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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

Subhiksha Reliance Fresh

Food Bazaar

Food World Spencer's Daily

0

100

200

300

400

500

600

700

800

900

1000

2004

2005

2006

2007

142, 150, 450, 1000

0, 0, 22, 325

94, 46, 55, 70

0 , 0, 140, 250

22, 35, 60, 105

No. Of Outlets Country Wide

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 cost2. 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 Marigold 400 gm

Rs.21 Rs.24

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!