A Study On Subhiksha Commerce

Subhiksha, the Chennai based, a decade old, no frills, food, grocery, pharma and telecom, discount retail chain is gearing up to open 180 neighbourhood, convenience retail stores in the eight cities of the state of Maharashtra including Pune, Nasik, Aurangabad and Nagpur, Kolhapur. Of these the lion's share will go to Mumbai, which will have 100 of the 180 stores planned. 80 of the 100 Mumbai Subhiksha stores are slated to go on strean by mid-January.

The rapidly-growing retail chain has already crossed the 450-store mark across five states in the country and is currently occupying retail space of more than one million square feet.

“We are targeting a 1,000-strong retail network by end-2007. We are looking at providing customers across the country with a viable smart shopping option,” R Subramaniam, Managing Director, Subhiksha Trading Services, said today. At an average cost of Rs. 50 lakhs per outlet, Subhiksha will invest Rs. 500 crores to expand its network to 1000 outlets. Subhiksha is targeting a turnover of Rs. 3,500 crore during 2007.

“With the implementation of our expansion in Maharashtra, we will complete our 600-store target. We will shortly activate Phase II of our expansion plans by foraying into the north and east including Chandigarh, Punjab, Madhya Pradesh, Uttar Pradesh, Haryana and West Bengal” he said. Phase II involves Rs 200-crore investment in opening 400 stores.

The rapidly expanding chain, which claims to be the biggest chain in the country, is following the carpet bombing strategy for its expansion, wherein, to create maximum impact, it simultaneously launches a cluster of stores in a given geography.

Entering the retail market ten years ago

There was no great logic behind entering the retail market in 1997. We made a study of two areas: software and retail. Between software and retail, we thought we were a bit late for software as Satyam , Infosys, Wipro , TCS , etc had already established by then. We didn't want to be a small and late entrant.

In retail, we would be one of the early entrants, so we would have the learning curve much to our advantage. We allocated a Rs 5 crore (Rs 50 million) corpus to it and entered the retail business. There was a lot of thought process behind it. We wanted to attract not the top end customer but the aam aadmi.

From our research of three months, we found that consumers prefer buying groceries from closer home. So, we decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big store at one location in Chennai.

The next question was why would he come to our store abandoning the existing store? It had to be the price, because ultimately there is no difference between the branded products like say Boost or Surf or such things. So, we decided to sell branded products at a lower price.

Expansion

* Subhiksha in its rapid expansion mode has already raised money. It raised Rs 500 crore earlier this year partially financed by ICICI Ventures and the rest by debt.

* Now with an aim to increase stores from current 750 to 1,000 and then 1,300 by March Subhiksha hopes its annual 35 per cent growth will help it beat competition from Biz Bazaar.

* In comparison, Subhiksha has 750 stores against 100 big food bazaars of Pantaloon group. Subhiksha has a wider audience and presence in tier II towns and is strong in Southern market.

* By March 1999, we started expanding rapidly. From 14 stores, we expanded to 50 stores by June 2000. In the next two years, we had 120-130 stores across Tamil Nadu. Another big thing was, in 2000, ICICI Venture invested in our company. Today, we have 145 stores all over Tamil Nadu.

* We saw to it that the moment we got into a city, we started as many stores as possible there. Only that made business sense. Then, till 2004, we made sure that we consolidated before we expanded, though there was a lot of pressure on us to expand nationally.

* Our business is also extremely local. We can't sit in Chennai and run a store in Chandigarh. We decided to have very good quality people to run the region, area, town and the store.

* In 2004-05, we decided to have 420 stores in places like Gujarat, Delhi , Mumbai , Andhra and Karnataka by 2006. In 2005, we started recruiting people in various regions. Today, we have 500 plus stores in all the places that we had planned. It will go up to 600-plus by the month end.

* We are already India's largest retail chain store with 500-plus stores. We plan to have 1,000-plus stores by the end of this year.

* India is a large country and there are still opportunities to avail of. Though now, the thought of opening stores outside India is not tempting because there are enough opportunities in India. We may look at overseas markets too. . . Maybe later, after we open 2,000 or 2,500 or 3,000 stores in India.

* It may be recalled that only a few months back Subhiksha to finance its ambitious expansion drive had raised Rs. 300 crore. It has also recently raised Rs. 80 crore through the rights issue. Currently, ICICI venture Capital holds 24% in the equity capital of Subhiksha

Risk in retailing and expansion?

We are not mad risk takers. We are not producing movies. We do a lot of research before starting business in an area, and we have back-up plans in place. We work with very good people, and if something goes wrong, we try to take corrective steps.

The big advantage we have is, we are not creating products. So there are no worries about whether it would succeed or not. Consumers are smart and they are all price-conscious and they want to finish the work as fast as they can. They don't go to a provision store for fun.

On the entry of MNCs and Reliance in the retail market

Everybody has been asking me, are you worried about Wal-Mart coming to India? Ultimately Wal-Mart is also going to be run by people like us. The point is you need not worry about anybody's entry. There is a huge potential for growth in India. There is potential for another ten people to come in.

Ultimately the share of the unorganised kiranas will come down and the share of organised sector will go up because of the efficacy in buying and distributing. Also, this is an extremely low margin business. Ultimately, everybody has to sell within the cost. It is not that we are geniuses; we have been in the business for ten years, and we have made enough mistakes and learnt from them.

I don't think any child will learn to walk without falling down first, however good the parent is.

We made our mistakes when we were small. The bigger you are, the mistakes will cost you more.

key challenges faced by Subhiksha

* Risk in retailing and expansion

* Need for an IT Solution

* Inefficient Inventory Control

* Absence of departmentalization

* Absence of performance evaluation programmes

* Absence of MIS system

* Inadequate logistics

* Lack of Decentralized planning

REASON FOR FAILURE OF SUBHIKSHA

* Expanding the number of stores rapidly without sufficient funds in hand

* Expansion of Stores without adequate system control and IT Support.

* Government Intervention.

* Lack of strong HR policy and Staff.

* Strong Competition

REFERENCE

* http://www.rediff.com/money/2007/feb/05bspec.htm

* http://retailnews.wordpress.com/category/subhiksha/

* http://indiaretailbiz.wordpress.com/2006/12/13/subhiksha-to-open-100-stores-in-mumbai-plans-1000-in-india-within-one-year/