FAILURE OF SUBHIKSHA

INTRODUCTION

1. About Subhiksha

Subhiksha was started by R. Subramaniam, an IIM A & IIT Chennai alumnus in 1997

Subhiksha in Sanskrit means (prosperity)“the giver of all good things in life”

 Theme - Why pay more when you can get it for less at Subhiksha?

Discount store at prices lower than other retail outlets 500 outlets in early 2007 Set up 1,000 sq ft shops all across the city

2. Retail Methodologies

Discount Store Multiple Products Small Store format Service Oriented Residential Locations Availing Branded

Products

3. Retail Strategy

Establish itself as a neighborhood store Everyday low price system Wanted to attain greater penetration in all markets Lease rental system for stores Centralized purchasing Subhiksham Card Marketing Communication Supply Chain and Inventory turnover efficiency Home Delivery System Use of IT Online Retail System

SUCCESS OF SUBHIKSHA

1. Success Timeline of Subhiksha

1997 - 1st grocery Store in Chennai 2000 - 50 stores in Chennai 2000 June - ICICI Venture 10% stake for 15 Cr 2001 - Increased Stake to 23% 2002 - 120 Stores across Tamil Nadu 2003 - Azim Premji 10% stake for 230 Cr 2006 - 500 Stores across the country 2007 - 1000 Stores Across the country

REASONS FOR DECLINE

Reason 1. UNMINDFUL EXPANSION

Across states from South to West- rapid store expansion.

Rapid increase of personnel.

From groceries and medicines to mobiles and Electronics- too fast

Huge investments and cash flows

Reason 2. GROWTH…WITHOUT CONSOLIDATION

2004 marked a departure in Subhiksha philosophy from consolidation and growth to uncontrolled growth.

Very few stores would have been profitable in terms of cash flows.

Reason 3. WHITHER RETAIL MANAGEMENT

The focus was towards multiplying turnovers.

Expansions happened without an eye to principles in retail and customer management.

Staff service was shoddy and stores lacked a healthy appeal to customers.

A Subhiksha store often looked like a government uniform pricing store.

Reason 4. PROFIT AND LOSS? BALANCE SHEETS?

Uncontrolled increase in store and personnel was bleeding the treasury.

Turnover being the mantra, Subhiksha worked on slim and zero margins, often evoking the wrath of other players in the market.

Thus cash outflows were high where as inflows in terms of margins were non existent.

Reason5. MASTERING THE SUPPLY CHAIN

Downstream supply chain was not integrated.

Bulk buying is not a source of advantage.

In effect, Subhiksha was being a reseller buying products from vendors and selling them at zero margins.

Reason6. MANAGING VENDORS

Subhiksha tried to build scale on bulk quantity purchases from vendors and a liberal credit term extended to them.

Your vendors only have a limited leash….expecting huge credit cycles to make up for your turnover is hardly “good” vendor management.

Reason7. INVENTORY MANAGEMENT

Credit defaults caused supply breakages.

Hence it led to situations where either there were huge store inventories going bad.

Inconsistency resulted in customer dissatisfaction with store franchise

Unrestrained practices like reselling to other retailers, made company squeeze supplies

Reason8. DISCOUNTS AS USP

The only USP was discounts…..hardly a sustainable competitive edge.

Footfalls, turnaround and turnover being the guru mantra: Subhiksha never understood its customers.

In a rush to build turnovers and meet targets , lower level managers resorted to reselling it to retailers and emptying the inventories.

Reason9. QUALITY OF GROUND LEVEL MANAGEMENT

Personnel recruited to run operations were locals.

Tendency towards dishonest practices in face of turnover pressure.

Scored “own goals” by playing into the turnover traps.

Quality of store service was bad, adherence to rules of retail were minimal.

Reason10. DIFFUSED FOCUS

Subhiksha sold fresh vegetables, groceries, medicines, mobile phones, accessories and more…where was the focus?

How robust was the business model and the manpower to handle such diversity?

Did they ever stop to catch a breadth and consolidate?

REVIVAL STRATEGIES

1. Subhiksha’s revival strategies

March 2009- Undergone a corporate debt restructuring exercise, with lenders reviewing its books

Subiksha’s subsidiary Cash and Carry Proposed scheme 50% waiver and amalgamation with Blue Green Construction

& Investments Post merger promised to pump in 150cr Reopened as Subhiksha Rice Wholesaler 3 stores opened in Chennai

2. Failure of these strategies

Madras high Court and creditors against the reopening Petition filed by Kotak Mahindra & ICICI Debt burden Tried to re open to fast to soon without clearing dues Chose debt over equity for funding Liquidity crunch Inadequate I.T support

3. Recommended Retail Strategies

Specializations in products Improved stores

Better Store Design & Interiors Better management with suppliers Raise funds in a systematic manner Shut stores with low sales Focus on quality instead of quantity Invest more in R&D

Study target market well Carry sales check on regular intervals Improve quality & after Sales service Choosing Equity over Debt to be risk free

Continued…

New Store Format Open stores in malls or shopping complexes to increase

footfall Diversify in products which are profitable

Products for which overall industry performance is good Products which are related to the current product basket

Customer Relationship Management Better working conditions for employees

BY: DANISH ABHISHEK

SURBHI KRITI

MUKESH NAMITA

THANKYOU