Failure of Subhiksha

Outline
 Retail Stores
 Types of Retail Formats in India
 Complexities in Retailing
 About Subhiksha
 Retailing scenario in India
 Retail format of Subhiksha
 About Subhiksha (Vision, Mission, Internal Analysis, Fund Raising)
 Segmentation, Targeting & Positioning
 Promotion, Distribution, Pricing & Competitors
 Decline of Subhiksha
 Reasons of Decline
 Revival Strategies of Subhiksha
 Recommended Revival Strategies for Subhiksha
What are Retail Stores?
Types of Retail Formats in India

 Mom & Pop Stores (Kirana Stores)

 Departmental Stores (Westside, Lifestyle)
 Category Killers (Best Buy, E-Zone)
 Malls (Inorbit, Ansal Plaza)
 Discount Stores (Primus Retail)
 Supermarkets (Haiko)
 Street Vendors (Hawkers)
 Hypermarkets (Reliance Fresh, Big Bazar)
 Kiosks (CCD Express)
Complexity of Indian Retail Market

 1997 – Retail Market was non-existant

 Organized retail accounted for Rs 55000
crores in 2006($12.4 billion)
 It is only 4.6% of total Indian retail value($270
billion)
 Retail in India is expected to grow at a rapid
rate of 37% in 2012 and 45% in 2015
 In 2010, 60% of the retail value ($270 billion)
was dominated by food & grocery
 Retail Stores Scenario in India
1000
No. Of Outlets
900
Country Wide
800
700 2004
600 2005
500
2006
400 0, 0, 22, 325
0 , 0, 140, 250 2007
300
200 22, 35, 60, 105 94, 46, 55, 70
100
0142, 150, 450,
Subhiksha Reliance Food Bazaar Food World Spencer's
1000 Fresh Daily
Subhiksha….
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 , as guided Subhiksha to deliver savings to
all consumers on each & every item that they need in
their daily lives, 365 days a year without any
compromise on the quality of goods purchased”
About Subhiksha

 Subhiksha was started by R. Subramaniam, an IIM

A & IIT Chennai alumnus in 1997
 Subhiksha in Sanskrit means (prosperity)“the
giver of all good things in life”
  Theme - Why pay more when you can get it for
less at Subhiksha?
 Discount store at prices lower than other retail
outlets
 500 outlets in early 2007
 Set up 1,000 sq ft shops all across the city
About Subhiksha – Product Portfolio

 Fruits
 Vegetables
 Grocery
 Medicines
 Mobiles
Retail Format of Subhiksha

 Discount Store
 Multiple Products
 Small Store format
 Service Oriented
 Residential Locations
 Availing Branded Products
Retail Strategy – 2C’s

1. Criticality of cost
2. Convenience of Buying

 No Frills Store
 EDLP Strategy
 Off the main roads to take advantage of low
cost
 Catchment area of approx 2 kms
 Local low overhead front-end of Kirana stores
with efficient supply chain of a large retailer
Internal Analysis

 Establish itself as a neighborhood store

 Everyday low price system
 Wanted to attain greater penetration in all
markets
 Lease rental system for stores
 Centralized purchasing
Internal Analysis

 Subhiksham Card
 Marketing Communication
 Supply Chain and Inventory
turnover efficiency
 Home Delivery System
 Use of IT
 Online Retail System
Success Timeline of Subhiksha

 1997 - 1st grocery Store in Chennai

 2000 - 50 stores in Chennai
 2000 June - ICICI Venture 10% stake for 15 Cr
 2001 - Increased Stake to 23%
 2002 - 120 Stores across Tamil Nadu
 2003 - Azim Premji 10% stake for 230 Cr
 2006 - 500 Stores across the country
 2007 - 1000 Stores Across the country
Failure Timeline of Subhiksha

 2007 - 350 Crore IPO

 2008 April - Enter into Wholesale Market
 2008 April - Un-mindful Expansion
 2008 July - Market Falls
 2008 Oct - Operating Difficulties
 2009 - Major Financial Crisis
 2009 March - Shut Down Operations
Fund Raising

 In 2000 ICICI Venture invested in Subhiksha with

10% stake at Rs15 Cr & raised stake to 23 % by
2004
 Subhiksha also raised a 15 Cr debt from the
market
 2003 - Azim Premji took 10% stake from ICICI for
Rs230 Cr
 2004 – 2007 equity of Rs160 Cr, debt of Rs. 345 Cr
& bridge loan of Rs.125 cr
 2008- raised debt capital of Rs.600 Cr from Enam
Securities Ltd, ICICI Ltd & Kotak Mahindra Bank
Segmentation
 Segmentation was done on
the basis of geography
initially
 Opened stores in South India
initially , later expanded
elsewhere
 Later on, was done on the
basis of age groups
 Different product portfolios
were targeted for different
market segments
Target Market

 Expanding middle & upper classes has played a

big role in the expansion of existing modern
format stores & entry of new ones
 Attract not the top end customer but the aam
aadmi
 Target Market for different products:
 Grocery & Vegetables – Common man & specifically
Housewives
 Mobile – Youth
 Medicines – Old Age People
Positioning

 Low prices
 Consumer Savings
 Consumer Trust
 One Stop Shop
 Multiple products under one store
 Store designed with Indian touch
 Location Convenience
 Privilege to loyal customers
 Indian Management
Promotion & Advertising

 TV Advertisements
 Price Challenge
Campaign
 Hoardings
 Celebrities for
promotion
 EDLP approach
 “Subhiksham” Card
Pricing Strategy

 EDLP – Everyday Low

Pricing Approach
 Prices below the MRP

Product Subhiksha MRP

Rice 5 kg Rs.102 Rs.119
Britannia Rs.21 Rs.24
Marigold 400
gm
Sugar 1 kg Rs.15 Rs.17
Distribution Network
 Distribution Channels helps in the ‘place’
aspect of the marketing mix
 It provides place, time & possession
utility to the consumers
 Carpet Bombing Model
 Cluster of stores in close proximity
 10 stores in 1998 to 1000 stores in 2008
 Stores with one intermediary – Retailers
Competitors
Brand Name Outlet Type Level of Operation
Spencer’s Supermarkets National
Reliance Fresh Supermarkets National
Food Bazar Supermarkets National
More Supermarkets National
Food World Supermarkets South India
Niligiri’s Supermarkets South India
Fabmall Supermarkets South India
Spar Supermarkets South India
Founder Speaks….

“We are a golden egg laying duck, we are in

trouble. We need their (bankers and lenders)
support and upon getting it we will restart
operations and repay all debt. It is not easy,
but we have to make it happen.”
Employees get Agitated
Why the decline?
 Un-mindful expansion spree across the country
 Subhiksha was thinking of going for an IPO in 2007
but shelved it in view of “uncertain market conditions”
 No consolidation- Tried to be first in every town
 Poor inventory management
 Private Labels
 Operations came to a standstill due to non- payment
of salaries, huge debt burden & arrears to suppliers
 Major competition by stores like Big Bazar, Spencer’s
etc
Why the decline?

 Spending the debt raised money

 Lack of Transparency
 Liquidity crisis
 Poor Management
 Government Intervention
 Lack of strong HR policies & Staff
 Wrong Assumption that telecom sector is
sound to invest
 Over Confidence & Aggressiveness
Subhiksha’s Revival Strategies

 March 2009- Undergone a corporate debt

restructuring exercise, with lenders reviewing its
books
 Subiksha’s subsidiary Cash and Carry Proposed
scheme
 50% waiver and amalgamation with Blue Green
Construction & Investments
 Post merger promised to pump in 150cr
 Reopened as Subhiksha Rice Wholesaler
 3 stores opened in Chennai
Why these strategies failed…

 Madras high Court and creditors against the

reopening
 Petition filed by Kotak Mahindra & ICICI
 Debt burden
 Tried to re open to fast to soon without
clearing dues
 Chose debt over equity for funding
 Liquidity crunch
 Inadequate I.T support
Recommended Survival Strategies
 Specializations in products
 Improved stores
 Better Store Design & Interiors
 Better management with suppliers
 Raise funds in a systematic manner
 Shut stores with low sales
 Focus on quality instead of quantity
 Invest more in R&D
 Study target market well
 Carry sales check on regular intervals
 Improve quality & after Sales service
 Choosing Equity over Debt to be risk free
Recommended Survival Strategies

 New Store Format

 Open stores in malls or shopping complexes to
increase footfall
 Diversify in products which are profitable
 Products for which overall industry performance is
good
 Products which are related to the current product
basket
 Customer Relationship Management
 Better working conditions for employees
THANK YOU!