1. SUBHIKSHA-A saga of ups and downs 5 September 2010 1 Subhiksha – a saga of ups and down

2. 5 September 2010 Subhiksha – a saga of ups and down 2 HUM 14 ADITYA KHEITAN BBA 2nd year LOVELY PROFESSIONAL UNIVERSITY

3. Content –subhiksha –a saga of ups and down 1. WHAT IS SUBHIKSHA? 2. Entering into the retail scenario 10 year ago 3. First store- Establish in chennai 4. The Expansion of the stores 5. Cut Price Strategy 6. The Triumphant Journey Of Subhiksha 7. Risk In Retailing And Expansion 8. Turn Down at Subhiksha 9. Raising new competitors 5 September 2010 3 Subhiksha – a saga of ups and down

4. WHAT IS SUBHIKSHA? A literal translation of the Word subhiksha means ‘one that gives all good things in life’ This vision was started in India about 10 year ago by Mr. R. Subramaniam .The journey from a single small store in chennai to about 760 stores in 10 years has been phenomenal growth for the company in India . This made subhiksha India’s largest chain of retail store (in terms of number of stores) 5 September 2010 4 Subhiksha – a saga of ups and down

5. Entering into the retail scenario 10 year ago The history of subhiksha dates back to year 1997 , when Mr. R Subramanian thought of idea of entering into retail industry in India . Back then in Indian Retail industry was almost a nonexistent one .India characterized based by small mon and pop retail stores known as “KIRANA” stores . Subhiksha felt that as India was growing and so was a middle class .They realize that if they have to volumes then the top end consumer will not be the target ,and so they chose to focus on the growing middle class income consumer s generally referred to as the “aamadmi” 5 September 2010 5 Subhiksha – a saga of ups and down

6. Business Vision & Mission Vision‐ “To emerge as the largest retailer in the 'Food Grocery Pharmacy' segment in all the geographical regions we operate from”. Mission‐ To deliver consistently better value to Indian consumers, has guided Subhiksha to deliver savings to all consumers on each and every item that they need in their daily lives, 365 days a year without any compromise on quality of goods purchased. The logo of Subhiksha portrays that it’s the right of an average Indian to save money and its Subhiksha that helps him in achieving this. 5 September 2010 6 Subhiksha – a saga of ups and down

7. First store- Establish in chennai 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 to pay more when you can Get it for less at subhiksha.” This was about a 1500 sq feet big store . The size of the storewas relatively bigger then the size of a local mom and pop store in India But was smaller than that of the major Organize players in the retail market like Big bazar etc 5 September 2010 7 Subhiksha – a saga of ups and down

8. Product profile Supermarket: Includes quality groceries, packaged foods, cosmetics and toiletries, household provisions, etc Pharmacy: Subhiksha stores generally have a in store pharmacy which stores mostly basic medicines. All medicines are made available to consumers at a flat 10% discount Telecom: Subhiksha is recently forayed into mobile retailer business and offers handsets, recharge cards and accessories from all leading cell phone manufacturers’ at lower prices 5 September 2010 8 Subhiksha – a saga of ups and down

9. Fruits and Vegetables: Includes fresh fruits and vegetables sourced directly from farms on city outskirts by Subhiksha and made available to the consumers at very reasonable prices. Consumers get fresh produce at best prices 5 September 2010 9 Subhiksha – a saga of ups and down

10. The expansion: In March 1997 Opening of the first retail store in Chennai, with 5 lacs Initial investment. March 99‐14 stores in Chennai June 2000‐ 50 stores in Chennai, ICICI ventures joins Subhiksha June 2002‐ 120 stores in whole of Tamil Nadu June 2006‐420 Stores in other big states in India namely Gujarat, Delhi, Mumbai, Andhra Pradesh and Karnataka. Feb 2007‐500 stores across country Dec 2007‐ 1000 stores across India October 2008‐ 1600 stores across India 5 September 2010 10 Subhiksha – a saga of ups and down

11. The People: Chairman ‐R Subramanian (IIM‐A Alumnus) 2) Ms.RamaBijapurkar (IIM‐A Alumnus),Board of Director 3) Mr. KannanSrinivasan (a professor of marketing at Carnegie Mellon University’s Tepper School of Business),Board of Director 4) Mr. S.B. Mathur, former LIC Chairman, 5) Ms. RenukaRamnath, Managing Director of ICICI Venture 6) Ms. Rajeev Bakshi, Deputy Managing Director of ICICI Venture and a former CEO of PepsiCo India. 7) Mr. AjemPremij as Board member 5 September 2010 11 Subhiksha – a saga of ups and down

12. The Retail Strategy: Subhiksha focuses on two factors for its model. These are called the two C's: 1. Criticality of Cost. 2. Convenience of Buying 5 September 2010 12 Subhiksha – a saga of ups and down

13. The following points will make it much clearer as to how Subhiksha is integrating all that it has to achieve the above 2 C’s:- 1) Opening a chain of no‐frills stores‐no air‐conditioning, no fancy lighting, and no touch and‐feel experience (customers have to ask for products at Subhiksha stores)‐was a deliberate strategy. 2)Their approach combines the local low‐overhead front‐end of Indian kirana shops with the efficient supply chain of a large retailer. 5 September 2010 13 Subhiksha – a saga of ups and down

14. 3) Shops are located not on the main road, but just off it, to take advantage of vastly lower rentals. 4) The catchment area of customers is rarely beyond a two‐km radius, since its customers usually come on two‐wheelers or on foot. 5 September 2010 14 Subhiksha – a saga of ups and down

15. 5) Their USP is a Walmart‐style everyday‐low‐price (5‐10% less than MRP and/or their nearest competitor), enabled by combining centralized buying and an efficient supply chain, with their simple (and inexpensive) store format. 6) Subhiksha follow an Every Day Low Price Scheme (ELDP) where they offer the lowest prices every single day of the year on almost everything that is sold from the stores. 5 September 2010 15 Subhiksha – a saga of ups and down

16. The Triumphant Journey Of Subhiksha Until little over three years ago, Subhiksha was only a local player with 150 stores (sep 2006) operating mainly in tamilnadu . The retailer begain growing rapidly out side the state ,soon after infusion of private equity capital by I-venture , the venture capital arm ICICI . I-venture took 24% stake in the company’s equity which until then was primarily held by Subramanian and his associates . Riding on the back of rapid expansion , Subhiksha tern over grow from Rs330 crore to Rs4,300 crore in year 2000-2007 And looked for rising its tern over to Rs 4,300 from 2,300 stores 5 September 2010 16 Subhiksha – a saga of ups and down

17. 5 September 2010 Subhiksha – a saga of ups and down 17 The Triumphant Journey Of Subhiksha

18. “However, as it happens with many growth stories , the retailer could not keep pace with them its growth and got into liquidity trape as in the hope increasing its valuation ,it kept posting posting infusion of equity funds. Same case is with Subhiksha” 5 September 2010 Subhiksha – a saga of ups and down 18

19. Now, we have the case of Subhiksha which is battling for survival. Subhiksha which was started with 1 store in 1999 has grown to more than 1,500 stores by the end of 2008-9. Its founder R Subramanian is a IIT Chennai and IIM Ahmadabad alumnus. That the best combination of pedigree from India there can every be. Subhiksha has ICICI Ventures and Wipro’s Aziz Premji as its investors. Everything seems to be in the right place. What could possible go wrong? 5 September 2010 Subhiksha – a saga of ups and down 19

20. Turn Down at Subhiksha The management has committed some eventual mistakes which has led the company towards the downward position. 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 equality during September -2008 but the things had gone too far before they woke up .The global markets were started collapsing and there were no possible chances of raising Funds 5 September 2010 Subhiksha – a saga of ups and down 20

21. Consequently , in the following month (October,2008) the company ran out of enough funds to run the organization. Thereafter ,Subhiksha has been continuously besieged by a set of problems from all side . 1) Over expenditure on Advertising Subhiksha Trading Services has come under fire from television channels for not clearing advertising dues that run around Rs 8 crore. 5 September 2010 Subhiksha – a saga of ups and down 21

22. 2) Over expenditure on Wages and Rent:- Subhiksha is belived to owe Rs 35 crore against goods , RS 8 crore against wages, and Rs20 crore against lease rents . The company, according to the report ,is also carrying a debt of Rs700 crore at an average interest cost of 12 % annum 5 September 2010 Subhiksha – a saga of ups and down 22

23. 3) Expansion of Stores without adequate system control and IT Support: Expansion of stores without adequate system control and IT support . That’s why there was a huge Audit and adnormal losses in the system .And when they have started implement ion of SAP the time has gone for survival of Subhiksha 5 September 2010 Subhiksha – a saga of ups and down 23

24. 4) Government Intervention : Maharashtra FDA, the state government’s regulatory authority for food and drugs, had asked Subhiksha to suspend operations of its warehouses at Bhiwandi (Mumbai) for 20 days as well as had cancelled licences of three of its vendors, charging that they had failed to maintenance health and hygiene norms as prescribed by the regulator. 5 September 2010 Subhiksha – a saga of ups and down 24

25. 5. Supplier Bargaining Power : Many wholesale suppliers in Azadpursubzimandi, or vegetables market, have stopped supplying fruits and vegetables to Subhiksha’s outlets in the National Capital Region (NCR) surrounding the national capital. This comes in the wake of the company holding up payments for two to six months against normal credit period of one month. 5 September 2010 Subhiksha – a saga of ups and down 25

26. 6) Lack of strong HR policy and Staff : Due to this Shubiksha was not able to retain the talent which he initially bring into Junior, Middle and high level management. Whatever was remaining with it is all family bound with no commitment policy. 7) Huge Rental and Lease Bills : They were paying huge rentals for these stores, which was a huge drain on the company's finances.. There are huge frauds while entering in to rental agreements by their own management people. There was no proper check and control on this cost though this is a very crucial part to defeat competitors and to gain profitability in future. This, coupled with less than‐ expected footfalls, drove the operational costs to unsustainable levels. 5 September 2010 Subhiksha – a saga of ups and down 26

27. 8. The wrong assumption that telecom segment is a sound, and profit making segment. The CEO never looked in to system losses arise from telecom. Subhiksha stores always sell handsets at below DP while its benchmarking is to match DP. No control on inventory of mobile accessories and there stock value and were unable to circulate the working capital. 5 September 2010 Subhiksha – a saga of ups and down 27

28. 9) Strong Competition : Thus sinking into unrepaired conditions Subhiksha has to compete with its high profile competitors like RPG, Reliance retail and Future group etc. Reliance Retail has set up 700‐odd stores in the past two years, almost at the rate of one store per day, Future Group has begun opening a new no‐frills discount retail chain called KB’s Fair Price Stores, a format that is similar in concept to Subhiksha stores. Reliance’s food and grocery format Reliance Fresh on the other hand is high‐end in terms of display, ambiance and size. 5 September 2010 Subhiksha – a saga of ups and down 28

29. 10) Over confidence and Aggressiveness: The raise of the company thus gradually started sinking down step by step and now stands on the verge of collapse. The management frankly admits that their over confidence and aggressiveness are the main reasons for their loss. They should have gone for an IPO when the things were well and good to prevent such downfall. If they had responded in right time they wouldn’t have been put through such bad phases 5 September 2010 Subhiksha – a saga of ups and down 29

30. Meanwhile, the company has closed around 90 grocery stores across the country over the last one month or so. The company has also significantly reduced the inventory levels in its mobile retail arm ‐Subhiksha Mobile stores. The company had also closed the super markets in most of the places and is on the verge of bankruptcy. 5 September 2010 Subhiksha – a saga of ups and down 30

31. 5 September 2010 Subhiksha – a saga of ups and down 31 By - HUM 14