also visit corner stores and Food World. Basic
expectations like quality and availability figured high in the list of priorities. Little or no
importance was given to peripherals like friendly assistants and ambience. They found
the communication that the idea of saving hard earned money relevant.

4.6 What Did Subhiksha Expect


Chennai was rightly called the incubator of retail development in the country. In such
competition days, pricing below the MRP was an essential tactic. Discount stores were
an essential element of organized retailing. They offered price, assortment and quality
besides building scale quickly and passing on benefits. Value retailing became the new
mantra.
Retailers no longer needed to focus on packaging, air conditioning and music. They
now needed to offer competitive prices that attracted customers. Michael Fernandes,
McKinseys associate principal, put it: "Discount retailing has the potential to be a really
big category, since Indians are price sensitive customers."
Subhiksha was talking to venture capital funds and also looking for private equity
participation. This will be our second round of funding, and we are talking to several VC
funds and also our existing investorICICI Ventures. We will be looking at Rs. 55 crore
of equity being raised, Rs. 55 crore of debt and Rs.30crore of working capital,
Subramaniam said.
Subhiksha, which had got almost 150 retail outlets in Tamil Nadu and Pondicherry
would open its first store outside the state in Delhi and Bangalore inApril 2004.
Subramaniam said:

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We are looking at a hub and spoke model wherein retail stores will be set up around the
distribution centres. So there will be a distribution centre in each of the four cities. The
company also plans to increase the number of its warehouses from the present two in
Tamil Nadu to 15 across all the states where the outlets will be opened. Subhiksha is
also increasing its focus on milk and bulk packaged water while considering entry into
the fruits and vegetables segment. The supermarket concept was fast catching on in the
country. Each was trying its best to provide that much more of ambience or discounts.
Tough times were ahead for the neighbourhood kirana shop.
Subhiksha, which gave customers discount up to 17% on MRP, had a good reason to
be upbeat. A recent study by ORG indicated that retail branding was going to be
increasingly popular in the South in the years to come because of ambience, good stock
and efficient billing systems.
The supermarkets that were coming up in India needed to compete with each other and
offer better and cheaper services. Subhiksha, by the sheer size of its purchases,
managed to get good terms from the manufacturers which it then passed on to its
customers.
Subhiksha's aggressive marketing strategy caught everyone by surprise. It was like a
typical Indian grocery shop. The goods were all behind counters, but an exhaustive
menu was offered to the buyer to pick from.
Even though its outlets had facilities for direct purchase, the shop was pushing its tele-
ordering network heavily. The customers got bills with calculations on how much they
have saved by going to Subhiksha. With the supermarket revolution in India kicking in,
one thing was for sureSubhiksha, a brand with an unbeatable value offering for the
customer, would certainly not be left behind.

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5. Problems Encountered by SUbhiksha

5.1 Financial crisis


Subhiksha started facing severe financial crises pertaining to liquidity in January 2009.
This led to the shutting down of a large number of stores across the Nation. It closed
down 90 stores in one month i.e. during November 2008. The company was on the
threshold of a closure-it had no money to run its
operations, its senior staff was deserting, many of its stores had reportedly been looted
and the government had initiated an independent audit of accounts at the instance of
ICICI Ventures, the second-largest shareholder with 23% stake. Analysts, however,
agree that Subhikshas low-cost model was sound. They blame the companys troubles
on its rapid expansion with debt capital to open 800 stores in a year. Although the same
store sales were as high as $ 250 ft-2 during the first few months of 2008, the debt
taken on a number of new stores and the financial crisis put paid to Subhikshas
exuberance. The industry average for stores of 2000 ft2 (Subhikshas typical store size)
to break even is $ 100 ft-2 and analysts say that Subhikshas new stores never
achieved break-even levels.

5.2 Reasons for downfall


The biggest mistake the management of Subhiksha committed was expanding the
number of stores rapidly without sufficient funds in hand. In October 2008, the company
ran out of enough funds to run the organization.
Over expenditure on advertising: - Television channels fired Subhiksha Trading
Services for not clearing advertising due of around 8 crores. The company had a
severe lack of liquidity and it held the payments of its suppliers for a period
ranging from two to six months against the normal credit period. As a result the
wholesale suppliers refrained from supplying fruits and vegetables to Subhiksha
outlets.

22
Expansion of stores without adequate system control and IT support: - The
company started the implementation of SAP at a very late stage and this was the
prime reason for a huge audit and abnormal losses in the system.
Government intervention: - Maharashtra FDA the state government regulatory
authority for food and drugs had suspended the operations of Subhiksha for 20
days as well as had cancelled the licenses of three of its vendors charging that
they had failed to maintain health and hygiene norms as prescribed by the
regulator.
Lack of strong HR policy and staff: - Due to this Subhiksha was unable to retain
the talent which it initially possessed in the junior, middle and high level
management.
Huge rental and lease bills: - subhiksha paid huge rentals for the stores which a
huge drain on the companys finances. Their own management people were
indulged in huge frauds while entering into rental agreements.
Strong competition: - Subhiksha had to compete with high profile competitors like
Reliance retail, Future group etc. Reliance retail was growing very fast. It had
opened 700 stores in two years i.e. one store per day for two years. Future group
had begun opening new no frill discount retail chain called KBs fair price shop, a
format that was similar to Subhiksha stores. Reliance s food and grocery format
Reliance fresh on the other hand was of high end in terms of ambience, display
and size.

23
THE REVIVAL OF
SUBHIKSHA

24
6. Market Analysis

6.1 Market segmentation

The Total Indian population is around 2 billion people. Based on socio economic and
cultural factors the whole of the Indian customer segment can be broadly segregated
into A B C D E.

Characteristics of the various market segments

A: The Super rich category consisting of approximately 5-7 million people. These people
are highly educated and hold top positions in the big corporations. They hold a major
portion of the Indian wealth. This segment has the highest purchasing potential.
Example: CEOS of top corporations, Top executives etc. They are probably one of the
richest people in India and can afford any product

B: They are the Upper middle class people consisting of approximately 70- 80 million
People. This segment of People is also highly educated and has a considerably high
income. These people have high purchasing potential. The sheer number and their
Purchasing power make this as one of the sought after segments in the Indian Retail
industry .Examples: IT professionals, middle level and lower level executives etc.

C: They are the Middle class people consisting of the 250 -300 million people. These
people are educated and have decent income .These people have an average
purchasing potential. The size and the typical psychology of the Indian middle class
make this class a very important segment for the Indian Retail Industry. Examples:
supervisors, clerks, attendants.

D: They are the Lower Middle class people consisting 600-700 million people. These
people are mostly illiterate or are barely literate. These people have a low purchasing

25
potential. This segment although quite big is not as important as the B and C segment
to the Indian retail Industry. These people barely make their two ends meet Examples:
Daily labourers, operators.

E: They represent the Bottom of the Pyramid consisting around 30 percent of the
population. These people have no fixed income and live on an average daily wage of
2$.These people have very low purchasing power so they are not an attractive segment
for the Indian Retail Industry. Example: Beggars, Paupers etc.

26
6.2 Target market segment strategy

The Chennai based Subhiksha Retail store adopted a mass market strategy. It targeted
all the Segments of the market. The core idea of the founder R Subramaniam was to
open Subhiksha to cater to all the segments of the population.

6.3 Retail market needs

Improved communication relating to Products to the Indian Consumers


Better Organised retail experience to the Indian consumers
Transparency of the supply chain process so that the consumer is assured
that he is paying the right price for the product.

6.4 Recent Retail Market trends

Experimentation with Format: Retailing in India is still evolving and the sector is
witnessing a series of experiments across the country with new format being
tested out. E.g. Quasi-mall, sub urban discount stores Cash and carry etc.
Store Design: Biggest challenge for organized retailing is to create a customer
pull environment that increase the no of impulse shopping Retail chains like
Music world, Baristas are laying ,major emphasis and investing heavily on the
store design.
Emergence of discount stores: They are expected to spear head the retailing
revolution. Stores are trying to emulate the model of Wal-Mart Ex. Big Bazaar,
Spencer Bombay Bazaar.
Unorganized Retailing is getting organized: To meet the challenges of organized
retailing such as large Cineplex and mall the unorganized sector is getting
organized.

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6.5 Retail Market Growth

Retail and real estate are the two booming sectors of India in the present times. And
if industry experts are to be believed, the prospects of both the sectors are mutually
dependent on each other. Retail, one of Indias largest industries, has presently
emerged as one of the most dynamic and fast paced industries of our times with
several players entering the market. Accounting for over 10 per cent of the countrys
GDP and around eight per cent of the employment retailing in India is gradually
inching its way toward becoming the next boom industry. As the contemporary retail
sector in India is reflected in sprawling shopping centres, multiplex- malls and huge
complexes offer shopping, entertainment and food all under one roof, the concept of
shopping has altered in terms of format and consumer buying behaviour, ushering in
a revolution in shopping in India. This has also contributed to large-scale investments
in the real estate sector with major national and global players investing in
developing the infrastructure and construction of the retailing business. The trends
that are driving the growth of the retail sector in India are

Low share of organized retailing.


Falling real estate prices
Increase in disposable income and customer aspiration
Increase in expenditure for luxury items (CHART)

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Another credible factor in the prospects of the retail sector in India is the increase in the
young working population. In India, hefty pay packets, nuclear families in urban areas,
along with increasing working-women population and emerging opportunities in the
services sector. These key factors have been the growth drivers of the organized retail
sector in India which now boast of retailing almost all the preferences of life - Apparel &
Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office
Products, Travel and Leisure and many more. With this the retail sector in India is
witnessing rejuvenation as traditional markets make way for new formats such as
departmental stores, hypermarkets, supermarkets and specialty stores.

6.6 Retail Industry Analysis

The retail industry in India is hailed as a sunrise sector. In fact, India has topped AT
Kearney's annual Global Retail Development Index (GRDI). The bad news is, despite
the fact that India has one of the largest numbers of retail outlets in the World,
organized retail accounts for only 4% of the total market. This makes it especially
difficult to apply sophisticated merchandising and sales tools, enhance consumer
interaction and also, make very accurate analysis. That said, analysts believe the sector
is likely to show significant growth of over 9 % p.a over the next 10 years and also see
rapid development in organized retail formats, with the proportion likely to reach a more
respectable 25 % next Year.

6.7 Growth Potential

The key growth areas include the urban, luxury segment on one end of the spectrum
and serving the rural sector on the other. In addition, government policy encouraging
FDI in the segment has resulted in a plethora of international retailers keen on entering
the market; American retail giant Wal-Mart has tied-up with Bharti Enterprises and

29
global coffee giant Starbucks' has tied up with PVR Limited. In addition, Carrefour,
Boots and others are also expected to come in.
With so much action, it is natural that there is a huge scope for employment
opportunities, and experts estimate that the sector will generate employment for ~ 2.5
million people in 2010. The top retail companies in India include the Raheja Group,
Reliance Retail, Tata Trent, Future Group, RPG Retail, and Ebony Retail Holding.

6.8 Future Outlook

We expect an increased focus on value retailing and a shift of focus from current
lifestyle goods.
Increased action in Food retailing and FMCG products as this segment is largely
insulated from slowdown.
As Tier 1 cities are saturated people move towards for Tier 2 and Tier 3 cities as
rentals and operating costs are low.
There are going to be an increased investment in the shortening of supply chain
.This is mainly due to the incentives offered by government and potentials for
high profit margins.
The frequencies with which retailers are going to liquidate slow moving items by
discounts are going to increase.

6.9 Industry Participants

Shoppers Stop
Trent Limited
Vishal retail limited
Provouge india ltd
Pantaloon Retail India Limited
Future Group
Titan

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RPG group
Bharti walmart
Carrefour-Landmark
Tata Woolsworth
Reliance
Birla

Major Competitors Of subhiksha

RPG
Reliance
Future Group

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7. Business Proposition Of New transformed Subhiksha

Our Proposition is to change the business strategy of Subhiksha from Business to


Customer (B2C) to Business to Business (B2B)

7.1 Objectives

The main objective of Subhiksha will be to have a sustainable growth over a period of
time and to have a healthy debt ratio. It will procure goods from any place in the world
provided the total cost of procurement (product cost+ transportation cost +VAT+ duties)
is least and supply to its customers.

7.2 Products and service Description

The new Subhiksha will be majorly acting as a supply chain outsourcing agency. In this
format it will utilize its already developed supply chain to cater to the needs of the other
retailers and restaurateurs.

Before Subhiksha closed down it had already a huge chain of retail stores. There were
some which were profitmaking. We want to revive these profit making stores so that it
adds value to the Brand image of Subhiksha. The Brand image of Subhiksha is a low
cost retail outlet. We want to cash on this brand equity to shift its core business from
customer retailing to business retailing. The brand image will immensely help in drawing
cash flows which is the most important part in the revival of Subhiksha.

7.3 Value Proposition

It will help its customers to get the highest quality of goods at the lowest possible price
with minimum lead time.

It will provide the following advantages to its clients

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Before closing down, Subhiksha was itself a low cost retailer and had already a
robust supply chain in place to cater to its own procurement needs. They can
leverage this advantage to act as a supply chain outsourcing agent
It can transfer the benefits the advantages of bulk purchase of commodities such
as FMCG goods, fruits and vegetables to its customers.
Complete single point ownership ensuring total control and confidentiality of
processes.
Organisations can make investments in productivity improvement measures &
training through use of appropriate tools & techniques like Lean Six Sigma
Standardization of services and sharing of best practices across locations.
Better prices in products where there is no MRP attached for eg: Food articles
Reduction in Logistics Cost by consolidation of assets, manpower & other
resources.

7.4 Competitive Edge

Before Closing down Subhiksha was already present in the Retail segment. It can
leverage the combination of Discount model and carpet bombing model to provide
maximum discount model. It has still got a high brand value and high customer base. It
also has in place a strong and lean supply chain base all across India.

7.5 Market segmentation


Since the new Subhiksha is aimed at majorly acting as a supply chain outsourcing
agent along with customer interaction through its chain of retail stores spread
throughout the country, it is essential that it targets all the major segments across all the
income groups and varying needs.
To function as a retail store, Subhiksha's target clientele is the middle class: households
with incomes in the 50-90 percentile range. The logic is that the top 10 per cent don't
spend very much on food and groceries than those in the income categories below
them, nor do they account for large numbers. But they do expect more in terms of

33
ambience, variety and service. Catering to this group then isn't really worthwhile for
Subhiksha.
For Subhiksha to work as a supply chain outsourcing agent, it needs to target the
business entities like the hotels and restaurants, the retail segment units (like
Pantaloons Retail India Limited, Future Group, and Shoppers Stop, RPG Group etc.).

7.6 Market needs


Since the supply chain is at an advanced level in the developed nations,
they have tried and tested various formats and then crystallised on certain
set of options. Hence, in this case in particulars, Indian retailers need to
look at the global retailers and adopt their best practices to suit Indian
requirements.
On a long term basis, there would be a need to build a flexible supply
chain which would be capable of responding to changes, intrinsic or
extrinsic changes, d rastic or slow changes, in demand, supply and
technology.

8. Strategy and Implementation

8.1 Positioning Strategy

It will position itself in the Business to business segment (B2B) a clear shift from its
earlier B2C (Business to Customer) segment. It will cater to Major Retailers and
Restaurateurs rather than direct consumers.

8.2 Criticality of Supply chain management in Retail Industry

In the last few years there has been a flood of new retail space, not only there are more
stores, but many offer similar products, same brands. To survive in such competitive
market, it is no longer enough to buy the right goods at the right price but it also should
be at the right place, at the right time with right operational costs, which requires the

34
best possible logistics efficiencies & processes. Logistical expertise should be used not
only to survive, but also to sustain real competitive advantage. Retailers need to focus
on effective logistics with an effective information system as well as good transport,
distribution centre and store handling capacity. The entire supply chain needs to be
integrated as managing logistics requires close coordination across the network of
suppliers, manufacturers, co-packers, distribution centres, transportation providers and
stores. Developing any supply chain is expensive in terms both of capital and the
accumulated expertise that comes with managing any highly complex and evolving
system. So retailers need to design their logistics to give them real competitive
advantage, to support the goods and products that make them most distinctive to their
customers.

8.3 The Modus operandi of transformed Subhiksha

Subhiksha will have developed expertise in Supply Chain Management of consumer


product categories such as Fashion, Food, Home and General Merchandise. The
company operates from strategically located hubs, servicing more than 2600 retail
outlets spread across the length and breadth of the country. Its network of facilities and
specialized expertise enable it to manage millions SKUs. This requires many distinct
supply chains to be managed simultaneously, each with their own specific requirements
that need customized solution.

Subhiksha will provide the value added services to its customers, which involve
inventory planning and control support, vendor management, supply chain network
modelling, quality assurance, bar coding services, process & productivity management
services and packaging solutions.
It will play the role of a supply chain manager for organizations and one of the key
value-added services it will provide is inventory decision support. The company will
assist organizations in making inventory-related decisions - be it inventory planning,
analytics such as Pareto analysis and correlations, SKU movement analysis, alerting
them on stock levels, obsolescence and management and liquidation of slow-moving /
non-moving items.

35
It will work closely with organizations in reducing the overall supply chain inventory at all
levels and improving the inventory turns. This helps in increasing the returns on capital
employed and is of critical importance in tough economic times.
The company, having its roots in retail, excels in interacting directly with the end-users
and will therefore constantly exploring new ways to enhance the overall supply chain
efficiencies by working closely with all its suppliers. It will soon be undertaking initiatives
to further integrate its supply chain.

The major components of the Supply chain of Subhiksha outsourcing model

The basic format of Subhiksha will of the form below:-

In order work around this format Subhiksha must concentrate on the following aspects:-

36
Centralised Purchasing

Subhiksha will be undergoing centralised purchasing for a large no of Retailers and


restaurateurs giving them a greater bargaining power helping them to get higher
discounts which they can pass on to their customers.

Transportation

In transportation the following points are to be kept in mind to provide on time delivery to
customers to reduce inventory costs at the customer end( a possible strategy might be
Just In time model). New Subhiksha s service offerings would be based on its own
infrastructure and that of its business partners in the areas of FTL, PTL, Express, and
Rail & Air Cargo. Low cost and seamless operations would be conducted based on

Vehicle requirement planning


Vehicle operations & placement
Vendor empanelment
Meeting deadlines to deliver within scheduled time
Cost reduction & efficiency through optimization of vehicle mix & utilization

Warehousing

The Storage & Fulfillment vertical of Subhiksha would provide storage & handling
solutions through a current warehouse footprint of more than 3.5 million sq. ft across
100 major locations (Places where major chunk of Vendor empanelment takes place).
This vertical includes supply chain network modelling, processes, layout & systems
designing, capital procurement, installation & operation for MHE & technology (Racking,
Reach Trucks, Sorters, Conveyors, RF Scanners, other automation etc.); and
productivity & cost optimization. The key differentiators in warehousing are:

Identifying locations for warehouses


Setting up warehouses
Managing & Operating the warehouses

37
Ensuring stock accuracy
Enhanced service efficiency based on WMS enabled multi-level storage and
seamless integration with customer ERP.
picking of individual pieces as against case-wise picking
Ability to handle widely differentiated product groups; and their seasonality,
cyclicality, and demand patterns
Ability to minimise obsolescence
24x7 Operations
Testing, Packaging, refurbishing, bar coding and other value added services.

Packaging and Distribution handling activities

It involves the following activities

Inserting the filled packs into cartons / crates


Coding
Carton Sealing / taping
Stacking on pallets
Receipts and Dispatches of products from factory
Internal material movements to and from production lines
Managing, maintaining & operating the Material Handling equipment

Distribution

Subhiksha will be introducing organized distribution which will be one of the first of its
kind offering in India. Taking this service to the next level, the company will be creating
a one - stop shop for National distribution services. The Distribution service will leverage
the existing pan-India operations of Subhiksha. Distribution through Subhiksha will be
providing the customers unbeatable coverage across both value and premium formats
involving the following activities.

38
Loading products from the factory
Invoicing
Delivering products to the distributors.
Empty Crates management.
MIS Reporting

39
9. Porters Five force analysis

The threat of the entry of new competitors

To become a company providing entire supply chain solutions to major businesses, the
company has to put huge investments in developing very efficient

Transportation
Warehousing
Processing and distribution centres
Information technology
Material handling activities
Distribution

. This involves huge investment in the form of capital, expert manpower, infrastructure,
network,information management,managerial control and vendor relationship.

All this is not easy to build over a short period of time. So it is very difficult for new
players to venture into this domain. It is possible for only such companies like
Subhiksha to enter into this segment with its wide expertise in the all the supply chain
aspects of retailing and sustain over a long period of time. Over the long run once
established it will be profitable for the organization as it ramps up its volumes of scale.
So there is not much of a threat from new entrants.

The threat of substitute products or services:-

The present state of the Indian Retail industry is marked by fierce competition due entry
of global majors & several new entrants. The rapid growth of the Indian retail industry &
low penetration levels of organized retail are attracting a large number of players and
massive investment. The relative share of each player will depend on the price of its

40
offering to the discerning Indian customer. Retail companies are now turning to their
supply chain & distribution strategies as a way to differentiate their products and cut
costs. Logistical expertise should be used not only to survive, but also to sustain real
competitive advantage. Retail supply chains are complex & composed of multiple
interacting supply chains for various categories & formats. They need to be highly
effective as well as defect free. This demands careful design of supply chain processes
that are both robust & scalable. Lean Supply Chains are focused on supplying products
at the least possible cost, thus demanding lean distribution strategies. Lean six sigma is
a powerful tool for achieving this objective. A well designed & meticulously implemented
lean six sigma project can yield significant benefit.

All these criticalities point to the conclusion that it is beneficiary for the Major retailers to
outsource their supply chains to gain cost advantage and better margins. They can shift
their focus on other major aspects of retailing like marketing. So there will be no major
threat to outsourcing in the near future.

The bargaining power of customers (buyers):

The bargaining power of reformed Subhiksha will be low in the initial years as the
major retail players are unwilling to outsource their supply chain as they fear that
they will lose their competitive advantage in the form of leakage of critical business
information. However after the slowdown of 2009 they realised that they can reduce
a considerable amount of their operations cost by out sourcing their entire supply
chain. However in the long run when most of the Major retailers embrace
outsourcing the bargaining power of Subhiksha is surely going to rise. But in the
short to medium run the buyers are surely going to have an upper hand in terms of
the bargaining power.

41
The bargaining power of Suppliers:

Here the suppliers will not have much bargaining power as Subhiksha will be having the
option to procure from multiple suppliers across the globe for which the procurement
cost is least. In this Scenario the chosen supplier has to provide the right quantity of
goods at the right price with minimum margin. So Subhiksha has the advantage of
having bulk purchases at well negotiated price giving the major retail players the chance
to procure goods at prices much lower than they could have done on their own. In fact it
will be advantageous for the suppliers to involve with Subhiksha than with the major
retail chain because then they will be able to do high volume business reducing a major
chunk of their operational costs. It will be a win- win situation of both Subhiksha and the
major suppliers

The intensity of competitive rivalry

For Subhikshas business model to be successful it has constantly improve its


Vendor network collaborating and forming strategic alliance with as many
vendors as possible.

It also has to keep its supply chain as lean as possible to compete with its
competitors.

One of the major bottlenecks of Indian Retail is both Rural and Urban
infrastructure. The success of the new Business model depends on a great
extent how do they make innovative solution to overcome this bottleneck

Government policies both at national and international level plays a major role in
determining Subhikshas long term and short term strategies ans profitability.

A lot depends on how Subhiksha can evolve its business models to changing
economic business scenarios.

Many a things also depends on how it can leverage its already existing brand as
a low price retailer to grow its business in the long run.

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10. CONCLUSION

Subhiksha has the potential to be the largest profit grosser among the prevalent
retail chains in the country.

While retaining its profit making stores and catering to the customer segment as
well, it will function as a supply chain outsourcing agent primarily. It can work to
provide the following advantages to its clients :

Before closing down, Subhiksha was itself a low cost retailer and had already a
robust supply chain in place to cater to its own procurement needs. They can
leverage this advantage to act as a supply chain outsourcing agent
It can transfer the benefits the advantages of bulk purchase of commodities such
as FMCG goods, fruits and vegetables to its customers.
Complete single point ownership ensuring total control and confidentiality of
processes.
Organisations can make investments in productivity improvement measures &
training through use of appropriate tools & techniques like Lean Six Sigma
Standardization of services and sharing of best practices across locations.
Better prices in products where there is no MRP attached for eg: Food articles
Reduction in Logistics Cost by consolidation of assets, manpower & other
resource.

43