Failure of Subhiksha

FAILURE OF SUBHIKSHAMASTER OF COMMERCE, (M.COM – Part - I) SEMESTER – I (2013-2014) Submitted by Japjiv Singh Anand ROLL NO. 1 SMT. M. M. K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (WEST), MUMBAI 400 050. FAILURE OF SUBHIKSHA MASTER OF COMMERCE ( M.COM - I) SEMESTER – I A.Y. 2013-2014 Submitted In Partial Fulfillment Of The Requirement For For The Award Of Degree Of Master Of Commerce BY Japjiv Singh Anand ROLL NO. 1 SMT. M. M. K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (WEST), MUMBAI 400 050 SMT. M. M. K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (WEST), MUMBAI 400 050 CERTIFICATE This is to certify that Japjiv Singh Anand of M.Com (Part-I) Semester I (2013-14) has successfully completed the project on Failure of Subhiksha under the guidance of Mr. Asst. Prof. Vishal R Tomar. Date:Place:- __________________________ _____________________ (Prof. Dr. MeghaSomani) Co – ordinator (Dr.Ashok Vannjani) Principal ______________________ (Asst. Prof. Vishal R Tomar) Project Guide __________________ External Guide DECLARATION I, Japjiv Singh Anand, the student of M.Com, (Part–I) Semester – I (2013-14), of Smt. M.M.K. College of Commerce and Economics, hereby declare that I have completed the project on “topic name” successfully. The information submitted is true and original to the best of my knowledge. Thank You, Yours Faithfully, ______________ Japjiv Singh Anand Date: 24/09/2013 Japjiv Singh Anand .ACKNOWLEDGEMENT The successful completion of project involved the contribution of time and efforts. This project would never have been completed without the valuable help extended to us by the subject teacher and project guide Prof. Vanjani for providing us such a prestigious institution. A. C. Last but not least I would like to thank our Parents for making us capable in doing this project and giving their continuous support and guidance. Vishal R Tomar. Secondly would like to thank our Principal Dr. .INDEX Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Particulars Page No. The core business of Subhiksha is retailing of food products. The research finds that the Subhiksha retail outlet in Bangalore is formulating good marketing strategies which are useful the company and these marketing strategies are generating good result. an offline retailer based in Bangalore. . Both existing and new players are experimenting with new retail formats. Currently two popular formats -hypermarkets and supermarkets are growing very fast. But some improvements are required as per the respondents. fresh vegetables and pharmacy products on discount prices. The research that forms the basis of this dissertation was carried out at Subhiksha super market. Apart from the brick mortar formats.EXECUTIVE SUMMARY The Indian retail sector is going through a transformation and this emerging market is witnessing a significant change in its growth and investment pattern. The research also involves analyzing the past promotional strategies and reach ability and also to determine the future promotional efforts of the company. brick -click and click-click formats are also increasingly visible on the Indian retail landscape. The main objective of this project is to formulate the marketing strategies of Subhiksha super market outlet in Bangalore. Consumer dynamics in India is changing and the retailers need to take note of this and formulate their market strategies and tactics to deliver value to the consumer. Global players such as Wal-Mart (US) and Carrefour (France) have indicated their plans to enter India once Indian foreign investment regulations permit. and they often include chilled and refrigerated sections. Convenience stores are also taking off in major cities. According to the estimated 500 shopping malls are expected to be built by 2010 from a near-zero base in 2000. roadside pushcart sellers or tiny kirana (grocery) stores. and the takeover or exit of some existing participants. with small Western-style supermarkets only starting to appear since the 1990s. usually in the form of Shell shops or Food Stops attached to petrol station outlets. The sector is expected to undergo further change with prospective new domestic and global foreign entrants. Most supermarkets resemble the small independent operations that existed in Australian cities and towns about 20 years ago. in a trend that can benefit Australian producers by providing greater visibility and shelf space. . The format and product range is surprisingly similar to those in Australia. Chennai and Hyderabad. Most of the supermarket development has occurred in the south of the country in the major cities of Bangalore. Although less than one per cent of food is estimated to be sold through supermarkets. Most food is still sold through local „wet‟ market vendors. Market analysts estimate the organised retail sector has been growing by nearly 30 per cent a year since 2000 with similar growth likely in the short-to-medium term. as well as New Delhi and Mumbai in the north. this share is growing rapidly. typically occupying from 275-750 square meters and carrying about 6000 stock-keeping units.GROWTH OF RETAIL OUTLETS IN THE MODERN MARKETING SCENARIO Organized food retailing is a relatively new phenomenon in India. such as the Kendriya Bhandar (about 120 stores nationwide) run by the Ministry of Personnel. There are an estimated 12 million retail outlets. kiosks and street hawkers. however there are various calculations and estimates. The vast majority of these are small kiosks (17 per cent). 56 per cent of all rural retail outlets) run by a single trader and his family. which are exclusively for Defence personnel. most of India still does its food shopping at small-scale vendors in the local village. There is no firm data for the total value of India‟s annual food and beverage expenditure. general provision stores (14 per cent) and grocery stores (called kirana. or at larger-scale weekly markets often serving several villages in one area. Most cities and towns also have one (or more) large central fresh produce market where wholesalers and retailers (plus some consumers) procure their supplies for the day from individual traders. Grievances and Pensions. In the towns and cities. With more than 71 per cent of the population living in small villages and engaged in agriculture. where small individual vendors trade. Thus the majority of food and beverage retailing in India is categorized as belonging to the unorganized sector. There are also a few other chains of government-operated provisions stores. these are only available for those below the poverty line set by the government.000 fair price shops and sells subsidized food grains and certain other staples. of which almost seven million sell food and grocery products.Food retailing in India Traditional local markets and small-scale retailing continue to dominate India‟s food retail sector. most consumers do their food shopping at the local neighborhood independent small retailers. Servants in high income households usually undertake this task. The Food Corporation of India (FCI) has an extensive nationwide network of about 478. such as about US$90 billion by 2000 based on . but since the retargeting of the Public Distribution System (PDS) in 1997 to focus on the poor. and the canteen stores (about 34 plus 3400 canteens) run by the Ministry of Defence. smarter family owned grocery and provisions store. albeit on a smaller scale. While Dairy Farm aims to continue expanding the Food world chain. and about US$135 billion by 2004 and growing at 4-5 per cent a year. such as the Sahkari Bhandar department store chain. with about 94 stores in several southern cities. Another form is a specific food and grocery section contained in some department stores. though this share is estimated to be growing rapidly. by 2005. mainly in certain cities of southern India plus in New Delhi and Mumbai. Visakhapatnam and . But it is only in the past decade or so that a form of supermarket akin to a Western-style supermarket.the Indian government‟s estimates of average urban and rural household expenditure on food and beverages. RPG Group plans to focus on developing its other retail businesses including the Spencer hypermarket chain. the RPG Group decided in 2005 to sell its 51 per cent share in the Food world joint venture. including Chennai. The joint venture converted the loss-making old Spencer department store chain owned by the RPG Group into the Food world supermarket chain. However it is commonly believed that less than one per cent of food and beverage retail sales take place through the organized retail sector. which had three stores opened by 2005 (in Hyderabad. based on industry estimates cited by the USDA. One of the pioneer supermarket chains was created in 1995 through a technical agreement (and from 1999 by a 51/49 joint venture) between India‟s Calcuttabased RPG Group and the UK‟s Jardine Matheson Group‟s Hong Kong-based subsidiary Dairy Farm International. now calling itself a supermarket (while others may call it a „super-kirana‟). which has about 16 stores in Mumbai. though possibly retaining half the supermarkets rebranded as Spencer‟s. of which there are at least five to 20 in each city. Bangalore. has started to appear in India. Hyderabad and Pune. An early form of „supermarket‟ has been around in India for some time: the single-unit. the Nilgiri supermarket chain.Mumbai). Calcutta. Another pioneer. hypermarkets or convenience stores. in partnership with a new 50 percent equity investor. whereby independent food retailers can sign up for use of the Spar store . and approvals generally given on a case-by-case basis. and the South African-owned Shop rite Group in partnership with a local investor (with one Shop rite hypermarket opened in Mumbai in late 2004) have been permitted to set up operations. to enable further expansion into more states.) Since the joint venture of the RPG Group and Dairy Farm International was approved in 1999. Delhi. Other significant chains include the Subhiksha discount supermarket chain. opened its first supermarket in Bangalore in 1971 and by 2005 had built a network of 30 stores. Ahmadabad. with majority foreign ownership in food retail chains not allowed. Maharashtra and Karnataka. in the states of Tamil Nadu. and Chandigarh. Local foodservice group Radhakrishna has also gained a license for food wholesaling in partnership with France‟s Intermarché Group. The Hyderabad-based Trinethra Group opened its first supermarket in 1986. Bangalore-based GW Capital. Several other Indian-owned companies have developed chains of supermarkets. then acquired the 12-store Fabmall chain in Bangalore. with 72 stores in Tamil Nadu. Bangalore. mostly in major cities in the southern states plus in Mumbai and Hyderabad. both company-owned and franchised. Fabmall now has a total of 28 stores in Bangalore and Chennai. (In February 2006 the government made a small concession on FDI in retailing. and a plan for 20 stores across India by 2007 in existing cities plus others such as Chennai. The Indian government has taken a cautious approach to allowing foreign direct investment (FDI) in food retailing (and retailing generally). by announcing that up to 51 per cent in retailing of “single brand” products would be allowed. expanded to 68 stores by 2004. only Germany‟s Metro Group (with two Metro Cash & Carry wholesale stores opened in Bangalore so far since 2002). Andhra Pradesh. and Pantaloon Group‟s 42 Food Bazaar supermarkets and Big Bazaar hypermarkets in major metropolitan centres. such as basmati rice. Wal-Mart has indicated that it would significantly increase its sourcing from Indian suppliers from its current level of US$1. such as the RPG Group and the Pantaloon Group. but likely to soon include some food products. plus opening possible new avenues for Indian exports via multinational retailers. tea. have expressed their strong opposition to allowing more foreign direct investment into Indian retailing. have been lobbying the Indian government to allow majority foreign ownership in retailing. Organized retailing in India .brand. However the Indian government appears to be considering some degree of liberalisation. if it were allowed to set up retailing operations. They argue that the sector is still at a very early stage of development and multinationals such as Wal-Mart would swamp local players. Major Indian retail groups. Several major multinational corporations. spices. especially the kirana-wallahs. especially majority foreign ownership. in particular Wal-Mart. seafood).5 billion a year (so far mainly non-food products. in the interests of improving efficiency in retailing and supply chains and so strengthening the integration of the Indian agrifood market. There are a number of importers and consolidators based in India that import food products from Australia and distribute to various retail outlets. chickpeas.Australian presence in India food retail outlet Nearly all the major retail outlets. Metro and Nilgiri‟s. The Australian Food to Southern India partners are making significant progress in identifying potential retail partners for Australian exporters. marzipan etc If market access is obtained. citrus and stone fruit . lentils and field peas Fresh fruits – mainly apples and also pears. skimmed milk powder and specialty cheese Pulses – mung beans. multi-grain flour. Market entry – best prospects Jams Pasta Sauces Biscuits Confectionary Bar syrups Honey Juices Wines Breakfast cereals Dietary foods Health supplements Canned seafood Tomato paste Ingredients for food service industry Canned fruit and vegetables Bakery ingredients – bread improvers. essence. dairy – butter oil. grapes. such as Food World. sell Australian food but none of them imports directly. The supply of grocery items destined for Indian retailers usually initially requires consolidation because of small volumes. 000 sq ft big store at one location in Chennai. they decided to sell branded products at a lower price. so they would have the learning curve much to their advantage. They wanted to attract not the top end customer but the aam aadmi. . Entering the retail market ten years ago There was no great logic behind entering the retail market in 1997. they decided to set up 1. He has established Subhiksha departmental store at Tiruvanmiyoor. Chennai in March 1997. There was a lot of thought process behind it. In retail. IPO financing in 94 and debentures trading. They made a study of two areas: software and retail. because ultimately there is no difference between the branded products like say Boost or Surf or such things. they thought they were a bit late for software as Satyam. They allocated a Rs 5 crore (Rs 50 million) corpus to it and entered the retail business. They didn‟t want to be a small and late entrant. So. The next question was why would he come to our store abandoning the existing store? It had to be the price.INTRODUCTION TO SUBHIKSHA Founder Subramanian who did his B.Tech from IIT and PGDBM (MBA) from IIM. TCS. So. Ahmedabad has many first to his credit like starting asset securitization in early 90s.000 sq ft shops all across the city and not a 10. Infosys. they found that consumers prefer buying groceries from closer home. Wipro. From their research of three months. etc had already established by then. they would be one of the early entrants. Between software and retail. What they were expecting on day one happened on day three. What they were trying to do was different from the western model. and they gingerly looked at the products and asked. But they soon found that people who standing outside were not there to buy anything. are they seconds or old stock or defective products? In the first year. They thought the day they opened. They opened it with the clear idea that it is part of a larger system. 1997. But there was nothing of that sort! They sold goods of only Rs 5-6 lakh (Rs 500. Consumers were very surprised. they thought happily. there would be a stampede because the prices were low and they would sell goods of Rs 30-40 lakh (Rs 34 million) by the month end. their model is truly Indian. . they opened ten stores in Chennai. they were chemists from the neighborhood who had come to do a dharna (protest) saying Subhiksha could not sell medicines at a discount.On starting Subhiksha They looked at all sorts of names. why pay more when you can get it for less at Subhiksha? In March. On the third day of their opening the pharmacy. there were about 100 people outside their store in the morning. They thought all of them were waiting to buy from their store.000). they opened their first store in Thiruvanmiyoor in Chennai with an investment of around Rs 4-5 lakh (Rs 400. and finally they chose the Sanskrit word Subhiksha (prosperity) because it reflects the Indian ethos and it is a word that can be understood all over India.000-500.000) in the first month. Their theme was.000-600. They also started selling medicines at a discount. Only that made business sense. Subhiksha started expanding rapidly. Another thing is the medicines that Subhiksha were selling at a discount were bought mainly by the elderly who have no fixed income and they welcomed any discount. Of course. Expansion plans By March 1999. Subhiksha people were quite happy to be able to help them in some way. They decided to look at every part of India which is significantly literate and is a significant consumption market. they have 145 stores all over Tamil Nadu. they started recruiting people in various regions. area. They looked at the telecom companies as their role model because these companies employed capable regional managers and expanded. ICICI Venture invested in their company. they decided to have 420 stores in places like Gujarat. Then. In the next two years. and it was only in 1999 that the Supreme Court gave a ruling that they could sell medicines at a discount. They decided to have very good quality people to run the region. it is good business for Subhiksha too. Andhra and Karnataka by 2006-07. town and the store. Another big thing was. they made sure that they consolidated before they expanded. . In 2004-05. Subhiksha wanted to be everywhere. They plan to have 1. they had 120-130 stores across Tamil Nadu. Subhiksha is already India's largest retail chain store with 500plus stores. They can't sit in Chennai and run a store in Chandigarh. Subhiksha business is also extremely local. From 14 stores. though there was a lot of pressure on them to expand nationally. in 2000.000-plus stores by the end of this year. In 2005. they expanded to 50 stores by June 2000. they started as many stores as possible there. But their main motto is service. Subhiksha saw to it that the moment they got into a city. till 2004. Mumbai. Today.Finally they had to go to court. Medicine retailing is more of a service than business for them. Subhiksha is doing quite well on the pharma front and they enjoyed all the attention they got. Delhi. Also. The catchment area of customers. Indian consumers preferred shopping for grocery closer to their homes.everyday‐low‐price (5‐10% less than MRP) Shops are located not on the main road. Though now. STRATEGIES ADOPTED: · · · Cut Price Strategy. This model has been the key building block for the success of Subhiksha in making it the oldest discount chain in the country.India is a large country and there are still opportunities to avail of. Probably they open 2. the thought of opening stores outside India is not tempting because there are enough opportunities in India. Focus on 2 factors for their business model (2C‟s) · Criticality of cost · Convenience of buying What the company is looking for is to provide products at sustainable low prices right at the customer‟s doorsteps. Subramanian the Managing Director of Subhiksha Trading Services decided on the model which was to pioneer the discounted retail format in India – a large number of small stores which offers easy accessibility & offers products at a discount.000 stores in India. organized retail was non-existent in India. · · · . An external analysis was done in India through research which showed that for the average consumer grocery was the largest category for spending but it was extremely price sensitive and that the largest growing format was the discount stores model. BUSINESS MODEL When the idea of launching Subhiksha in India was conceptualized.000 or 2. They may look at overseas markets too.500 or 3. R. Informed customers about promotional offers. as compared to consumer shopping in the Western world. Focused on Lower & Upper middle class Segment Wal-mart‐style. 320 stores and soon by September 2008 they touched 1. The first outlet in Chennai which opened in 1997 was opened by R Subramanian with a team of youngsters all of them had little or no retail experience. Subhiksha decided to expand beyond Chennai into rest of Tamilnadu. rest did . The management faced a dilemma whether to expand sequentially i. But.650. they selected the latter. Scorching pace considering 1500 stores were added in just 24 months. By March 1999. there were 19 stores and Subhiksha started breaking even. R Subramanian. Shopping experience showed that the Manager and the Staff Supervisor‟s where the key persons. This fund came in handy. as an analogy he quoted the Indian Postal Service – who have Post Offices present in Urban & Rural India. More important fact was that volumes picked up and the consumers were responding to the format. India‟s retail sector started seeing a high level of activity and Subhiksha decided to expand nationally and scale up at a rapid pace. retail is a service operations and is dependent on human resource. in smaller shops 75% were women. where they geared for managing other resources as well. I would like to expand and have more outlets. Subramanian in fact even some Government run institutions like the Tamilnadu Co-operative Milk Producers Federation Ltd had reportedly filed a case since Subhiksha used to sell their Aavin branded products like Ghee and Butter at 10% lower than the MRP (maximum retail prices) printed on the packs creating issues and lower sales in the Aavin outlets and with their other channel partners. they are very hardworking (long hours) loyal (less attrition). one state at a time or parallel – many states simultaneously. As one store manager said women were preferred. The 50 shop level was reached in year 2000 and by now it was retailing groceries and medicines in a big way.Rs. he said Post Offices number more than 150. honest with lots of integrity (less theft) and they are inexpensive (less pay .per month onwards). the retail business opened with an USP of low prices and with high neighborhood focus. On an average 60 to 70 stores were added in a month and the pace of the roll out was unimaginable. 15 Crores and this gave the retailer enhanced readability in the market. while speaking as the keynote speaker at an annual retail measurement conference4 organized by AC Nielsen in Mumbai (2004) said if possible. 23 Crores. walk in to some shops8 in Chennai showed that majority of the employees where women. Cash flows were now at reasonable levels and the net worth grew to Rs. Among the reasons he cited for slower expansion is the amount of litigations Subhiksha faced – his discounting model had enraged the retail trade especially in Chennai and many cases were filed against Subhiksha and R.000 in India and they could be one of the benchmark for Subhiksha. By 2004. 3000 .000 in 10yrs. they were sourced from the neighborhood wherever possible if not then from outside of Chennai. this is when ICICI Venture‟s decided to pick up 10% stake in Subhiksha for Rs.e. here too Subhiksha seems to have found the way out. In September 2006 the store count was 160 but by March 2007 they were at 670 stores and by March 2008 they were at 1. they claimed to have a very good Operations team which looked at location and Store expansions and the eventual start up.EXPANSION OR EXPLOSION-Stores tally: zero to 1. One wondered if such expansion was well planned apart from the Corporate Strategy on funding. Ltd. However. at this time around March 2008 ICICI Ventures offloaded 10% of stake to Zash Investments Pvt. In 2006.000 Crores. · Telecoms: -Subhiksha forayed into the mobile retailer business by 2007 and offers handsets. Reliance. Meanwhile. 230 Crores. 2.menial work and one could not get a standardized experience across the city shops. Subhiksha had reached a high point in its history it also generated a lot of goodwill in trade due to this high level investment by Azim Premji and the valuation of the company was now pegged at Rs. Birla‟s and others announced plans to enter the retail market segment and cost pressures started creeping in. Product Portfolios: · Supermarket: -Includes quality groceries. The bill also showed separately the free items you would get with some products as a promotion at the store level or from the brand (company which sells this brand). The bill would show you what the actual price is (MRP) and how much less you paid for it (discounted price). The company had been contemplating and postponing the initial public offer (IPO) since 2007. 1. All medicines are made available to consumers at a 10% discount. Raise more debt for growth was the way forward.320). this was a unique experience as till that time the local grocer always sold on MRP never on discount to MRP. Institution and markets started noticing the Subhiksha‟s golden run. owned by Wipro Chairman Azim Premji for Rs. 11 Crores to Rs.305 Crores) and their profits quadrupled (from Rs. etc. household items.200 stores. · . Clearly. · Pharmacy: -Subhiksha stores are generally equipped with a pharmacy that stores mostly basic medicines. cosmetics and toiletries. tripled the revenues (Rs. 1. Fruits and Vegetables: -Includes fresh fruits and vegetables sourced directly from farms on city outskirts and made available to the consumers at best prices.000 Crores for taking the stores count from 1320 in March 2008 to 2. recharge cards and accessories from all leading cell phone manufacturers at lower prices.300 Crores. however business was growing at a fast and furious pace. The offering focus was again on price and discount. the Indian stock market was booming and Subhiksha entered 200809 with a plan of investment of Rs. packaged foods. in spite of the shoddy staff and unhealthy stores appeal the friendliness towards the local shopper worked and employee management system seemed to be working.39 Crores). Subhiksha between 2006-07 and 2007-08 doubled the number of outlets (670 to 1. It also achieved the unique distinction of being the largest mobile phone retailer with an annual turnover of Rs. 2. The Management went into a huddle again in 2008 and arrived at a decision that they will stick to debt and not dilute the stakes. It also decided to add a new vertical business that of consumer durables information technology (CDIT) products retailing. 833 Crores to Rs. Subhiksha‟s management found that they could not borrow anymore. Mumbai. of stores 0 19 50 140 670 1320 1650 FINANCIAL MANAGEMENT The 2008-09 Business plan looked robust on paper. they went on to meet four times in this period but liquidity was tight and investors could do nothing as markets had collapsed.500 stores across country Dec 2007 . 600 Crores debt. just when some good offers were coming Subhiksha‟s way in September 2008. 400 Crores equity and Rs. Delhi. they were finding it difficult to lend. . all around markets fell off.Opening of the first retail store in Chennai. An emergency meeting was called with the stakeholders between September and November 2008. In the meanwhile. Feb 2007 . a bridge loan of Rs. 125 Crores to prevent a collapse.120 stores in whole of Tamil Nadu 2004 . By this time the stock markets had started weakening and everyone assumed that the weak market will lower the Subhiksha valuation by only 10%.Change in principle: from „consolidation‟ to „expansion‟ June 2006 .1600 stores across India Table 1: Subhiksha Stores in India Year 1997 1999 2000 2003 2007 March 2008 September 2008 No. Suddenly. The banks were a worried lot.crosses 1000 stores across India October 2008 . 125 Crores was coming up for repayment in September 2008 and there was no sign of equity.420 Stores in other big states in India namely Gujarat. In June 2008 it announced a merger plan with Blue Green Construction Ltd a listed company on the Madras Stock Exchange who had some research background on the CDIT business. where was the investment needed being funded from? The. not only in USA but everywhere. they just needed Rs. ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ March 1999 -14 stores in Chennai June 2000 . with Rs 500.50 stores in Chennai.000 initial investment.The expansion: ➔ In March 1997 . Andhra Pradesh and Karnataka. things started going terribly wrong. ICICI ventures joins Subhiksha June 2002 . India woke up to the news announcement of Lehman Brothers collapse and this started a domino effect. At this point of time. management decided to go for Rs. Consequently. Bank HSBC ABN AMRO Centurian Bank of Punjab YES Bank Standard Chartered Bank HDFC Bank Development Credit Bank Federal Bank Bank Of Baroda ICICI Bank Rs crores 85 50 40 50 25 65 25 50 75 155 ANALYSIS The case analysis below is approached by using the following concepts in Strategic Management · · · · · · Business Strategy Corporate Strategy – Growth Operation Strategy External Analysis Internal Analysis Corporate Governance Strategy Business Strategy “Low cost middle class focused” Business strategy of Subhiksha can be explained as follows Who are their target customers? – Subhiksha was looking for the price sensitive Indian customers who wish to buy discounted fresh groceries and brand products. After all that has also been idea that contributed to success of Kirana stores in India. What need to satisfy of target customers? – Consumer research by Subhiksha revealed that Indian consumers prefer to buy food fresh and thus want to buy it from a place close by to their home. over 600 stores were vandalized in November . who in turn stopped supplies and the shelves started to run empty. Also their need is to maximize the utility of their home budget and hence buying the products at discounted prices without compromising on quality.In the absence of funds but with unwarranted zeal to maintain the expansion plan the management diverted working capital to fund.   .December 2008. buying often from the market rather than stocking as that allow improved cash flow for home budge. the vendor payments were defaulted. At one point when the Security staff deserted their jobs. Which is predominantly middle class segment. The increase in stores and personnel were affecting the financial controls. It also seemed to have operated on a very low back end and corporate overhead costs. as Subhiksha focused on its core competency and operated with in a small geography the model worked. CORPORATE STRATEGY Everything seemed to be in place when R. . The Corporate Strategy of growth too was well executed and the business was generating cash and it was even turning out to be a profitable business. Differentiated Experience Subhiksha‟s early success was due to its no frills model – it had read the external environment very well and identified deep discount business model which appealed to the middle and lower income strata families which went for the convenience of the location and the price as after all it was mostly the groceries that they bought. But if the only USP is “discounts” will it be a sustainable competitive edge. So long. it was also a matter of time when some competitor would have replicated the model in other part of the country the management should have after the initial run of success. in the boom period of 2007 and 2008 by not raking in money through private placement or/and equity offer it lost out creating a fund buffer – which would have allowed it to handle the downturn. were planning for: · · · · Growth . A classic case of not doing “Consolidation” before “Expansion” sealed its fate. building employee capabilities and of course doing some innovation to improve customer experience. They decided to operate on low margins and believed that profitability could be achieved through operational efficiency and economies of scale. How to satisfy that need? – Subhiksha decided to sell the branded and fast moving consumers goods at discounted prices through no-frills store. Just by the having a discounted model all the time the business would not have sustained – Subhiksha would have become a re-seller. The management failed to capitalize on the good will it had generated in the market for funding expansion. Subramanian envisioned a discount store model in every nook and corner firstly at the state level then at the National level.at what pace? Funding . distribution and replenishment logistics. It was not geared to handle a fast pace of expansion primarily due to increase in costs and availability of funding. since the strategy was for growth they should have seized the opportunity of going in for equity through initial public offer (IPO) and should have raised money from the market. four things though that seemed to be lacking in the overall strategy formulation. like WalMart had done should have planned investments in strengthening the backend like the supply chain.to support this growth. the research supported his model and he had the first mover advantage at least in the “discount format” model. They error of choice to stick to debt over equity was to prove costly in the end. Tackling a potential future downturn. Again. Subhiksha efficiently operated on thin inventories and information technology. Subhiksha does not offer its customers the freedom to browse and shop like Nilgiris. low unit prices to customers) and high turnover are the ways to succeed in a very competitive environment and Subhiksha was the relevant model in Indian context. In fact. Rather. ``The company is emulating the worldwide trend of garnering the benefit of organized retailing by efficiencies and economy of scale. who have set up air-conditioned outlets. Balasubramanian. Mr K.OPERATIONAL STRATEGIES OF SUBHIKSHA Subhiksha has not positioned itself against established players like Nilgiris or Food World in retail marketing.'' Apart from the entire range of branded grocery and cosmetic products. Metro. it was able to offer sizeable discounts due to its bulk-buying strategy. Even top retailers such as Wal-Mart. Tesco and Carrefour believed that low unit margins (therefore. Subhiksha believed that low margins and high turnover was better than high margins and low turnover. it aims to make its aggressive pricing strategy its brand equity against the neighborhood grocery shops. Subhiksha Trading Services (P) Ltd. Subhiksha retails medicines at lower prices. Because for buying cosmetics or . told Business Line . Besides. The company was forced to approach the Supreme Court to ensure that its rights were protected and is able to procure and sell medicines at discounted rates to ``Subhikshites''. However. which in turn brings down the cost to the consumer. this aggressive pricing of medicines drew strong protests from organized pharma traders. Manager. Mr Balasubramanian said this was possible because of cost-cutting and elimination of waste wherever possible. Explaining how his company was able to sell at a substantial discount to the MRP in spite of its overheads and investment in technology. Food World or Vitan retail chains. Chennai. The supplier helps in inventory –control and in return gets an improved cash flow. As the discount format requires holding costs to be at a minimum all the stores are connected in an intranet to facilitate inventory planning. Inventory Subhiksha has a centralized purchasing system.grocery. which supplies its stores once a day. . It buys directly from distributors who sell at only a small margin above the mill prices and from 150 odd manufacturing companies. Subhiksha has 3 separate god owns for stocking Pharmacy products.'' On the limited choice for buyers in any particular product range. unbranded groceries and branded FMCGs. Subhiksha makes spot payments against delivery. constantly adding or removing products based on customer feedback. the company stocked two-three most popular brands in each category as was common with international discounters. The chain was ``sensitive to customers' needs''. This anyway constituted about 95 per cent of sales even in stores stocking larger number of brands. The idea was to stock fast moving brands and not those that had limited appeal. Therefore. This also helped the company manage an inventory logistics and supply chain as also in offering lower prices. Subhiksha does not view this as a handicap. which would occur if the stores were to make independent purchases. which enables it to get cash discounts. ``It is a functional and transaction-oriented shop that has no room for unnecessary frills and ambiences. customers look for a quick purchase rather than the shopping pleasure. This eliminates multiplicity of billings. Subhiksha positioned itself as a destination store for the ``value-conscious'' customer. It has a fleet of 10 tempos. Subhiksha strategy of having low real estate costs. Subhiksha launches national campaign Discount retail chain Subhiksha has launched its first-ever national TV campaign following its recent expansion across the country. the campaign depicts various shoppers looking for lower prices and opting to shop at Subhiksha. Price Control Subhiksha takes extreme care while pricing the products through all its stores. Subhiksha would inform buyers to purchase multiple packs of smaller quantities to save money. Here. It has employed software. declaring that saving hard-earned money is "bachat mera adhikaar hai" (savings are my right). . promotional offers by leading brands usually price smaller packs at lower prices to induce buying. which evaluates the price by minimizing profits. Thus. However. which have a nil tax on small packs and an 8 % tax on larger packs. On products like tea. the customers are encouraged to buy multiple units of smaller packs. This helps in ensuring that the products are rationally priced.Customer Education Subhiksha helps the consumer make informed buying decisions. Smaller packs of products in established brands are usually less economical. For example the gingerly oil brand Idhayam was priced at Rs 14 for a 200 ml pack which works out at Rs 70 per litre while the 500ml was priced at Rs 36 which works out at Rs 72 per litre. quick inventory turns and informed customer buying has helped its meteoric growth. which help them save money. Launched in Hindi. The success of Subhiksha indicates that the discount war will hot up in the coming months but it will be the customer who will emerge as the final winner. Every store is computerized and utilizes the software to determine the pricing. "We are delighted to offer a solution that helps cut down the hassle of carrying cash. Subhiksha Food Card ICICI Bank and Subhiksha have launched a pre-paid food card to be used as an alternative to the cash and meal vouchers. outdoor and radio. which is re-loaded on a monthly basis. Bangalore. Other media it is using include print. Dy general manager. Hyderabad. The ad agency in charge of the campaign is Orchard. The pre-paid card. ICICI corporate payment solutions group.The company is spending Rs15 crore on this campaign in the first 12 months. The card is first being launched in Delhi and would soon be available in Mumbai. Bangalore and Ahmadabad." said Ms Shanta Vallury. . will be accepted at all Subhiksha outlets throughout India and select restaurants. Marketing is. A marketing strategy consists of an internally integrated but externally focused set of choices about how the organization addresses its customers in the context of a competitive environment. how it will get there. 50). both a philosophy and a set of techniques which address such matters as research. public relations. This definition clearly defines the objectives of marketing and how its performance should be evaluated. advertising. distribution and after-sales service. A market consists of all the . how it will succeed in the marketplace. 235). anticipating and satisfying customer requirements profitably. communicating and delivering value to customers thereby developing a long-term relationship with them. These activities define the broad scope of marketing and their balanced integration within a marketing plan is known as the marketing mix. p. A strategy has five elements: it deals with where the organization plans to be active.KALEIDOSCOPE OF STRATEGIC MARKETING Marketing has been defined as the management function responsible for identifying. p. A modification of a definition of marketing by Doyle (2000) suggests that marketing is the management process that seeks to maximize returns to shareholders by creating a competitive advantage in providing. build relationships of trust with them and create a competitive advantage (Doyle 2000. It is also necessary to identify the benefits customers seek from using a product or service available in the market. packaging. pricing. sales and sales promotion. therefore. and how the organization will obtain profits (Hambrick and Fredrickson 2001. what the speed and sequence of moves will be. The specific contribution of marketing in the organization lies in the formulation of strategies to choose the right customer. product design and development. The organization must identify the problem that its customers use its products and services to solve. A marketing orientation helps to define the organization‟s business. .potential customers who share a particular need or want who might be willing and able to engage in exchange to satisfy that need or want. Marketing is concerned with problem solving and customer benefits. . Some movie organizations assumed they were in the movie business when the entertainment business left them behind! Marketing is a philosophy that encourages the organization to ensure that the needs and wants of customers in selected target markets are reflected in all its actions and activities while recognizing constraints imposed by society. This marketing concept first received formal recognition in 1952 by one of its leading exponents. . . the General Electric Organization – the marketing concept: . for the engineer. . Introduces the marketing man at the beginning rather than at the end of the production cycle and integrates marketing into each phase of business. · · · . marketing establishes . . An organization is not in the movie business because that says nothing about customer needs. The organization must be able to answer the following questions: What is the problem customers are trying to solve? What benefits do customers seek? How well does the organization‟s product solve this problem and provide these benefits? A statement that the organization is in the movie business is not very useful. . the design and manufacturing man. Likewise. as well as in sales distribution or servicing of the product (General Electric Organization. Marketing means. It is the technology of want satisfaction which is transitory (Anderson . production scheduling and inventory control. 1952. Annual Report. Effective marketing requires that the organization analyses the needs that its products are supposed to satisfy. they buy a warm stimulating drink or a unique coffee experience if it is Starbucks. customers do not buy sisal. and the emphasis on integrated organization effort. being oriented to the needs of customers rather than emphasizing what is convenient to produce. p. therefore. they buy a material to make baling rope to tie things together or fiber to serve as backing for a floor covering. The real lesson of a marketing philosophy is that better performing organizations recognize the basic and enduring nature of the customer needs they are attempting to satisfy. Customers do not buy „coffee‟. there usually are many substitutes – for coffee include tea. cocoa.what the customer wants in a given product. These three aspects are fundamental to the adoption of the marketing concept. the profit orientation. 21). Three aspects of this statement are interesting: the customer orientation. New York. what price he is willing to pay and where and when it will be wanted. Marketing will have authority in product planning. alcohol or soft drinks and for sisal include polypropylene fiber or polythene sheeting. The organization should realize that many alternative products may satisfy the needs identified. 23). it is an orientation which pervades the thinking of the organization as a whole.g. communication and delivery of customer value. The adoption of a marketing philosophy confers specific authority and responsibility within the organization in regard to the provision. where is the focus? THE CUSTOMER MANAGEMENT SYSTEM As seen above in the Strategy part the focus was not on improving customer experience over a period of time instead keep them involved only on the price advantage which can be easily dislodged when a new more focused competitor or a local entrant comes into play. Add fresh vegetables and medicines to the grocery verticals and one wonders. The products were offered at a discount and lapped up by customers. The industry average for stores of 2. lower prices favorably against any competition.000 per sq. Although the same store sales were as high. and several people now say that Subhiksha‟s new stores never achieved break-even levels. Troubles started due to the rapid expansion with debt capital to open 800 stores in a year. It is put natural that very few stores would have been profitable in terms of cash flows. Marketing is concerned with all parts of the organization. p. INTERNAL ANALYSIS FUNDING MECHANISM With a tangible product offering Subhiksha‟s mechanism for superior performance was relatively simple – the price tags. price and friendly neighborhood interaction as a Subhiksha offering and compared this closer proximity. The products and services used to satisfy customer needs and wants change constantly. All agree that Subhiksha‟s low-cost model was sound. In Subhiksha‟s case one wonders by extending the business line‟s to include mobile and other consumer durables information technology products (CDIT) products retailing that too in the smaller size of the stores they operate in would it have continued to keep its offering valued by customer intact in the future.000 sq. it is more than a set of tools. ft6. The management must be very clear on which attribute the business wants to be in – like in Wal – Mart where ambience and sales help was least valued by its customers and low prices and wide selection were more valued. E. ft (Subhiksha‟s typical store size) to break even is Rs 5. the customer attributed convenience.1982. EXTERNAL ANALYSIS THE OFFERING A services business can‟t last long if the offering itself is flawed. . Managers have to focus on the experiences a customer wants to have. Cash flow mismanagement which ultimately led to the downfall – showed lack of implementation of management control systems. absence of audits and non availability of the financial statements. The ambitious growth strategy grew on the promoters and other investors and the focus seems to have shifted from delivering „value to customers‟ to „creating valuation for self‟. which then leads to the boomerang effect of vendors not supplying goods – stores running dry. Was the employee geared to handle the diversity of business the Management growth strategy envisaged? There is no direct reference in the case but the employee factor has a direct impact on the business efficiency quotient in retail. transparency was lacking. They did see the simple reality that employees who are above average in both attitude and aptitude are expensive to employ – a simple diagnostic tool could have given the directions like what will make the employees reasonably “able” to achieve excellence and then what makes the employee reasonably “motivated” to achieve excellence. Market seems to be getting now “on” now “off” signal for the Initial Public Offering (IPO) for the equity. Subhiksha made the hugely erroneous decision of funding expansion by diverting the working capital. The fast paced growth and increase in stores at Subhiksha led to rapid increase in personnel and they should have put an Employee Management System in place. 125 Crores bridge loan? It appears that there was severe cash mismanagement. . and the system at Subhiksha could have been designed to allow an average employee to thrive.300 Crores) why did it not service even Rs. Also. For a business which was generating approx. 2. Rs.EMPLOYEE MANAGEMENT SYSTEM Employee self sacrifice is rarely a self sustainable resource. In the long run Subhiksha would have faced the economic reality of flawed service from employees. CORPORATE GOVERNANCE ISSUE Business decisions of reckless expansions across disconnected geographies required a reckless increase in debt these decisions seems to have got the nod from the Board. a lot of things could be guess work or estimation. 200 Crores in revenue per month (2007-2008 Revenue Rs. AN OVERVIEW OF MARKETING STRATEGIES IN RETAIL OUTLETS Marketing strategies outline exactly how marketing objectives will be achieved. for example. the best strategy can be to locate as close as possible to the competition. and each store‟s traffic helps the other stores. The marketing objectives for profits. Inexperienced business people often make decisions based on what they like or want. to most Indians. is good thing. A marketing orientation brings the customer into the center of the picture. increasing the rate of purchase. numerous and/or aggressive competitors in a limited geographical area are costly to the retailer. Customers are drawn to the area because of this convenience. However. but their mission statement should guide the finding of market where there is an unfilled demand for the type of store create shopping areas where customers can find everything they need in a single area. For some type stores. if the marketing objective is to increase market share. cash flow and market share can be achieved by increasing the number of users. Competing stores located in the same area may in crease customer traffic. Too many similar stores serving too few customers cause the sales volume of each store to suffer. Location Competition. leaving the customer out of the picture. A marketing strategy is a way to give marketing orientation to a business by deciding to position a product or service in terms of buyer needs and wants. . Retailers should not afraid of competition. have an area with many antique shops. however. It leads to better products and services at lower cost. retaining existing customers or acquiring new customers. the marketing strategy states exactly how the market share increase will occur. For example. Some cities. It can inspire a retail manager to do a better job. The merchandise a retailer carries defines the store for the customer. to maintain both high margins and high turnover. Price One way to examine the relative strategic positioning of a store is to plot your own retailer against competitors on a margin/turnover graph. if not impossible. As per the graph. The pedestrian or vehicular traffic is usually fixed at the location unless the retailer has the ability to draw customer to the area just because that is where the store is located. . To a large extent. The assortment refers to the depth of a product line. or how many different styles and brands a retailer carries in each product line. Variety refers to the number of different types or classes of products that a retailer carries. these two variables will define not only the success or failure of the retailer but also how that retailer is perceived by the public. The merchandise mix represents the full range of products the retailer offers to potential customers. it is difficult. Marketing the store as brand is another effective means of competitive differentiation based on merchandise rather than price appeal. This approach is heavily employed in United Kingdom and to a growing extent in the United States and other countries. Attempting to carry both would increase inventory costs to the point of being competitive. Drawing power represents the natural ability of the store to encourage customers to travel farther to shop there.The location strategy can be examined by mapping retailers according to the amount of traffic at location (pedestrian and/ or vehicular) and the retailer‟s drawing power. but a relatively small assortment. Stores often have to make the choice to carry either a large assortment or a large variety. One manner in which retailers examine their merchandising strategy is by using an assortment/variety graph. Retailer such as Target carries a large variety of merchandise. As retailers increase their process in an attempt to improve margins. Merchandise Planning the merchandising mix is one of the most important aspects of store operations. it may be necessary to raise prices. the retailers will not make enough money to survive. such as gift wrapping and mailing. while shared by competitors. it is also impossible to maintain low margins and low turnover. Retailer must examine the character of the business to identify the features that can be best exploited to create a compelling point of differential from competition. can be manipulated in a manner to establish a special character for a retailer over the competition. In this instance. Some Retailers found that high margins were insufficient to make up for lower turnover. competition will quickly drive such a retailer out of business. Most merchandise was being sold at the reduced margins as customers learned to expect periodic sales. It should be recognized that high levels of service increase cost. In every type of retail business there are features and variables that. During the mid-1980‟s Sears found it was having problems selling merchandise at full price. Instead of paying full price. For example.customers start seeking competitors from which to purchase goods. While turnover and margins are good way to examine a relative pricing strategy. this classification is insufficient by itself. If service is to be employed as a . Service Each store owner-manager must determine the level of service that is appropriate for the store. Others have run into the opposite problem-that of having a high turnover during sales at less than needed margins. all retailers provide service of some sort. customers waited for the sale and bought merchandise at discount. This led to a customer image that was consistent with Sear‟s strategy. Likewise. This includes both the quality of services provided by the sales people and the quantity of associated services provided by the stores. Where as specialty stores depend on higher prices to make up lower turnover. Discount stores depend partly on lower prices (and thus lower margins) to achieve the high rates of turnover that they need to be profitable. This leaves the retailer a choice of either a low margin-high turnover or a high margin-low turnover strategy. but service can take many forms. In this instance. and unless increase in sales follow. where as frequency is the average number of times that customer sees the advertisements. One manner in which this strategy can be examined is in the context of the objectives of the promotional mix. These variable acts as the tactics to achieve a given strategy. have tried to minimize their cost. There are four strategic dimensions that can be examined in the communication policy: Reach represents the number of people who will see a promotion or advertisement at least once. While basic services are necessary for a retailer. such as Walmart and other discounters. Other retailers have built a strategic advantage around the idea of providing better quality service than their competitors. . purchasing/logistics. the key is to understand what particular aspect of service is most appropriate for the type of merchandise being sold and is most important to the shoppers being targeted. to ensure success. Many larger retailers use national television ads to promote the image of their stores.positive differentiator. to target a specific consumer group. Most retailers use newspapers to communicate with the potential consumers. market research. many firms. financing. and price information. Their functions must be performed on a daily basis. However most. The content of advertisement can be described as either image-or information-oriented. retail ads tend to be oriented toward providing the consumer with store. and technology to achieve their strategic positioning. with the advent of inexpensive cable television. often without the customer‟s direct involvement. Each newspaper carries a great deal of this type of ads. However. Achieving strategic positioning Retailers depend up on the operations management. more retailers are depending on higher levels of frequency with less reach. These ads tend to inform the consumer of the products being carried by the store and the price of the products. product. Communications Each retailer should have an overall strategy to reach potential consumers. needs. wants. Logistics planning is also becoming more a competitive weapon. new technologies in distribution are allowing even the retailers who maintain more traditional distribution channels may find themselves left behind. This is often accomplished through a formal market research program. Market Research In order to satisfy a customer and have store. Stores are defined by the products that they choose to stock. Included in operations are staffing maintenance. and general management of the store. Purchasing/Logistics Retailers are using purchasing and logistics as a competitive advantage. While each store should have a grand plan or strategy to compete. and The limited has reduced turnaround times because of its efficient distribution system. the daily operations will determine the success or ability to achieve a given strategy. . as discussed later in the chapter. the retailer must be touch with consumer expectations. Integrated into the distribution system is the retail buyer. The managers must ensure that the staff provides services consistent with the retail strategy and that the store appearance is maintained to provide an appealing atmosphere. Too much inventory has been bought with the attitude of “I like it” instead of “the consumer wants this. firms such as Wal-Mart use cross-docking.” market research is also necessary to continually adjust to changing consumer trends. and behavior. Store managers should always keep in mind that their tastes and preferences do not represent those of the consumers.Operations The manager must pay the attention to the day to day requirements of running a retail outlet. While these options have traditionally been reserved for only the largest retailers. For example. These and other firms have learned to substantially reduce costs or increase service to the customer by better controlling the distribution channels of their goods. desires. This person is responsible not only to maintain stock level in the store but also to ensure that the goods are those that the consumer wants. It allows corporate and store managers to interact on an efficient basis. Employees shouting for obtaining salaries. ➔ January 2009 – CEO admits Subhiksha needs Rs. Often.Financing The financial performance of a retailer is often viewed as an end retail result. In smaller stores technology is used as a support function for other functional areas of business. instead of a planning function. This is often a weak area for store managers. many small retailers are financed with short-term debt that causes problems as it comes due. 3 billion just to stay afloat. In retail chains and franchises. ➔ October 2008 – newspapers state problems in cash flow. ➔ April 2008 – Subhiksha plans private wholesale markets. By planning for the future. Subhiksha shelves much needed IPO. Technology The use of technology has become so pervasive in retailing that it is often considered a strategic decision. ➔ September 2008 – breakouts of news on Subhiksha not long delays in vendor payments and employee salaries. ➔ June 2008 – Subhiksha searches for alternate routes to generate cash so as to fund expansion. store managers need to realize that financial planning is an imperative for success. Subhiksha defaults on rent for the stores. Vendors cutting supplies causes stores to go dry. retailers ensure that they have the capital to be successful. Subhiksha tries negotiations with property owners on dues and rentals. technology is often the centerpiece of the system. Technology not only provides store managers with information but also reduces inventory losses and reduces costs. For example. The crash: ➔ December 2007 – keeping in view of the uncertain stock market condition. . little attention is paid to the return on debt and equity. The Positioning: Subhiksha made an extensive research on customer behavior and found that offering branded goods at a lower price than their competitors could make them stand in the competitive retail industry. ➔ Aimed to expand to 2300 outlets across India by September 2009. However. · Savings: It focuses on the concept of constant low pricing so that regular customers see the same low prices all year round(below MRP) and are able to buy with the assurance that they stand to save on any commodity on any given day.· Low Prices: Subhiksha made extensive research on customer behavior and found that offering branded goods at a price lower than their competitors could make them stand on firm ground. S. it started spreading at a national level to many cities all over India. Dfi Group 1 2 3 4 5 6 Food world Nilgiri‟s Trinethra Fabmall Spar Adanis Supermarkets Supermarkets Supermarkets Supermarkets Supermarkets Supermarkets South India South India South India Tamil Nadu Mumbai Western India Nilgiri‟s Franchisee Pvt Ltd Fab mall India Ltd The Trinetra Group Spar India Ltd Adani Group . Competitors at the National level for Subhiksha.No 1 2 3 4 Brand Name Spencers Reliance Fresh Food Baazar More Outlet type Supermarkets Supermarket Supermarkets Supermarkets Level of operation National National National National Ownership RPGroup Reliance Group Future Group Aditya Birla Competitors at the Regional level for Subhiksha. Competitive Analysis: Subhiksha earlier was a regional player which was situated mostly in the southern India but later on with the growth in the company. · Trust: Subhiksha‟s name inspires trust and its consumers rely on it through all times to deliver larger savings as compared to any other retail chain or stand alone mom and pop stores. huge assortment Ok Local presence .Competitive Analysis: Key Elements Subhiksha Neighborhood stores Pantaloo ns Food Bazaar No 15 km in radius Grocery Perishabl es RPG Spencer Super stores No NA Reliance Fresh Stores Yes Trinetra /More Connivance Store Location Product Range yes 2 km in radius Grocery. huge assortme nt MRP MRP MRP Positioning Pop n mom Store No touch n feel offered Quality store Touch n feel offered Quality Convenient Store Format Touch n feel offered Fresh Quality at reasonabl e prices Poor Strong financial support. Pharma Mobiles 5 10%‐ low than MRP Discount store No touch n feel offered yes 1 km in radius Yes Grocery Perishables Grocery Perishables Apparels Grocery Perishable s Grocery Perishables Prices MRP Less then MRP Discount /value store Touch n feel offered Low price and best quality Ok Strong financial support. Perishables . fresh stock added Touch n feel offered Brand Image Low Pricing Trust & Relationship Quality Convenient store Quality Strengths Poor Everyday low prices 365 days Poor Customer relationship & credit provided Good Strong financial support. They reached at lower prices than the competitors by pruning luxuries like air conditioning from the store. in turnover. 1. and then by 2007-08 to Rs. . 3.SWOT analysis of Subhiksha: Strengths -Combination of Discount and Carpet Bombing model -Strong experienced Top management -High Customer base -High Brand Value Weakness -Lack of expertise in Indian Retail environment -Low grade lower management team -Strategy of debt-led Rapid expansion on a small equity base -Long time taken in IT Implementation -No funds for operating expenses Opportunities -World's most lucrative retail market -Heavy Investment industry from FII‟s (foreign institutional investors) and Venture Funds -Huge no.5 billion having equity component of Rs. thus making the customers aware of the benefits of shopping at Subhiksha Mr. 8. When all his counter parts began embracing shoppertainment by providing enviable ambience to the customers. He concluded through his market research that food and grocery purchase is not a shopping experience that a prospective customer will look forward.3billion in 2005-06 to Rs. Subhiksha managed to become the envy of its competitors. R Subramanian also decided to limit his store‟s sizes to around 1500 sq. By the end of 2008. who decided to tap the bottom of the pyramid by offering products at prices lower than the market price. they hoped of grossing Rs. These benefits were rendered to the customers in the form of better savings The savings on each purchases were printed on the bill. 23 billion. Intriguingly. all growth was fuelled from a small net worth base of Rs 2. Rather. of customers Threats -Economic uncertainty and Recession -Strong Competitors at National and Regional Level -Price war and shrinking margins -Risk in Retailing and rapid expansion Galloping on the back of rapid expansion. having grown from 150 stores in September 2006 to 1600 plus stores in September 2008.ft. as the catchment area for no food and grocery store in India exceeded 5 kilometres. but small sized stores nearer to the customers. R Subramanian dared to think different. Likewise. Subhiksha launched non-AC stores when that was a stigma in organized retailing in the country. They were the groundbreakers in the Indian Organized Retail. Subhiksha‟s turnover grew from Rs.33 billion in 2006-07. 43 billion from 2300 stores. Mr. deep discount stores in India.8 billion. lower costs and quality than a posh ambience. What They Did Right Subhiksha pioneered the concept of no-frills. it is a routine purchase where customers would look for proximity. He clearly understood that what India needs is not „one stop shopping destinations‟. none of the Subhiksha outlets provided the luxury of touch and feel to its customers. There were tendency towards dishonest practices in face of turnover pressure. ✗ Huge Rental and Lease Bills: They were paying huge rentals for some stores. ✗ The biggest mistake by the management was expanding the number of stores rapidly without having sufficient funds in hand: They thought of raising equity during September 2008 but things had gone too far. ✗ Lack of strong HR policy and Staff : Subhiksha was not able to retain the talent which was initially brought into Junior. While the customers placed their order through display terminals. Global markets were reported collapsing and no possible chances of raising funds remained. thus eliminating the commission to intermediaries. stating that they had failed to maintain health and hygiene norms as prescribed by regulations. Subhiksha is also carrying a debt of Rs 70 Billion at an average interest cost of 12 per cent per annum. ✗ Expansion of Stores without adequate system control and IT Support: On auditing. Locals were recruited as the personnel for operations of each store. Uncontrolled increase in no. It was like a family bound with no commitment. huge gaps were revealed financially as proper documentation was not performed. Mr. Subhiksha worked on very slim & zero margins.Subhiksha integrated their supply chain by sourcing their products directly from the manufacturers. the company ran out of enough funds to run the organization. By October 2008. but it was too late by then. Since then. This was due to the company holding up payments for two to six months against the normal credit period of one month. delivery was wholly over the counter. and Rs 200 million against lease rents. Resultantly. Thus cash flows were high where as inflows in terms of margins were non-existent. Frauds were committed while entering into rental agreements by their own management people. ✗ Supplier Bargaining Power: Many wholesale suppliers in Azadpur vegetables market have stopped supplying fruits and vegetables to Subhiksha‟s outlets in the national capital region (New Delhi). Rs 180 million against wages. R Subramanian says touch and feel is an abuse word in food and grocery retailing. According to the reports. ✗ Poor financial management: Subhiksha Trading Services has come under fire from television channels for not clearing advertising dues that run around Rs 80 Million. ✗ Government Intervention: Maharashtra Food and Drug Authority had asked Subhiksha to suspend operations of its warehouses at Mumbai for 20 days as well as had cancelled licenses of three of its vendors. There were no . Middle and High level management. Quality of store service was poor. Reasons for failure of Subhiksha: The management had committed certain mistakes which has led the company towards a downward position. which was a huge drain on the company's finances. of stores and personnel were bleeding their treasury. Subhiksha has been continuously troubled by a set of problems from all sides. Adherence to rules of retail was minimal. Subhiksha is believed to owe Rs 350 million against goods. Subhiksha also challenged the „touch and feel‟ factor when everyone else was shouting for experiential marketing. They also used to pay for the sourcing in cash in order to avail cash discounts. They started implementation of SAP. ✗ ✗ ✗ ✗ ✗ procedures to check and control on this cost. Future Group has begun opening a new no-frills discount retail chain called KB‟s Fair Price Stores. hence was getting reduced as the operations grew which left the company with no money. ambience and size. lower level managers resorted to reselling products to retailers and emptying their inventories. A certain amount of debt is good when a company is making above average returns. Customer dissatisfaction was the overall result. Subhiksha acted as a re-seller at times by buying products from other vendors and selling them at almost zero margins. In a rush to build turnovers and meet targets. Stock-outs in the store led to loss of business for the retail giant. Strong Competition: Thus sinking. ✗ Subhiksha financed most of their operations and expansion plans through secured or unsecured debt from banks. drove the operational costs to unsustainable levels. however a company losing money in operations and expansions will bleed with high debt financing. ✗ The desire for expansion was so overpowering Subhiksha‟s management that they ignored the need to strengthen supply chain. They now regret not going for an IPO when the things were well and good to prevent such a downfall. Subhiksha had to compete with its high profile competitors like RPG. The management admits that their over-confidence and aggressiveness are the main reasons for their loss. Poor supply chain management: Downstream supply chain of Subhiksha was not integrated. Poor inventory management: Shelves at Subhiksha stores were usually empty. There was no control on inventory of mobile accessories and stock value and finally ended up unable to circulate the working capital. This is what happened in case of Subhiksha. Future group etc. Subhiksha stores always sell handsets below DP while its benchmarking is to match DP. coupled with almost expected other issues. however Subhiksha did exact opposite. In effect. Lack of communication (delay in implementation of SAP) between the storage facilities of Subhiksha and their outlets proved to be costly. Reliance Retail has set up 700 odd stores by 2008 almost at the rate of one store per day. Reliance retail. Subhiksha tried to increase scale on bulk quantity purchases from vendors and a very liberal credit term handed to them. Rents play a crucial part in defeating competitors and gaining profitability in future. a format similar in concept to Subhiksha stores. . This. target pressures impacted the unique selling proposition since consumers chose to buy from other stores since the Subhiksha was „sold out‟. Wrong assumption that telecom segment would be a safe and profit bearing segment. The CEO never looked in to system losses that arose from telecom. distribution and replenishment logistics. ✗ Subhiksha did the worst mistake of financing their expansion plans through working capital. Reliance Fresh on the other hand is high-end in terms of display. They were considering raising capital through equity route however stock market started falling globally after collapse of Lehmann Brothers and they are left with no option to go through this route. Subhiksha delayed most of their payments to vendors and this resulted in vendors moving back from further business with them. Over confidence and Aggressiveness: The once titan company thus began collapsing slowly. As the company grows it often requires larger working capital. Their working capital was financing their expansion. A company cannot sustain operations without working capital. Subhiksha worked on slim and zero margins. Often invoking the wrath of other players in the market Thus Cash outflows were high where as inflows in terms of margins were non existent ✗ Mastering the Supply Chain A Wal Mart builds scale through integrated Supply chain. Subramanian ✗ Economic environment in 2008-2009 also contributed to the downfall of Subhiksha. This led to the empty shelf in stores and dissatisfied consumers. ✗ Growth . This closed the Subhiksha‟s options to raise further debt or equity to fund its operations.. ✗ There were also indications from ICICI ventures in their one of the filings to the court regarding the lapses in corporate governance on the part of founder of Subhiksha and Managing director R. not by being a re-seller! Downstream supply chain was not integrated.. Subhiksha was being a reseller buying products from vendors and selling them at zero margins. Due to financial companies going bankrupt and steep downward slides in stock market. ✗ 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. Bulk buying is not a source of advantage.expecting huge credit cycles to make up for your RoIs is hardly “good” vendor management . unpaid vendors and cash losing investors lost their trust in the organization‟s capabilities which led no support from them.. In effect. ✗ 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 Consumers A Subhiksha store often looked like a Government uniform Pricing Store! ✗ Profit and Loss? Balance Sheets? Cash Flows! Uncontrolled increase in store and personnel were bleeding the Treasury Turnover being the mantra. without Consolidation 2004 marked a departure in Subhiksha philosophy from Consolidation & Growth to uncontrolled growth! Very few stores would have been profitable in terms of cash flows with Retail management. ✗ Unmindful Expansion Across states from South to West and North and East  Rapid store expansion Rapid increase of personnel From groceries and medicines  Mobiles and Electronics  Consumer durables and IT. ✗ Agitated unpaid employees. investors grew very cautious in taking investing decisions and ran to safety avenues. Huge investments and cash flows.They got caught up in issues that come with scale.. Often it can be seen that wrong locations might be selected. Strategic planning plays a pivotal role in the sustenance of any establishment. Never go in to expansion without safeguarding the principles in retail and customer management. Operational expenses must be considered before indulging into costly advertisements and expansion projects.Lessons learnt Subhiksha story highlights the perils of growth at any cost and challenges of scaling a business – something which today‟s startups will face tomorrow. Strategy of debt-led rapid expansion is not advised Foraying into new ventures requires thorough research and analysis of that particular venture and its possible outcomes. Therefore all businesses should be backed by a sound and welldefined IT structure. Implementation of proper HR policies is required for retaining and motivating existing employees. Training costs and inadequately working employees may prove costly in terms of money and might even tarnish the reputation of the enterprise. Monetary greed should never be the motivation behind a project/business. These can prove to be a massive headache for the organization. Expensive leases may be agreed upon and poorly trained staff might be employed. Healthy management of cash-flow is key in deciding the fate of an enterprise. High level of growth means a store is opened every other day at least. Any business would require the proper documentation of all processes and performance. Never overlook the fundamentals of running a business while easy money is flowing in. Multiplying turnovers should not be the only goal in mind. Striving to reach the pinnacle/the number one position is an admirable trait. Overconfidence and over-aggressiveness will result in the downfall of a business. Finance should be managed with utmost care. . Every retail giant faces some common problems while their empire is in the process of ever-expansion. Inexperienced lower management will affect the smooth functioning of any business. but it should not be with an „at any cost‟ attitude. Instead of huge advertisements. They kept financing through secured and unsecured loans which they could not service when they were cash strapped.Possible solutions · MONETARY CONTROL . Most of the outlets turned out to be quite costly and Subhiksha ended up in huge debt due to rent payment issues with landlords. This would have allowed them to capitalize on the goodwill created by investment of AzimPremji in their business. Subhiksha should have secured sufficient funds through both equity and debt financing · · · · · · · · · . WHERE NEXT . improvement of their outlet conditions and their infrastructure. But recession was never the fault for their collapse. This would help them compete against their rivals in the retail market. They targeted customers in the immediate vicinity of their outlets. CONSOLIDATE – Subhiksha was doing very well until the global recession crisis. Subhiksha had a very good opportunity to raise money from Indian stock market by offering an IPO in 2007 and early 2008 .Should have done more research on the places they opted for opening their outlets. Subramanian was not willing to dilute the company stake. therefore the advertisements did not exactly serve the purpose they were supposed to. This would help them in raising some funds. However. They should have consolidated their business before dwelling on expansion. · GOVERNMENT HELP – The business model of Subhiksha is infact quite effective and they do have a large number of loyal customers. R. Huge investments and cash flows were involved and Subhiksha did not have the right expertise to cope with it.Subhiksha should have slowed down their expansion process and concentrated more on the smooth working of the retail empire. they kept postponing the plans as the founder and director Mr. Only few stores would have been profitable in terms of cash flows. PULLING THE BREAKS . Subhiksha should have concentrated on quality control. IMPROVING RETAIL AND CUSTOMER MANAGEMENT – Subhiksha should introduce healthy shop appeal to customers. The government could help by providing financial assistance for Subhiksha‟s running which inturn is going to benefit the common man of India. Introducing effective measures for tracking employee activities and having stringent rules and regulations within the corporation would have helped them. Early implementation of IT would have helped in the organized running of the business. FRANCHISING OF OUTLETS – Most of the 1600 odd stores could be given out on franchisee basis. in different courts of India.5 years expanding at very aggressive pace. R. The stores started having empty shelves. unlike many other enterprises.5 years growing moderately and last 2. business support system and left with a trashed brand. They lost the trust of investors and credibility in the market. first 7. they ignored the strengthening of their supply chain. · Subhiksha went for an aggressive expansion strategy in later 2006. A proper monitoring system/process should have been in place that would have alerted them about draining working capital. Though the company did not declare bankruptcy. it‟s surrounded by the lawsuits filed. However. Expansion should have been delayed or slowed down the moment company started facing issues with funds. They lost the trust of their employees who were not paid for over 4 months and had their provident fund payments also pending. did not mitigate their risk by maintaining appropriate debt and equity exposure for financing and could not service its mounting debts. . operations lost the track of the goods movement and left customers dissatisfied. Subhiksha. Even though starting in nascent Indian organized retail sector they could not enjoy the benefits for long. That should have been planned along with their expansion strategy. Having lost all the trust. These operations designed to run with small number of stores were not able to fund the suddenly increasing number of stores doubling tripling within months. Failure of the company can mostly be attributed to their own mistakes and to some extent the coinciding of their expansion plans with global economic downturn. replenishment logistics and distribution when they started expansion. They lost their vendors by defaulting on their payments. Investor‟s interest in the company and growing Indian economy had allowed them to have both. Working capital required to run operations should have not been used to fund Subhiksha‟s expansion plans.moderately balancing their risk before going after expansion plans. with closed operations since 2009. Subramanian can do nothing to revive it. · Conclusion Subhiksha operated for around 10 years. http://www.html/1/491.html .insead.P.html ➔ C.intoday.com/2009/09/02212305/Dead-end-for-Subhiksha8217s.Bibliography Notes ➔ Lily Fang & Roger Leeds. http://businesstoday.in/index.thehindubusinessline. 13 June 2009 ➔ Kapil Bajaj.businessworld. http://businesstoday.php?option=com_content&name =print&id=10086 ➔ RasulBailay.intoday. Chandrasekhar &JayatiGhosh.ht m ➔ N.html 10 September 2007 ➔ Mail Today Bureau. “Case Studies: ICICI Ventures and Subhiksha”: page 1http://www. The Hindu Business Line news paper.intoday. Business Today magazines.pdf ➔ NoeimieBisserbe. http://businesstoday. Business World magazines.in/content_mail.in/bt/story/4268/1/pushing-the-acceleratorinstead-of-brakes.in/bt/story/riding-onretail. Subhiksha faces nationwide attacks. May 01.php/Telecom/The-Strategist.html. Business Today magazines. Riding on Retail. 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The Strategist. 13 March 09 http://economictimes.edu/facultyresearch/faculty/personal/lfang/cv/documents/Subhiksha.in/bt/story/7943/1/purveyor-of-retail-prosperity.com/news/news-by-industry/services/retailing/banksmay-give-subhiksha-a-helping-hand/articleshow/4340903.com/2009/09/02212305/Dead-end-for-Subhiksha8217s. 09 Feb 2009 http://store.cms Mail Today Bureau.php/Telecom/The-Strategist.intoday. “Case Studies: ICICI Ventures and Subhiksha”: page 1http://www.cms Chandra Ranganathan.html Subhiksha's Story Underlines Retail Challenge. 03 February 2009.htm N. http://businesstoday. Rediff Articles. 05 February.indiatimes. Dead end for Subhiksha‟s debt restructuring plan http://www.in/bt/story/4268/1/pushing-the-accelerator-instead-ofbrakes. Business World magazines.References Lily Fang & Roger Leeds. Business Today magazines.in/content_mail. http://businesstoday.com/cms/print. Business Monitor International.livemint. 2007 http://www. http://businesstoday. 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