Subhiksha were a golden egg laying duck, they were in trouble.

They need their ( bankers and lenders)support and upon getting it they will restart operations and repay all debt. It is not easy,but we have to make it happen, says RSubramanian, Founder, Promoter, andManaging Director of Subhiksha TradingServices, which owns Subhiksha the Indiaslargest (in terms of number of stores), foodand grocery, small format, neighbourhood,convenience, discount retail chain. Subhiksha (prosperity) which means prosperity in Sanskrit is on the verge of bankruptcy as on 2 Feb, 2009. Subramanian wasn't thinking this big when he kicked off Subhiksha a retail value chain in 1996. Infact, he wasn't even thinking retail when he passedout of IIM Ahmadabad in 1989. After a two-weekstint at his first employer Citibank, Subramanian joined his mentor (late) S. Vishwanathan, who then ran Enfield Industries. At Enfield, Subramanian helped professionalize a hitherto family-run set-up and rope in Eicher as a buyer. After working for two years at Eicher, he started his first company called Viswapriya, and made profits up to 25 crores, until the share market collapsed in 1995. In the year 1997, Subhiksha opened its first store at Thiruvanmiyoor in Chennai with an investment of around Rs 4-5 lakh, with the theme, why pay more when you can get it for less at Subhiksha Subhikshas USP Offering the branded goods at a lower price than their competitors Which could make them stand in the competitive retail industry. The expansion of the stores: By March 1999, Subhiksha started expanding rapidly. From 14 stores, it expanded to 50 stores by June 2000. In the next two years, it had 120- 130 stores across Tamil Nadu. They decided to look at every part of India which is significantly literate and is asignificant consumption market. Telecom companies are their role model. In 2004-05, they decided to have 420 stores in places like Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006. Subhiksha was operating over 1,500 supermarket stores across more than 100 cities selling food, grocery, drugs, and telecom products across INDIA. Cut price strategy: Opening a chain of no-frills stores-no air-conditioning, no fancy lighting, and no touchand-feel experience (customers have to ask for products at Subhiksha stores)-was a deliberate strategy. Shops are located not on the main road, but just off it, to take advantage of vastly lower rentals. The catchment area of customers is rarely beyond a two-km radius, since its customers usually come on two-wheelers or on foot. Until little over two years ago, Subhiksha was only a local player with 150 stores (September 2006) operating mainly in Tamilnadu. The retailer began growing rapidly outside the state, soon after infusion of private equity capital by Iventure, the venture capital arm of ICICI. I-Venture took 24 per cent stake in the companys equity, which until then was primarily held by Subramanian and his associates. Subhikshas turnover grew from Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07, and then to Rs 2,305 crore in 2007-08 (year ending March 31, 2008). Likewise, having grown from 150 stores in September, 2006 in Tamilnadu to 1,600-odd stores across the country in September,

2008, Subhiksha has been the envy of its competitors. By the end of this year, it was looking at grossing a turnover of Rs 4,300 crore from 2,300 stores. The problem starts. "Subhiksha were facing a lot of difficulty in accessing data across different regions using this local solution, Besides business expansion brings its own complexities and it needed a robust platform to streamline our operations and control." Furthermore, the company needed a solution to manage the payroll system. Although it didn't have any HR issues at the ground level, sending the payroll to employees on time was getting difficult. The system worked manually, with a central team taking care of running 2-3 payroll systems in a month depending on the availability of the band width and the entire process. The first and big mistake committed by the management of Subhiksha is expanding the number of stores rapidly without sufficient funds in hand. They thought of raising equity during last September but the things had gone too far before they woke up. The global markets had started collapsing and there were no possible chances of raising funds. 1. Subhiksha Trading Services has come under fire from television channels for not clearing advertising dues that run around Rs 8 crore. 2. Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against wages, and Rs 20 crore against lease rents. The company, according to the report, is also carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per annum. 3. Expansion of Stores without adequate system controland IT Support. Thats why there was a huge Audit andabnormal losses in the system. Recovery Subhiksha, which was forced to shut all its stores as it ran out of cash, is in talks with over ten banks to restructure loans of nearly Rs 750 crore through a CDR (corporate debt restructuring) exercise. Its promoter R Subramanian has said that the company can resume operations after it gets cash of Rs 300 crore. In all, 13 banks have cumulatively lent Rs 750 crore to the company. The banks that are part of the restructuring include ABN AMRO Bank (Rs 50 crore), Bank of Baroda (Rs75 crore), Centurion Bank of Punjab (Rs 40 crore), Development Credit Bank (Rs 25 crore), Federal Bank (Rs 50 crore), HDFC Bank (Rs 65 crore), ICICI Bank (Rs 155 crore), Standard Chartered Bank (Rs 25 crore), The Hongkong and Shanghai Banking Corporation (Rs 85 crore) and Yes Bank (Rs 50 crore) Subhiksha, one of the earliest home-grown grocery, pharmacy and mobile retail chains, has been in the news for the last several months. The murmurs started surfacing many months ago relating to a brewing financial crisis but were resolutely denied by the company till a few days ago. Then in a striking mea culpa, the companys management has now not only admitted that it has indeed

been in serious financial mess for many months but has even gone to the press with an extraordinary claim that over 600 of its outlets have been vandalized but the company is still not pressing any charges against anyone or filing any FIRs. With the Satyam saga still making headlines, the cynics are already reading between the lines as the Subhiksha management makes more disclosures about its financial health. With not so encouraging news reports on the financial performance of some other large Indian retailers including Future Group, Reliance Retail, Aditya Birla Retail and Vishal Retail, many may already be tempted to write an epitaph for the organized, modern retail sector in India. It would be wrong to do so. Yes, it is true that many of the earlier entrants are finding it difficult to maintain the scorching pace of growth they had set for themselves in the last few years and some of the newer ones are discovering the challenges involved in meeting the extraordinarily ambitious growth trajectories they has set for themselves at the time of their entry into this very promising business sector. However, this is a much-needed pause for these players and for the nascent organized Indian retail sector. The serious players are now busy refining their business models and carrying out the much-needed course correction, be it in terms of formats, locations, supply chains or overall business operation costs. Most will succeed in doing so since they have the entrepreneurial and managerial talent and financial capability to carry out these changes fairly quickly. What has gone wrong with retailers like Subhiksha? On the surface, such retailers had a tailormade retail model for India which was to be a deep discount, no-frills retail format focusing on the very primary consumption basket of the middle and lower middle income groups. However, Subhiksha and some others ignored, to their great peril, the immense financial and managerial investment needed in building a super-efficient supply chain, and a super-efficient retail operations organization which can, while competing with the traditionally low-operating cost kirana stores and chemists on the price platform, generate adequate margins for themselves. Reckless growth that was probably driven by the desire to drive up valuations of the business rather than creating sustainable value for all the stakeholders became their undoing. In this quest for reckless growth, just about every basic paradigm of a successful retail business was ignored or compromised upon, be it supply chain-efficient clusters of retail expansion, optimized store locations and store rentals, or enhanced customer service. While the fate of Subhiksha and a few others will be known in the coming months, the overall health and future of the modern Indian retail sector should not be judged by these outcomes. Some fundamental facts have to be kept in mind while re-evaluating the Indian retail opportunity. Firstly, India is still experiencing one of the strongest economic growth it has in the last 60 years. At about 7 per cent GDP growth in 2008-9, and perhaps between 5 and 6 per cent in 2009-10, the current year and the next one will be better than the India Shining years of the NDA government not so long ago. Real consumer spending will grow in tandem with this strong GDP growth, and this can be easily validated by the growth of various constituents of consumer spending, be it food and grocery, cooking oils, FMCG products, consumer durables and electronics, and even clothing and other textiles.

Secondly, modern retail still accounts for less than 5 per cent of the total retail channel in India. The so-called mom & pop stores continue to show growth and profitability that is again, by and large, in line with the growth in consumer spending. Thirdly, the consumer spending basket has been showing a consistent shift in components over the last 20 years or so. Hence, while some organized retailers may be facing certain growth or profitability challenges, there are others including Trent (Westside, Landmark, Others), Fabindia, Shoppers Stop, Reebok, Esprit, Tommy Hilfiger, Tanishq, Croma, The Mobile Store, Guardian Pharmacy, Bharti Retail, Metro Cash & Carry, Caf Coffee Day, McDonalds and others continue to grow steadily and, in most cases, profitably. Many other international retailers like Tesco and Zara are poised to debut in the next 24 months, and others such as Marks & Spencer are poised to make a strong recovery and growth. And finally, the much-needed correction in retail real estate rentals and other operating costs is already under way which should restore the profitability of many current players and encourage them and the new ones to continue to plan further expansion. Hence, the Indian retail story and its business promise are still very much intact.