Case Study of Subhiksha

the study about the Subhiksha failur in his business.

1. BIRLA INSTITUTE OF TECHNOLOGY NOIDA CAMPUS MSH 1109 – ENTREPRENEURSHIP & SMALL BUSINESS MANAGEMENT

2. PRESENTED BY :- IMBE/4502/12 – NAVSHEEN IMBE/4510/12 – ANUNAY ANAND. Assign. On :-

3. About Subhiksha 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 & 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.”

5. Goal of the Company Open store for every two kilometer in Chennai. 550 store by 2009 in Delhi. Plan to expand in other part of India.

6. Strategy adopted by the company 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

7. About Product Portfolio

8. Expansion Time Line 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. 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

10. 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

11. Promotion & Advertising TV Advertisements Price Challenge Campaign Hoardings Celebrities for promotion EDLP approach “Subhiksha” Card

12. 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

13. Competitor 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. Retail Stores Scenario in India

15. Failure of Subhiksha…..

16. Why the decline? 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. Why the decline? 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. Company Revival Strategies 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. Why these strategies failed… 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 SWOT Analysis

21. 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

22. Recommended Survival Strategies 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. Learning Outcomes 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.

24. Video of 6 April 2009

25. 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.”