MGT1022 LEAN START-UP MANAGEMENT

ASSIGNMENT-II

Winter Semester 2021-22

Class ID: VL2021220503456 Slot: TE2

Date of Submission: 03.03.2022

A Classic Case of Lack of Strategic Fit: Rise and Fall of Subhikaha

The meteoric rise and equally dramatic fall of Subhiksha, one of the earliest entrants in
the Indian organized retail sector spanning about a decade (1997-2008), makes an
educative case study of mismatch between the competitive and supply chain strategies.
The ‘no-frills, deep discount’ store offering a whole range of branded consumer items
from its 1,665 outlets in the country, at prices lower than any of its competitors at any of
those location presented a replica of Walmart, the world’s largest and most successful
discount store. The image was appealing and the offers most attractive for the Indian
consumer. This led its promoters, in their early years, to believe that they had come up
with the right solution for the burgeoning Indian retail industry in its transformation from
traditional to organized format and could spread their presence throughout the country.
This belief was strengthened by the investments that poured in from some of the largest
corporate houses in the country, reflecting their confidence in the viability and growth of
this strategy and format in Indian conditions.

However, by 2006-2007, Subhiksha found itself in deep trouble largely due to cash
crunch and failure to sustain its widespread distribution network, including meeting its
obligatory requirement like wages for the staff, leading to its demise in 2008. While some
experts attribute the failure of Subhiksha to global recession and credit squeeze resulting
in problems of liquidity, they failed to realize its fundamental failure to achieve and
maintain a strategic fit between its competitive and supply chain strategies.

Subhiksha started off basically as a food and grocery store, selling branded items in this
category. It went on a diversification drive to add more consumer goods, including

1
mobile phones, which operate at rather low margins in a highly competitive market
environment. Subhiksha failed to realize that the factors that led to the success of
Walmart went far beyond the simple operational cost reduction measures, such as non-
AC, small-sized stores, but was based on more strategic approach to cost reduction that
was essential to support a low-price leadership competitive strategy. It failed to see the
impact on inventory-carrying costs in a widespread network where the square root law of
inventory operated. It also lost sight of the fact that the larger the number of facilities, the
higher their maintenance and staff costs. Transportation costs also increase beyond a
certain level of increase in the number of locations to be served and the control of such a
widely spread network of facilities has its own problems. Above all, its lacked
communication network and infrastructure, like Point of Sale Capture of Data (POS) and
Cross Docking that ensured the continued and seamless flow of material from end to end
in a highly efficient supply chain without any intermediate storage point to support their
Every Day Low Price (EDLP) claims. Subhiksha, despite all efforts, does not seem to
come out of its financial troubles.

Questions:
(a) What lessons does Subhiksha’s failure hold for Indian retailers seeking to capture the
large market through low price leadership route?
(b) Give argument to support the statement that Walmart has achieved good strategic fit
between its competitive and supply chain strategies. What challenges did it faced to
operate smaller format stores like Subhiksha? [about 5 pages report]