Failure of Subhiksha
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This was a project which was done for the subject of marketing strategies and the topic was 'Failure of Subhiksha'. For this project we did a thorough secondary research through internet, articles in prominent newspapers, magazines and so on. The references of the data have been mentioned in the slides (wherever required). We presented this project and got a very great response. There are many things which had been discussed during the presentation but are not available in the slides. P.S: The names mentioned in the slides are in the order of presentation.
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Failure of Subhiksha
- 1. Failure of Subhiksha Team Members- Priti R. Gupta 31 Roshan Shanbhag 85 Bipin Tiwari 103 Chintan Vora 115 Bhakti Vadia 107
- 2. Outline Retail Stores Types of Retail Formats in India Indian Retail Market About Subhiksha About Subhiksha- Vision, Mission & Business Verticals Strategic Format of Subhiksha Retail Strategy, Store Scenario, Success & Fund Raising Segmentation, Targeting & Positioning Promotion, Pricing & Competitors Decline of Subhiksha Reasons of Decline Revival Strategies of Subhiksha
- 3. Types of Retail Formats in India • Mom & Pop Stores (Kirana Stores-Shivraj Store) • Departmental Stores (Westside, Lifestyle,) • Speciality Store (E-Zone) • Malls (Inorbit, infinity) • Discount Stores – Subhiksha & The Loot • Supermarkets (Dmart) • Street Vendors (Hawkers) • Hypermarkets (Big Bazar) • Kiosks (CCD Express)
- 4. Indian Retail Market • Till 1997 – Retail Market was non-existent inspite of 1991 FDI, untill 1998 when Shoppers Stop started the Huge Retail Chain. ▫ Growth Wave I – Pre-1991 ▫ Growth Wave II – 1991-2004 ▫ Growth Wave III – 2005-2015 • In past Entire retail accounted for US$12.4 billion (4.6%-OM) in 2006), now in 2015 it is US$ 600 Billion (8%-OM) • fastest growing in the world - expected to grow to US$ 1.3 trillion by 2020 • The government has approved 51% FDI in multi-brand retail and increased FDI limit to 100 % in single brand retail.
- 6. 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”
- 7. About Subhiksha • Subhiksha trading service was started by R. Subramanian an IIM A & IIT Chennai alumnus in 1997 • Subhiksha in Sanskrit means (prosperity)“the giver of all good things in life” • It was a super market and pharmacy chain Theme • Why pay more when you can get it for less at Subhiksha? • Discount store at prices lower than other retail outlets • Set up 1,000 sq ft shops all across the city
- 8. About Subhiksha – Business Verticals • Super Markets • Fruits &Vegetables • Pharmacy • Telecom Ref: http://www.ukessays.co.uk/essays/education/the-indian-retail-industry.php#ixzz3mpuv71KB
- 9. Strategic Format of Subhiksha • Discount Store • Multiple Products • Small Store format • Residential Locations • Availing Branded Products
- 10. Retail Strategy 2C Model Criticality of cost Convenience of Buying • No Frills Store • EDLP Strategy(every day low pricing) • Catchment area of approx 2 kms • Establish itself as a neighborhood store • Wanted To Attain Greater Penetration In All Markets
- 11. Continued… • Lease Rental System For Stores • Centralized Purchasing • Subhiksha Card • Marketing Communication • Supply Chain And Inventory Turnover Efficiency • Home Delivery System • Use Of IT
- 12. Retail Stores Scenario in India 0 100 200 300 400 500 600 700 800 900 1000 Subhiksha Reliance Fresh Food Bazaar Food World Spencer's Daily 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
- 13. 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 Ref: http://www.ukessays.co.uk/essays/education/the-indian-retail-industry.php#ixzz3mpuv71KB
- 14. 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 Ref: insead.edu
- 15. Segmentation • Geographical Segmentation Opened stores in South India initially , later expanded elsewhere • Later on, demographic (age groups) segmentation Different product portfolios were targeted for different market segments
- 16. 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
- 17. Positioning • Low prices (USP) • Consumer Savings • Consumer Trust • One Stop Shop ▫ Multiple products under one store • Store designed with Indian touch • Location Convenience • Privilege to loyal customers
- 18. Promotion & Advertising • TV Advertisements • Price Challenge Campaign • Hoardings • Celebrities for promotion • EDLP approach • “Subhiksham” Card
- 19. 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
- 20. Competitors Brand Name Outlet Type Level of Operation Spencer’s Supermarkets National Reliance Fresh Supermarkets National Food Bazar Supermarkets National More Supermarkets National
- 21. The fall of Subhiksha…
- 22. Why the Decline? • Aggressive expansion without proper focus • 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
- 23. Continue… • Spending the debt raised money • Liquidity crisis • Poor Management • Government Intervention • Lack of strong HR policies & Staff • Over Confidence & Aggressiveness • Over expenditure on advertising • http://www.business-standard.com/article/companies/from-subhiksha-to-viswapriya-subramanian-s-fall- from-grace-115091900768_1.html • http://www.livemint.com/Industry/NZuA2lGw14976GioZpjKwK/Rs144-trillion-stuck-as-cases-pile-up-at- debt-tribunals.html • http://www.ukessays.co.uk/essays/education/the-indian-retail-industry.php#ixzz3mpuv71KB
- 24. 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 the debt. It is not easy, but we have to make it happen.”
- 25. 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
- 26. Subhiksha’s Revival Strategies • March 2009- Undergone a Corporate Debt Restructuring (CDR) exercise • Merger with Blue Green Constructions & Investments Limited • Post merger promised to pump in 130cr and Rs.100cr after 6-9 months (Indian retailing news) • 2010- Opened cash and carry store in Chennai
- 27. Why These Strategies Failed… • Madras high Court rejects merger plan (The Hindu,Oct-2010 & ET, Oct-2010) • Petition filed by 13 banks • Repayments • Tried to re open too fast without clearing dues • Liquidity crunch
- 28. Conclusion
- 29. Strategies Can Be Implemented (taking some particular set of assumptions) • Repayment of Statutory liabilities • Opening store in Tier-II & Tier-III cities • One store at One city • Warehouses near store • Touch and feel aspect • Dealing with B2C(Business to Customer) & also with B2B(Business to Business) business model • Achieving economies of scale • Right decision at right time
- 30. Scanned Copy Of Product List & Prices
- 31. THANK YOU
Notas do Editor
- Mom-and-pop Stores These are small family-owned businesses, which sell a small collection of goods to the customers. They are individually run and cater to small sections of the society. These stores are known for their high standards of customer service. Department stores Department stores are general merchandisers. They offer to the customers mid- to high-quality products. Though they sell general goods, some department stores sell only a select line of products. Examples in India would include stores like "Westside" and "Lifestyle"--popular department stores. Category Killers Specialty stores are called category killers. Category killers are specialized in their fields and offer one category of products. Most popular examples of category killers include electronic stores like Best Buy and sports accessories stores like Sports Authority. Malls Malls are the largest retail format in India One of the most popular and most visited retail formats in India is the mall. These are the largest retail format in India. Malls provide everything that a person wants to buy, all under one roof. From clothes and accessories to food or cinemas, malls provide all of this, and more. Examples include Spencer's Plaza in Chennai, India, or the Forum Mall in Bangalore. Discount Stores Discount stores offer price reduction. Discount stores are those that offer their products at a discount, that is, at a lesser rate than the maximum retail price. This is mainly done when there is additional stock left over towards the end of any season. Discount stores sell their goods at a reduced rate with an aim of drawing bargain shoppers. Supermarkets One of the other popular retail formats in India is the supermarkets. A supermarket is a grocery store that sells food and household goods. They are large, most often self-service and offer a huge variety of products. People head to supermarkets when they need to stock up on groceries and other items. They provide products for reasonable prices, and of mid to high quality. Street vendors Street vendors, or hawkers who sell goods on the streets, are quite popular in India. Through shouting out their wares, they draw the attention of customers. Street vendors are found in almost every city in India, and the business capital of Mumbai has a number of shopping areas comprised solely of street vendors. These hawkers sell not just clothes and accessories, but also local food. Hypermarkets Similar to supermarkets, hypermarkets in India are a combination of supermarket and department store. These are large retailers that provide all kinds of groceries and general goods. Saravana Stores in Chennai, Big Bazaar and Reliance Fresh are hypermarkets that draw enormous crowds. Kiosks Kiosks are box-like shops, which sell small and inexpensive items like cigarettes, toffees, newspapers and magazines, water packets and sometimes, tea and coffee. These are most commonly found on every street in a city, and cater primarily to local residents Read more: Types of Retail Formats in India | eHow.com http://www.ehow.com/list_6679006_types-retail-formats-india.html#ixzz1Y6wYZi8e
- Early Entrants in Apparel & Footwear Growth Wave I (Pre-1991) Apparel- Vimal Raymond Footwear- Bata Metro Expansion mainly in Fashion & Lifestyle Growth Wave II (1991-2004) F & G- Big Bazaar Food Services- McDonalds, Barista, Dominos Pizza and CCD Apparel- Shoppers stop, Lifestyle, Westside, UB, Pantaloons, M& S Footwear- Nike , adidas, Reebok Jewellery and watches- Titan and Tanisq Large Investments in F&G led Retail Growth Wave III (2005-2015) F & G- Star Bazaar, reliance, Dmart, ,more, Wal-Mart, Carrefour, Tesco Food services- Starbucks Apparel- Zara, Mom and Me,GAP, H & M Footwear- Puma , Aldo
- 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.
- 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 not 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.
- The Court observed that all the 1,600-plus retail shops run by Subhiksha had been closed and the inventories valued at Rs 551 crore were said to have evaporated into thin air. The Court, which dismissed the merger proposal stating that it was mainly to protect public interest, said that the revival plan submitted by Subhiksha was based on certain presumptions including infusion of Rs 150 crore as equity at par, infusion of Rs 100 crore as fresh debt/debt convertible into equity, incorporating the effect of debt restructuring, utilisation of Rs 51 crore of the infused cash to create the balancing investments in the fixed assets. Subhiksha, with a debt burden of over Rs.7.5 billion (Rs.750 crore), is looking for a Rs.3 billion (Rs.300 crore) cash infusion to stay afloat.