Case Study of Subhiksha
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the study about the Subhiksha failur in his business.
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Case Study of Subhiksha
- 1. MSH 1109 – ENTREPRENEURSHIP & SMALL BUSINESS MANAGEMENT
- 2. PRESENTED BY :- IMBE/4502/12 – NAVSHEEN IMBE/4510/12 – ANUNAY ANAND. Assign. On :-
- 3. The company 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
- 4. 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.”
- 5. Open store for every two kilometer in Chennai. 550 store by 2009 in Delhi. Plan to expand in other part of India.
- 6. Focused on the lower & upper middle class Offer a better ambience than typical general store Prices are 8% less than the MRP Inform customers about promotional offers Store keepers help buyers in purchase decision. Multiple Products Residential Locations Availing branded products
- 8. In March 1997 opening of the first retail store in Chennai, with $ 1 million initial investment. March 1999 ‐ 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
- 9. 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
- 10. 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
- 11. TV Advertisements Price Challenge Campaign Hoardings Celebrities for promotion EDLP approach “Subhiksha” Card
- 12. EDLP – Everyday Low Pricing Approach Prices below the MRP Product Subhiksha MRP Rice 5 kg Rs.102 Rs.119 Britannia Marigold 400 gm Rs.21 Rs.24 Sugar 1 kg Rs.15 Rs.17
- 13. Brand Name Outlet Type Level of Operation Spencer’s Supermarkets National Reliance Fresh Supermarkets National Food Bazaar Supermarkets National More Supermarkets National Food World Supermarkets South India Niligiri’s Supermarkets South India Fabmall Supermarkets South India Spar Supermarkets South India
- 14. 0 100 200 300 400 500 600 700 800 900 1000 Subhiksha Reliance Fresh Food Bazaar Food World Spencer's Daily 2004 142 0 23 94 0 2005 150 0 37 46 0 2006 450 22 63 55 140 2007 1000 325 110 70 250 2004 2005 2006 2007
- 16. Un-mindful expansion spree across the country The company 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 Bazaar, Spencer’s etc
- 17. Spending the debt raised money Lack of Transparency Liquidity crisis Poor Management Government Intervention Lack of HR policies & staff Wrong Assumption that telecom sector is sound to invest Over Confidence & Aggressiveness
- 18. March 2009- Undergone a corporate debt restructuring exercise, with lenders reviewing its books Subhiksha’s subsidiary Cash and Carry proposed scheme 50% waiver and amalgamation with Blue Green Construction & Investments Reopened as Subhiksha Rice Wholesaler
- 19. Madras high Court and creditors against the reopening Petition filed by Kotak Mahindra & ICICI Ltd. Debt burden Tried to re open to fast to soon without clearing dues Chose debt over equity for funding Liquidity crunch
- 20. Strengths Bulk purchase. Lesser price than other Targeted middle class people Strong supply chain management Weakness Lake of adequate resources Less attractive shop Lack of employees Threats Wall mart is coming Big bazaar expanding its outlets Opportunity Planning in semi metro city. Aimed to open 550 new shop by 2009
- 21. 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
- 22. Improve quality & after Sales service Choosing Equity over Debt to be risk free 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
- 23. Never be too aggressive with your expansion and growth plans unless you have enough finances. Know your competitors inside out. Understand your Strengths and Weaknesses and use them efficiently to gain and learn. Debt Capital is the most risky source of finance.
- 25. “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.”
Editor's Notes
- It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit) came to his mind. Organised retail, in India, was non-existent. Subramanian, an IIT Madras and IIM Ahmedabad alumnus, was then into the financial services business of asset securitisation. Research revealed that grocery was one of the largest categories of spending for the average customer, that they were extremely price sensitive on groceries and that discount stores were the largest growing format.
- Subhiksha's target clientele is the middle class: households with incomes in the 50-90 percentile range. It believed that top 10 per cent don't spend very much more on food and groceries than those in the income categories below them, nor do they account for large numbers. But they do expect more in terms of ambience, variety and service. Catering to this group, then, isn't really worthwhile for Subhiksha. Instead, with functional outlets no bigger than 1,200-1,500 sq ft - and no frills like air-conditioning - Subhiksha set itself up in direct competition with the kirana shops. They focused a lot on cost cutting
- Miti Introduction of Subhiksham card: They introduced Subhiksham card which they used to give ti their customers. The customers can use this card to get a certain amount of discount at their purchases.
- Discount Model: It was based on Wal-Mart’s Every Day Low Price Model (EDLP). They offered a discount of 10% apart from loyalty discounts and special promotions.
- At a time when the market is rife with speculation as to what went wrong in the case of retail chain Subhiksha, experts feel the prime reason could be a challenging case of small-format grocery retailing in India. But that is only one of the many conjectures. Others reasons include lack of transparency, liquidity crisis and poor management, among others. GOVT INTERVENTION- CANCELLED LICENSE OF THREE OF ITS VENDORS COZ IT DID NOT KEEP UP WITH THE HEALTH AND HYGIENE NORMS PRESCRIBED Rapid expansion without consolidation and focus: Subhiksha kept on expanding its stores without focusing on consolidating the growth. It eyed on having as many stores in the country as possible. In the process it ignored to manage its stores efficiently. Cannibalization of its own sales: Some of its stores were located within 500 km range of its own store. Thus there happened an intersection of the target customers hence causing cannibalization of its own revenues and profits. High debt: It planned its expansion by using a high amount of debt. A high financial leverage induced very high financial risk to it Incorrect format: Subhiksha was neither a supermarket nor it was a local kirana store. The special format requires a special plan that Subhiksha was not able to implement. As a result it faced an intense competition with both the big players as well as from the local grocery shops. Inefficient management: Its focus was on increasing its turnover and they did not paid attention over their management and service. The staff service was very poor which proved to be a horrible experience for their customers Improper diversification: Subhiksha ventured into various areas like grocery, pharmacy, mobile and accessories. All of them require a different level of expertise lacking which it was anot able to sustain. It did not create growth platform for its expansion. Inefficient supply chain management: Its downstream supply chain was not integrated. The bargaining power with its suppliers was very low. Its business model was based on getting discounts at bulk buying which is not at all sustainable. Poor inventory management: It used to keep an inventory of about 15 days against the industry average of around 35 days. The high inventory turnover and low fill rate resulted into a high stock out thereby a high amount of opportunity loss in revenues Economic slowdown: In 2008 it was already under a huge debt (around 700 crores). It owed to the suppliers as well as to its employees. It planned to raise further debt to repay its current debts but due to advent of the slowdown in the economy it was unable to raise the much needed debt. Low margin: To offer its customer at a lower price it compromised on a very low margin. It focused on getting profit by volume rather than profit by price. But it could not get the required amount of volume transactions. Lack of HR policy: Due to the absence of proper HR policies it was able to neither recruit nor retain the talented staff. It did not give training to its staff that resulted into the degraded service offered by its employees.