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Retail Strategic Management Project On SUBHIKSHA.

Submitted To: Prof. R.J. Masilamani

Submitted by: Group 1 Aayushi Rastogi Adeeb Mehmood Deepanshu Gupta Mohd. Aslam Sakshi Chaudhary Shivam Narula

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Table of Contents

The Indian Retail Industry Scenario Based on a report published by the Indian Retail Forum, the Organized Retail accounted for Rs 55,000 crore (about $12.4 billion) in 2006 and still accounted for just about 4.6 per cent of the total Indian Retail value of Rs 12,00,000 crore ($270 billion) in 2006. It means the Indian Retail market's biggest portion is in unorganised retail unlike the USA where everything is mainly organised retailing. In India, however, organised retail is expected to grow at a rapid rate of about 37 per cent and 42 per cent respectively in 2007 and 2008. Of Retail Value's last $270 billion years , the major portion was dominated by Food and Grocery Retail, which accounted for about 60 per cent of the value (about $160 billion). However, more than 99 percent of the market in food and grocery retail is dominated by the Kirana Stores (Mom and Pop Stores) neighbourhood. The organised retail is expected to add more than Rs 2.00.000 crore.

Subhiksha Company Introduction: With 1600 outlets selling groceries, fruits , vegetables, medicines and mobile phones, Subhiksha, which means prosperity in Sanskrit was one of the largest retail value chain in India (in terms of no. of stores).

Entering into the Retail Scenario 10 years ago: Subhiksha's history dates back to 1997, when Mr. R. Subramanian was thinking about the idea of entering India's retail industry. Retail industry was practically non-existent in India back then. India was essentially characterised by small mom and pop retail stores also known as "Kirana" stores in the local language.

Subhiksha Store.

Kirana Local Store

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.

Product Portfolios: Supermarket: Includes quality groceries, packaged foods, cosmetics and toiletries, household provisions, etc

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 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

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

The People: 1. Chairman ‐R Subramanian (IIM‐A Alumnus) 2. Ms.Rama Bijapurkar (IIM ‐A Alumnus),Board of Director 3. Mr. Kannan Srinivasan (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. Renuka Ramnath, Managing Director of ICICI Venture 6. Ms. Rajeev Bakshi, Deputy Managing Director of ICICI Venture and a former CEO of PepsiCo India. 7. Mr. Ajem Premij as Board member

The Positioning: Subhiksha made an extensive research on customer behavior and found that offering the branded goods at a lower price than their competitors could make them stand in the competitive retail industry.  Low Prices :Subhiksha Positioned itself as Value Retail Chain /Discount Retail Chain with theme as “why pay more when you can get for less”  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.  Savings : focuses on the concept of constantly sustainable low pricing so that regular customers see the same low prices month after month (below MRP) and are able to buy with the assurance that they stand to save on any given basket of household goods on any day.

The Retail Strategy: Subhiksha focuses on two factors for its model. These are called the two C's: 1. 2.

Criticality of Cost. Convenience of Buying

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:  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.  Their approach combines the local low ‐overhead front ‐end of Indian kirana shops with the efficient supply chain of a large retailer.  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.  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.

 Shops are located not on the main road, but just off it, to take advantage of vastly lower rentals.  The catchment area of customers is rarely beyond a two ‐km radius, since its customers usually come on two ‐wheelers or on foot.

Internal Analysis: Subhiksha - The neighborhood store : With establishing a vast network of relatively small stores it wants to establish itself as a neighborhood store where people can do shopping on a daily basis thus providing both convenience and cost benefit to its consumers. Small Store/ Cost saving: The belief of Subhiksha is to set up non – air conditioned small neighborhood stores measuring around 2000 sq ft. It is because of this that Subhiksha is able to compete with the big retail stores on the regular discounts and also compete with the traditional “father and son” or “mom and pop” stores on the close proximity to the customers.

Everyday low price system (ELDP) : In Subhiksha the discounts are not restricted to specific days and specific items as prevalent in other retail formats. 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. Combination of Discount model and Carpet Bombing model: Apart from being a good discount store another aim of Subhiksha is to be in close proximity to its consumers and aim for a greater penetration in all markets where they operate. This strategy being followed by Subhiksha is driven by the fact that it is not a destination store but Subhiksha is a frequent shopping location for the daily household needs of the consumers. Lower Infrastructure cost: Subhiksha has small stores which do not allow the customers to browse and shop like the other retailers in the market. Subhiksha feels that for buying grocery or cosmetics, the customers look for a quick purchase rather than the shopping experience. It is a no frill store. Subhiksha has positioned itself as a store for the "Value Conscious" customer. It is a functional and a transaction oriented shop Lease rental system for stores:

This gives Subhiksha a greater control on the operations given that they will not have to incur additional expenses on the franchise and this system makes them able to keep costs low. Centralized Purchasing: Another thing what Subhiksha is doing for cost reduction is of Centralized purchasing for a large number of stores. This gives them a greater bargaining power and which helps them in getting greater discounts from the manufacturers and which they pass on to the consumers . Supply Chain and Inventory turnover efficiency: This was implemented in Subhiksha to make its model more efficient in inventory and supply chain management and offering low prices to the consumers. Marketing Communication: Subhiksha focused on the use of Television commercials, Press, Radio and Outdoor activities for communicating the marketing message of the company. Introduction of Subhiksham Card: An integral use of IT in Subhiksha is the introduction of Subhiksham cards for its consumers. These cards are issued to customers of Subhiksha who get additional discount every time they swipe the card at Subhiksha after making a purchase. Implementation of Home delivery System: Introduction of Subhiksham card has also made way for better services to customers in the form of Home Delivery. Establishment of an Online retail System: Subhiksha had entered into the field of online retailing back in the year 1999. Use of Information Technology: Use of Bar code system , Development of its own intelligence system , Wireless retail solution and Implementation of SAP contributed towards success.

Competitive Analysis:

Floor plans

Reasons for failure of Subhiksha: The management has committed some eventual mistakes which have 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 equity during last September but the things had gone too far before they woke up. The global markets were stated collapsing and there were no possible chances of raising funds. . Consequently, in the 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 sides. 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. 2.Over expenditure on Wages and Rent : Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against wages, and Rs 20 crore against lease rents. The company, according to the report, is also carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per annum. 3.Expansion of Stores without adequate system control and IT Support: That’s why there was a huge Audit and abnormal losses in the system. And when they have started implement ion of SAP the time has gone for survival of Subhiksha. 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.Supplier Bargaining Power : Many wholesale suppliers in Azadpur subzi mandi, 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. 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. 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. 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. 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.

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 supermarkets in most of the places and is on the verge of bankruptcy.

Recommendations 1) Subhiksha could have stabilised and consolidated instead of rapidly expanding using debt on a small equity base. Small stores had problems in scaling up range and quantum of goods. Upgradation of stores was experimented, but it was difficult with a small budget, and beset with problems of varying and small store sizes, shapes of stores and layouts. Product-range of stores was customized to meet ethnic needs. Competition was getting intense in the organised retail sector with the margins becoming thinner. Store-wise viability should have been examined when spreading to national level as issues of supply chain, distribution and logistics, customer needs and personnel management are crucial and differ significantly from operating at regional level. 2) Specialisation in Core Products 3) Improve store space management. Better store design and interiors. 4) Strengthen relationship with suppliers. Better management with suppliers for long term stability. 5) Subhiksha should have raised funds in a systematic manner. 6) Subhiksha should have shut stores with low sales and focused on quality instead of quantity. Carry sales check on regular basis. 7) There was need to carry a better study of the target market and invest more in Research and Development . 8) There was a need to diversify in products which were profitable. Products for which the overall performance was good and were related to the current product basket. 9) Better customer relationship management and employee working conditions were needed. 10) Sales check on regular intervals and improving quality of after sales services would work in its advantage....