95061501 subhiksha-case-study

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Homework Help https://www.homeworkping.com/ Research Paper help https://www.homeworkping.com/ Online Tutoring https://www.homeworkping.com/ click here for freelancing tutoring sites Questions and Answers On Subhiksha Retail Chain case study Introduction Subhiksha was an Indian retail chain with 1600 outlets selling groceries, fruits, vegetables, medicines and mobile phones. It began operations in 1997, and was closed down in 2009 owing to financial mismanagement and a severe cash crunch. Early Days

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Subhiksha Retail Chain case study

Introduction

Subhiksha was an Indian retail chain with 1600 outlets selling groceries, fruits, vegetables, medicines and mobile phones. It began operations in 1997, and was closed down in 2009 owing to financial mismanagement and a severe cash crunch.

Early Days

The name Subhiksha means prosperity in Sanskrit. It opened its first store in Thiruvanmiyur in Chennai in March, 1997 with an investment of about Rs. 50 Lakh.[1]. It was started and managed by R Subramaniam, an IIM Ahmedabad alumnus. Subhiksha planned to open 1000 outlets by December 2008.[2] Subramanian also planned to invest Rs.500 crore to increase the number of outlets to 2000 across the country by 2009.

Closing Down

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Trouble for Subhiksha began in late 2008 when the company ran out of cash, bringing its operations to a standstill. Subhiksha faced severe financial crisis pertaining to liquidity. The cash shortage eventually resulted in Subhiksha closing its nationwide network of 1,600 supermarket stores, and defaulting on loans, vendor payments and staff salaries. The overextended chain imploded and all stores across the country were shut down, most likely never to open again. [3][4]

In March 2010, Mr. Azim Premji, a well-known Indian business magnate, who had invested in Subhiksha through his private investment vehicle only a few months prior to its downfall, said that Subhiksha was a retail equivalent of Satyam - India's largest corporate fraud. He said, "There was an overstatement of accounts, fake inventory, fake bills, fake companies that money was transferred to."[

1) Should Subhiksha have differentiated their offering only on cost or anything other factor would have been good?

Ans) The perception of customers had changed because of the price being low, this was always a bad idea, people at subhiksha should have kept themselves in the place of customers before implementing this idea, it was a good idea, but the communication that went wasn’t correct, they should have promoted the idea properly which is another reason for fall of subhiksha, other factors that would have been good would be where subhiksha would advertise themselves on the basis of word of mouth or using more of customer oriented approach to advertise itself, which would have been good. The differentiation could be on the basis of promotions, and also the on the basis of sales promotion activities. Apart from this subhikhsha should have employed sales people who would tell the customers and explain them as to why the price is less. It Focussed on 2 factors for their business model (2C’s)

1. Criticality of cost2. Convenience of buying

What the company is looking for is to provide products at sustainable low prices right at the customer’s doorsteps. This model has been the key building block for the success of Subhiksha in making it the oldest discount chain in the country.

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STRATEGIES ADOPTED:

Cut Price Strategy.

Focused on Lower & Upper middle class Segment

Wal-Mart style every day low price (5-10% less than MRP)

Shops are located not on the main road.

The catchment area of customers.

Informed customers about promotional offers.

2) Can you summaries all the factors that led to the success of subiksha retail store?

Ans)   When R Subramanian became an entrepreneur and started a retail chain called Subhiksha [ Images ], there were not many entrepreneurs in India. In his family too, there were no entrepreneurs.

After obtaining an engineering degree from the Indian Institute of Technology-Madras, he decided to join Indian Institute of Management-Ahmedabad as he was sure about one thing -- that he would not leave India to go abroad.

Ten years after Subhiksha was set up, the retail chain has around 500 outlets all over India which Subramanian wants to double by 2007-end.

In an exclusive interview with Contributing Editor Shobha Warrier, Subhiksha managing director R Subramnian talks about his adventures, the success of his retail chain and also his future plans.

Staying back in India after studying at the IIT

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I was one of the few students who didn't go to the United States for higher studies. Going to the US never fascinated me. I don't know why. I had always been doing unconventional things, so it was kind of offbeat not to go to the US.

I preferred doing something in front of my own people rather than going to a foreign land because this gives you more satisfaction and recognition. And the sense of achievement is far greater than doing the same thing in a far-off land.

Even the US was not the same US in the mid-eighties. Being one among the many workers and researchers there did not fascinate me. India is your country and you will get as much opportunity as anybody else. If you don't do well here, you have only yourself to blame.

The expansion:

Mar 1997:- Opening of the first retail store in Chennai, with 5 lacs Initial investment. Mar1999:-14 stores in Chennai June 2000:-50 stores in Chennai & ICICI venture joins June 2002:-120 stores in whole of Tamil Nadu June 2006:-420 Stores in Gujarat, Delhi, Mumbai, Andhra Pradesh and Karnataka Feb 2007:-500 stores across country Dec 2007:-1000 stores across India Oct 2008:-1600 stores across India.

The 2008-09 Business plan looked robust on paper, where was the investment needed being funded from? The, management decided to go for Rs. 400 Crores equity and Rs. 600 Crores debt. In June 2008 it announced a merger plan with Blue Green Construction Ltd a listed company on the Madras Stock Exchange who had some research background on the CDIT business.

By this time the stock markets had started weakening and everyone assumed that the weak market will owe the Subhiksha valuation by only 10%.In the meanwhile,

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a bridge loan of Rs. 125 Crores was coming up for repayment in September 2008 and there was no sign of equity. The banks were a worried lot, they were finding it difficult to lend. At this point of time, things started going terribly wrong, just when some good offers were coming Subhiksha’s way in September 2008, India woke up to the news announcement of Lehman Brothers collapse and this started a domino effect, all around markets fell off, not only in USA but everywhere.

Suddenly, Subhiksha’s management found that they could not borrow anymore; they just needed Rs. 125 Crores to prevent a collapse. An emergency meeting was called with the stakeholders between September and November 2008, they went on to meet four times in this period but liquidity was tight and investors could do nothing as markets had collapsed. In the absence of funds but with unwarranted zeal to maintain the expansion plan the management diverted working capital to fund.

Consequently, the vendor payments were defaulted, who in turn stopped supplies and the shelves started to run empty. At one point when the Security staff deserted their jobs, over 600 stores were vandalized in November - December 2008. 

3) This case is set in 2004, a few years later Subhiksha went in to trouble and was on the verge of closure? Can you elaborate the reasons why?

Ans) Trouble for Subhiksha began in late 2008 when the company ran out of cash, bringing its operations to a standstill. Subhiksha faced severe financial crisis pertaining to liquidity. The cash shortage eventually resulted in Subhiksha closing its nationwide network of 1,600 supermarket stores, and defaulting on loans, vendor payments and staff salaries. The overextended chain imploded and all stores across the country were shut down, most likely never to open again. [3][4]

In March 2010, Mr. Azim Premji, a well-known Indian business magnate, who had invested in Subhiksha through his private investment vehicle only a few months prior to its downfall, said that Subhiksha was a retail equivalent of Satyam - India's

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largest corporate fraud. He said, "There was an overstatement of accounts, fake inventory, fake bills, fake companies that money was transferred to

1. Subhiksha Trading Services has come under fire from television channels for not clearing advertising dues that run around Rs 8 crore.

2. 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. 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 licenses of three of its vendors, charging that they had failed to maintenance health and hygiene norms as prescribed by the regulator.

5. 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.

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7. 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. 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. 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 up700-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.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 overconfidence 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. Subramanian is confident of reviving the business of his company.

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4) Do you think Retail formats can ever replace Mom and Pop kirana stores in India? If so how?

Ans) In spite of the onslaught of the giant supermarkets, the kirana stores have several unique selling points which ensure that they will continue to rule the Indian retail landscape.  They have the advantage of a low cost structure, location in residential areas and consumer familiarity because of being deep rooted in India for the past few centuries while the large supermarkets need to deal with higher labour costs, maintenance of bigger premises, and taxes. The target group of a Kirana Store is restricted to a particular locality which will continue to visit that store for their daily requirements of local products and small size options to an extent of 10gms which the giant supermarkets do not stock. With the increasing petrol prices and worsening traffic situation, people appreciate a 3000 sq ft store near their house a lot more than the much advertised, famed and jazzier one that boasts of 3 lakh sq ft but requires 2 hours of their travel time and that also through some of the busiest parts of the city.The beauty of India is its diversity and with this diversity comes a huge difference in people’s consumption patterns. If Gujratis like a lot of Ghee in their chapatis the Tamilians would like a lot of sambhar with their idli. The national chains of supermarkets, even with their IT systems have not been able to gauge this. Whereas, a kirana stores know to the dot as to what their customers want and customize their stocks according to the particular location where they are situated.Today, the marketplace is flooded with new products. However, a normal household uses no more than 20 product categories on a regular basis. Customers are normally running short on time and do not have the luxury to spend time traversing the length, width and altitude of the store if all they want is bread, milk, Atta, biscuits and tooth paste. Customers are more aware and can easily figure out that the supermarkets push their own brands compared to the national brands because they make more money over there. The common thought that runs through their minds is “What is the harm in putting them close to the entrance and make my life easier. I promise that I’ll see your entire store at a suitable time”. They find it easier to stroll across and buy whatever they need with no parking worries or better they simply order on phone and ask for home delivery than stand in long queues at the billing countersMoreover, a kirana shop’s location does not change for many years and storekeeper knows almost everyone in the family, their likes and dislikes.  They

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stock items which are otherwise difficult to find in a supermarket like shampoo sachets or drain cleaning powders or small quantity of boiled-sugar sweets. Though he might not have an IT database or an MIS system, he clearly knows what his customer wants. A case in point, me being a 'Hide n Seek' biscuit lover, had asked my kirana storewala twice for it. He didn't have it then. The third time I went, he had it stocked up. Compare this to a supermarket where they wouldn't really care for what I wanted.  In fact, when making a monthly shopping list, the kirana storeowners remind the customers of anything that may be missed. Such small personal touches can make a big difference in customer preferences for kirana stores. While these kiranas are continuously strengthening their PR skills and nurturing their relationships with the customers, retail companies are still struggling to do so because of their less focus on this aspect. Rarely would one find any staff even at a store wishing the customers or interacting with customers.Another major area where the kirana store owners rule is by offering credit facility to their customers. While, on the other hand, even if customers are found short of one rupee, they have no choice but to drop the item from the cart. Customers can easily exchange products at the kirana store and buy something of the same value on their next visit. However, organised retail stores have strict ‘no-return’ policies which are never compromised.The major chunk of people who shop for FMCG products still find it convenient to shop at stores nearby, as they cannot always understand the concepts and the world of the organized sector. It is like comparing Delhi or Bangalore with a town in Rajasthan or any other state. Indians generally follow the JIT(Just in Time) system of cooking. This means, they buy curd, milk, fruits etc. which would just last for a day or two. A lot of this is because of the Indian psyche of not stocking up much at home. In spite of the fact that things have improved in terms of penetration of fridges, generators. However the Indian psyche hasn't changed much. India has still a long way to go before her retail industry is completely organized and we are able to see a paradigm shift towards acceptance for the malls and huge shopping centres, especially in Tier II and Tier III towns. For instance, if a person from a small town were to visit a huge mall in the larger cities, it would undoubtedly awe them with all the wonderful things they seem to offer but how far would the acceptance level be to use an elevator every week for purchase of small stuff which could be easily bought from the shop next door?Nevertheless, the macroeconomic landscape indicates that the domestic retail industry has immense scope for the modern as well as traditional retailers to co-exist. Through a balanced regulatory framework and competition policy, both the traditional format and the modern format can continue to grow, eventually closing the gap between the organized and unorganized sectors

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