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International Journal of Engineering Technology, Management and Applied Sciences

www.ijetmas.com January 2017, Volume 5, Issue 1, ISSN 2349-4476

131 Dr. S Panneerselvam

Subhiksha : An Indian Retail Behemoth’s Rise and Fall

(A Case Study)

Dr. S Panneerselvam

Professor, Post Graduate Department of Management Studies and Research Centre,

Siddaganga Institute of Technology,

Tumakuru, Karnataka, India

ABSTRACT

Organised Retail in India has been growing and India is ranked one amongst the most attractive destination for retail

investment. Corporate India realised the fact and started investing heavily and continuously in this sector. Subhiksha was

one amongst the prime moverand organically grown discount retail chain. Subhiksha, from a humble beginning with its

first retail outlet in Chennai in the year 1997 went on to grow into a behemoth with 1,650 outlets in September 2008 with

revenue of Rs 2,305 crore and a profit of Rs 39 crore. Its business model was unique.

Over the next decade, it had grown dramatically. Wiith wafer-thin margin, lack of transparency, low liquidity, reckless

expansion plan and recession in the economy,Subhiksha landed into a debt burden of Rs. 750 crore and had to close

down its shutters. The first part of the case study illustrates the growth trajectory of the chain and innovative retail

supply chain strategies adopted in its phenomenal growth along with the glimpses of Mr. Subramaniam’s

entrepreneurship traits.The second part captures the incidences that resulted in its fall and finally the demise of the

chain. The case studyeducates the readers, practitioners and academicians about the issues and challenges in managing

a neighbourbood retail chain.

Keywords: Indian Retail, Food Retail, Food & Grocery, Business Strategies, Retail Supply Chain Strategies,

neighbourhood stores.

PART – A

SUBHIKSHA’S RISE

1.0 HISTORICAL BACKGROUND

1.1 Introduction

Subhiksha was a multi-location, professionally managed and vibrant organisation founded by Mr. R.

Subramaniam, an Indian Institute of Technology – Chennai (IIT-Chennai) and Indian Institute of Management

– Ahmedabad (IIM-A) alumni. The word Subhiksha was derived from the Sanskrit word, Subhiksham or

"giver of all good things in life". The chain‟s vision to “Deliver consistently better value to Indian consumers”

guided Subhiksha to deliver savings to all consumers on each and every item that they bought for their daily

lives without any compromise on quality of goods purchased (http://www.subhiksha.in/aboutus.htm}.1

1.2 An Entrepreneur in Making

Mr. R Subramaniam after obtaining his engineering degree from the IIT-Chennai did not go to the US as his

friends did. His urge to do unconventional things and inclination to do something for the people in India made

him to join IIMA. For him, MBA seemed a logical corollary. After his Post Graduation at IIMA, he was

offered placement at Ponds where he did his summer training. But he joined Citibank and worked for a brief

period. From Citibank, he went to Enfield and worked there for 2 years that was from 1989 – 91. His

entrepreneurship traits always intrigued him and he was not satisfied with the jobs with whatever the job he

had taken(Shobha Warrier, 2007).2




In 1991, he started a venture capital firm called Viswapriya with the help of the money given by his friend Mr.

Viswanathan. With his friends, they bought debentures from thousands of people, consolidated them in lakhs

and invested in mutual funds. In turn, the investors got a monthly income. This way Vishwapriya became

popular. In 1992, they started „asset securitisation‟ and their innovative concept was adopted even by business

leaders such as State Bank of India and ICICI Ltd later. Thus, the brand name of Vishwapriya had grown

further. The big breakthrough came in 1994 when they started IPO financing whichthey called by the name

Prime Advancing. In 1994-95 and 1995-96, Vishwapriya lent Rs 200 crore (Rs 2 billion) and Rs 1,200 crore

(Rs 12 billion) respectively and the net profit zoomed to around Rs 25 crore (Rs 250 million). When the stock

market busted in 1996, Viswapriyabecame a casualty too (Ratna Bhushan, 2003).

1.3 Entering the Food Retail

When Mr. R Subramaniam along with his friends looked for new options, they had two choices namely

software and retail. Ultimately, they decided to enter the retail market. They were one of the early entrants in

organised retail in India. With the learning curve to their advantage and with a corpus fund of Rs. 5 crore (Rs.

50 million), they entered the retail business. Their aim was to attract not only top end customers but also aam

aadmi. They did market research for three months and found that consumer preferred buying groceries closer

home and hence opted to offer branded products at a lower price in a „not so big‟ and comfortable

environment.

In March 1997, the first Subhiksha store was opened at Thiruvanmiyoor in Chennai with an investment of

around Rs 4-5 lakh (Rs 4,00,000-5,00,000). The response was lukewarm and had earned only Rs 5-6 lakh (Rs

5,00,000-6,00,000) in the first month. But with a clear vision, Subhiksha started growing and by the end of

first year there were 10 stores in Chennai.

Extending the product line, at Subhiksha, they started selling medicine at a discounted price. This offering

invited the wrath of druggists and chemists and ended up in litigation. In 1999, the Supreme Court gave the

judgment in their favour. Mr. Subramaniam was of the view that the medicines that Subhiksha were selling at

a discount were bought mainly by the elderly person who had no fixed income and they welcomed any

discount. Subhiksha was quite happy to be able to help them in some way. Medicine retailing, for Subhiksha

was more of a service than business. Of course, the service fetched good return also.

1.4Subhiksha’s Growth3

To start with, Subhiksha‟s stores were entrenched in Tamil Nadu only. In the year 2004, they started

expanding to neighbouring states such as Andhra Pradesh, Karnataka and Kerala. Subhikshabecame pan

Indian spanning many states and more than 100 cities. Subhiksha outlets increased in numbers and the growth

was phenomenal. This is shown in the (Vinay Kamath, 2006) Table 1.

Table 1: Subhiksha’s Growth

Year No. of outlets*

Mar 1999 14

June 2000 50

December 2002 130

December 2005 420

February 2007 600

September 2007 745

January 2008 1,000

March 2008 1,320

September 2008 1,650

*Compiled data




1.5 Business Model, Retail Format and Layout4

Subhiksha, since it was established in 1997 consciously looked at a mass market model where the benefits of

organised retail with lower prices could be enjoyed by a large swathe of customers (Business Line Bureau,

2004).5Subhiksha outlets were lean „no-frills‟ stores having an average size of 1,800 square feet and all were

owned by company itself (www.subhiksha.in).

Subhiksha, as a retail discounter, located in the neighbourhood offered discount on all the products whatever

the number or quantity a customer bought. The discount Subhiksha offered was the maximum amongst the

organised retail stores. A study was conducted by The Economic Times Intelligence Group, India(Supriya

Varma, 2007)6 to compare the prices of popular FMCG products across modern stores and kirana stores. As

part of the study, different retailing attributes were also investigated. The study showed that Subhiksha offered

better price for customers than other retail stores. But in terms of some attributes such as ambience and

convenience, Subhiksha had fallen behind other retailers. The snapshot of the study is given below in the

Table 2 and Table 3.

Table 2: Price Comparison (for Mumbai) of Items

ITEMS MRP SUBHIKSHA SPENCER BIG BAZAAR SPINACH

KIRANA

STORE

Kellogs Cornflakes (475 gms) 125.00 115.00 123.65 125.00 125.00 125.00

Nescafe (50 gms) 65.00 63.91 63.75 64.00 63.75 65.00

Parle G (880 gms) 40.00 34.89 34.99 37.00 40.00 40.00

Amul Butter (500 gms) 87.00 82.65 78.00 86.00 86.00 87.00

Pepsi (2 Ltrs.) 48.00 45.00 46.64 49.50 50.00 48.00

Vatika Hair Oil 76.00 69.54 75.00 76.00 76.00 76.00

Heinz Tomato Ketchup(1 Kg) 79.00 73.47 78.00 79.00 79.00 79.00

Palmolive Shaving Cream 41.00 38.00 39.60 41.00 41.00 41.00

Total Bill (Rs) 561.00 522.46 539.63 557.50 560.75 561.00

Savings (%) 6.87% 3.81% 0.62% 0.04% 0.00%

Source: Economic Times, Bangalore, 26th September 2007.

Table 3: A Comparison of Food & Grocery Stores

SUBHIKSHA SPENCER BIG BAZAAR SPINACH

KIRANA STORE

Price: Branded Upto 8% discount on

popular items

Lesser discount on

many items than

Subhiksha

Lesser discount on

many items than

Subhiksha

Lesser discount on

many items than

Subhiksha

2-3% discount on

monthly bills.

Price:

Unbranded/

New Brands/

Private Labels

Higher Discounts on

its own products

Higher Discounts

on its own products

Higher Discounts

on its own

products

Higher Discounts

on its own products

2-3% discount on

monthly bills.

Ambience No Yes Yes Yes No

Convenience Less Convenient Convenient if it is

nearby

Convenient if it is

nearby

Convenient if it is

nearby

Convenient

Credit Card

Payment

Yes* Yes Yes Yes No

Availability Only popular items Varies from

keeping popular to

most selling items

Most items Varies from

keeping popular to

most selling items

Only popular items




* Some of the stores asked for extra payment of 1 – 1.5% on the quoted price.

Source:The Economic Times, Bangalore, 26thSeptember 2007.

Mr. Subramaniam view was that franchising model would not work because of wafer-thin margin in food and

discount retailing. Also, he was of the opinion that food retail needed strong operating control and with large

number of items coming from third party brands, the role of franchiser would become only that of a buying

cooperative (ET Bureau, 2007).7

Subhiksha‟s retail format was a „hybrid model‟ with the items stacked-up in display counters for self-service

and also service option was available where customers fed in orders into a computer system and products were

supplied from a warehouse. Further, direct-to-home and online shopping was available in selected cities.

The stores layout were designed in such a way that the shoppers were invariably led to all the sections of the

outlet and were induced to buy items stacked up (impulse buying) before reaching the exit point (Shobhana

Subramanian, 2007).8

1.6 Merchandise Category

Subhiksha‟s market research showed that Indian shoppers preferred to buy vegetables and groceries nearer

home. But for other items such as apparels and lifestyle goods they didn‟t mind going a few kilometres. This

made Subhiksha to dominate in the small store segment. Later, they started selling the branded mobile phones

and were planning to sell computers and consumer durables also.

Each Subhiksha outlet stocked Stock-Keeping-units (SKUs) of about 1,500 FMCG and grocery products and

1,500 OTC (Over the Counter) and ethical drugs. The product offerings are listed in Exhibit 1 and

Subhiksha’s well document service policy is given in Exhibit 2.9Different category of items offered by the

stores is given in the Table 4. Each region operated as an independent business unit managing their

operations.

Table 4: Merchandise Category

Type Number of SKUs

Grocery 38

Food 53

Child Care 5

Household 38

Toiletries 11

Total 145

Source:www.subhiksha.in

Exhibit 1

Subhiksha’s Product Offerings

Supermarket

Quality groceries, packaged foods, cosmetics and toiletries, household provisions etc., sourced

from the best brands in India.

Fruits and vegetables

A large range of fresh fruits and vegetables was sourced directly from farms on city outskirts and

made available to consumers.

Pharmacy All medicines were made available to consumers at a flat 10% discount. This was especially

helpful for elderly consumers and those who were on continuous medication.

Telecom Subhiksha was India's largest mobile retailer and offering handsets, accessories and charge cards

from all leading brands including Nokia, Motorola, Sony Ericsson, LG, Samsung, etc., at the

lowest prices.

Source: www.subhisha.in

http://www.subhiksha.in/




2.0 SUBHIKSHA’S SUPPLY CHAIN STRATEGIES FOR GROWTH

2.1 Cluster Bombing Strategy

The cluster bombing was a strategy followed by retailing giants like Starbucks, which aimed to carpet-bomb a

particular location with a large number of stores. This strategy minimised the supply chain cost and

maximised the sales. This strategy had the danger of cannibalisation of sales within their own network of

stores, rather than to other chains or independent outlets.Mr. Subramaniam was categorical in saying that they

would rather lose sales to their own stores than allow competition to take away their share. The strategy also

stemmed from the belief that as market was growing, the stores would be able to ramp up their business.

Cities were continuously expanding and so sustainability was not an issue. The key was easy accessibility to

the consumers (Rajiv Banerjee, 2006).10

By adopting this strategy Subhiksha became the first retailer in India to reach the 1,000 store landmark in

more than 90 cities and 12 states.11

Subhiksha added another 300 retail outlets by March 2008 (Nitya

Varadarajan, 2006).12

It target was 2,000 stores by March 2009, occupying 3 million square feet.13

2.2 Location Strategy

Subhiksha‟s location strategy was driven by the fact that Subhiksha was not a destination store but a frequent

shopping location for daily household needs. The idea behind locating the stores amongst neighbourhood was

to maximize the footfalls. The more the footfalls was, the more the sales. Mr. Subramaniam in one of the

interview had told as follows. "Categories like fruits and vegetables, food and beverages have to be within

arm‟s length of the consumer in cities like Mumbai and Delhi. In cities like Mumbai, which was train and

railway station driven, the aim was to be present in such areas where a huge crowd congregate.” Keeping the

huge catchment in metros in mind, Subhiksha picked up locations in these cities, and opened a cluster of

stores, sometimes very close to each other.

Subhiksha followedHub and Spoke model which enabled it to rapidly replicate stores in a region without

increasing complexity of operations (Vinay Kamath, 2004).14

In another interview Mr. Subramaniam was

reported as saying "We have to deliver significant price value to the customer. We wanted to be the principal

store of purchase for at least 40 per cent of all consumers living within 500-750 metres of the store, within

walking distance (Ratna Bhushan, 2003)." 15

2.3 Every Day Low Pricing (EDLP)Strategy16

Subhiksha‟s model aimed to benefit the customers whatever they buy. The pricing strategy adopted by them

suited this motto. At that time, it was the only retail chain to follow the Every Day Low Pricing (EDLP)

Exhibit 2

Subhiksha’s Service Policy

Subhiksha guaranteed to deliver the exact product and in case the consumers received a

different product, or if the product was damaged in transit, Subhiksha ensured that the item

was replaced or refunded.

Subhiksha delivered goods within the committed time period and in case of occasional

delays, the customers were informed about the same.

If for some reasons, the customers were not satisfied with item‟s quality, the same could be

returned, no questions asked, as long as it was in its original packaging and accompanied

by its invoice. Or the consumer could just contact its call centre number or nearest

Subhiksha outlet from where the stock was delivered and they arranged to pick up the

product. Alternately, the customer could drop it off at the nearest Subhiksha store.

Source: www.subhisha.in




strategy i.e. the focus was on providing the customers with the lowest price across all categories and all the

time (Niranjan Mudholkar, 2007).

2.4 Sourcing

Subhiksha was able to give its customers least possible price by means of its scale and efficiency in its

operations. To gain competition advantage over other retailers, Subhiksha had leveraged centralised purchase

and supply chain management. All the vendors including the FMCGs supply their products directly to

Subhiksha thereby cutting down the intermediaries‟ cost and also the time.

2.5 IT Strategy

Subhiksha banked on IT to leverage its operations. Mr Subramaniam viewpoint was “IT would be the key

enabler and the differentiator between operations that were or weren‟t well run. Whether it was managing the

front end or logistics support or in stock and inventory management, IT would be the mainstay of operations.”

Subhiksha had implemented SAP Enterprise solution for integrating its processes.

2.6 Lean-Inventory Strategy17

The essence of neighbourhood stores was to deliver the goods on time and in the right quantity. Having more

inventory would affect the business, but at the same time having stock out would result in loosing the

customers to the kirana stores. Subhiksha was able to manage “too lean, almost skinny” inventory of just 18

days against an industry average of 30-35 days. Keeping the right stock was a problem because some

consumer product suppliers took time to adjust to the quicker schedule. Moreover, the fill rate for big FMCGs

was only around 95% even in mature markets and in Indian market it was about 60-65% only. Against all

these odds, Subhikshaworked harder to ensure its seamless supply chain. The SAP implementation helped

them too (Niranjan Mudholkar, 2007).

2.7 Cost Minimisation18

Small stores had higher structural costs in terms of rent, labour and overheads. Subhiksha kept a tight lid on its

costs. As new stores were rolled out, store costs that included people, electricity, furniture etc. increased in

linear fashion, while non-store costs such as technology, sales and marketing costs had increased by 35% for a

100% increase in the turnover. Subhiksha kept its cost low by locating their stores amongst the middle-class

localities and also without air-conditioners. At Subhiksha, people accounted for 40% of costs and rentals about

Rs. 33 per sq. ft. in smaller cities and upto Rs. 70 per sq. ft. in bigger cities per month. Subhiksha tried to cut

down the cost on all the overhead to the bare minimum possible.

2.8 Private Labels19

The chain sourced a variety of products, including soaps, toothpaste and instant noodles from contract

manufacturers. Even though Subhiksha did not own the private labels such as Tatva, Bix and Zoop brand

names, it had exclusive right over them and enforced its quality norms. These products were twice as

profitable as the national brands. Private labels accounted for 12% of the volumes and Subhiksha looked for

exponential growth in this line.

2.9 Expansion Strategy

Subhiksha‟s first phase of expansion was over in the year 2006 establishing a total of 600 stores with an

investment of Rs. 300 crores. Its second phase of expansion, with an investment of Rs. 300 crores, reached a

target of 1,300 stores by March 2008.20

Each store required an investment of Rs. 50 lakhs. Subhiksha intended

to expand to the neighbouring countries once it reached a count of 2,000 to 3,000 stores in India. Subhiksha

invested close to Rs. 700 crore in 2008-09 on expansion apart from forays into new formats like IT products

retail. ICICI Ventures had 22% stake while Prudential ICICI MF had 5% (Padmapriya J, 2008).21

Subhiksha

had initially stated to go for IPO by July 2007 but it was deferredbecause of prevailing market conditions.

Later, it planned to make a debut in offering the IPO by March 2008 (Debdatta Das, 2008).22

2.10 Diversification

Subhiksha‟s moved from food and groceries to telecom and further to IT products. They expanded both

vertically and horizontally in their operations.




Asked about the synergy between the grocery retail and mobile phones, Mr Subramaniam said that it was an

opportunistic move for the retail chain. “There had been no organised retail chain in the business. It‟s a low

margin business and we noticed synergy with the rest of our business which is mostly in branded goods and

consumers have full knowledge of the products,” he explained (Bijoy Ghosh, 2007).23

According to the market

research done by Subhiksha, mobile phones too had become price-driven product and the customers kept

themselves updated either through word-of-mouth or through the web.

After successfully experimenting with pharma and mobile phone retailing, Subhiksha actively targeted the IT

products, PCs and accessories segment. At that time, the segment was dominated by Tata-Croma, Reliance

Digital, Next and Phantaloons – eZone. Subhiksha‟s foray into this segment was accentuated by the frenetic

growth in PCs and notably laptop segment.24

Subhiksha‟s wished to be more organic in their growth than

through acquisition but at the same, they were not averse to acquisition.

PART – B

SUBHIKSHA’S DESCENT

While the Subhiksha‟s growth was phenomenal on one side, there were grey areas too. These problems

became more acute and accentuated during the year 2007 – 2008. Mr. Subramaniam‟s aim was to make

Subhiksha India‟s Wal-Mart. It just turned out to be a wall on the mart(Commodity Online, 2009).25 The

following descriptions gives the insight of what made Subhiksha‟s descent and finally closing down of an

organic grown Indian Food & Grocery chain and the arrest of Mr. Subramaniam and confiscation of his

properties.

3.1 Financials

For the year ended March 2007, Subhiksha‟s revenue was Rs. 2,305 crore and aimed for Rs. 5,000 crore by

2009. Subhiksha‟s gross margin was about 15% and the net margin was about 1.5% (post-extraordinaries) and

made efforts to achieve a target of 2.8 – 3.0%.26

Subhiksha was a making a pre-tax profit of Rs. 12-13 crore

and investing Rs. 50 crore per month on expansion (Sify Business, 2009).27

Its interest burden was in the range

of Rs. 14.5 crore per month. The interest rate was 6% per annum. Table 5 gives the turnover of Subhiksha

over the years.

Table 5:Subhiksha’s Turnover

Year Turnover (Rs. in

Crore)

2005 - 06 330

2006 – 07 833

2007 – 08 2,305

2008 – 09

(Estimated)

4,000

Source:Sify Business, 28th February, 2009.

3.2 Funding

Table 6 shows stockholding by various stakeholders as of February 2009. The private equity fund owned by

Wipro’s Azim Premji bought 10% of shares of ICICI Venture holdings for Rs. 230 crores in March 2008, and

ICICI Venture holding was 23%. Subhiksha had a debt burden of Rs. 750 crores (Table 7) and needed Rs. 300

crores to stay itself float (Sify Business, 2009).28

The fund needed to pay towards salary dues, vendor‟s

payments, rentals and restocking storesis given in Table 8. The total number of employees and the banks who

had lent Subhiksha are given in Table 9 and Table 10 respectively.




Table 6: Stockholding in Subhiksha

Stock Holding by Percentage Stake

Premji Invest 10

R. Subramaniam, Founder 59

ICICI Venture 23

ICICI Mutual Fund 5

Employees‟ Trust 3

Total 100

Source:The Economic Times, 23rd

February, 2009.

Table 7:Dues from Subhiksha

Name of the Company Amount (in Rs.)

Tata Teleservices Rs 10 crore29

P.F. Arrears Rs. 1.76 crore30

Consortium of Banks Rs. 750 crore31

Compiled data

Table 8: Fund Requirement

Head Amount Required (Rs. in Crore)

Working Capital 200

Dues 85

Contingency 15

Total 300


Table 9: Employees

Staff on Number

The Rolls 4,500

Contract 10,000

Total 14,500





Table 10: Subhiksha’s lenders

S. No. Bank Name Rs. in Crores

1 ABN AMRO Bank 50

2 Bank of Baroda 75

3 Centurion Bank of Punjab 40

4 Development Credit Bank 25

5 Federal Bank 50

6 HDFC Bank 65

7 HSBC 85

8 ICICI Bank 155

9 Kotak Mahindra Bank 40

10 Standard Chartered Bank 25

11 Yes Bank 50

12 Bank of India Not Available

13 IndusInd Bank Not Available

Total 750

Source:Economic Times, 31st March 2009

3.3 Small-format Grocery Retailing

Subhiksha business model was driving the shoppers to the shops by giving them the discounts on each item

they buy. Its competitors were kirana or mom and pop stores who operate on different economy of scale. Did

Subhiksha fail in fulfilling the promise of providing the customers discount and at the same time preserving

the required margin? Did they fail in negotiating lower rates for the SKUs from the suppliers?

3.4 Wafer-thin Margin

Mr R Subramaniam was reported to have said that Food and Grocery retailing was a tough business.

Subhiksha’s margin was low32

and lower than the industry norm. Some of the chains such as TruMart, at that

time, was operating with a gross margin of 20% consistently.Subhiksha‟s gross margin was only 15%. Its net

margin was about 1.5% (post-extra ordinaries) and planned to improve to 2.8 – 3.0 percent as costs would be

observed over a larger base. Was it possible for Subhiksha to sustain their growth with this wafer-thin

margin?33

3.5 Lack of Transparency

The shareholders received the last audited accounts only in March 2007. The audit firm Deloitte was not given

the books of account by the management (Samidha Sharma, 2009).34

Subhiksha had deducted tax from its

employee‟s salaries without remitting the money to the government for six months in the year 2008.35

3.6 Reckless Growth

Subhiksha opened its first outlet in Chennai in the year 1997. In the first year of its operation, it had opened 10

stores and by 2000 there were 50 shops in Chennai. By 2002-03, Subhiksha had 140 stores across 30 towns in

Tamil Nadu. Sales was growing steadily. During the year its net worth was 23 crore and debt was Rs. 15

crore. With equity of Rs. 160 crore, a debt of Rs. 220 crore and a bridge loan of Rs. 125 crore, Subhiksha

started rolling out their outlets nationally. On an average, 60 to 70 stores were added in a month. But this

expansion took place when both property and people costs were at their peak.




Table 12: Subhiksha’s Number of Stores

Year No. of Stores

September 2006 160

March 2007 670

March 2008 1,320

September 2008 1,650

Source:Mail Today, June 13, 2009

Table 12shows that in just 24 months, 1,500 stores were added. Between 2006-07 and 2007-08, the stores

were doubled (from 670 to 1,320), revenues were tripled (from Rs 833 crore to Rs 2,305 crore) and profits

almost quadrupled (from Rs 11 crore to Rs 39 crore). By then Subhiksha became the country‟s largest mobile

phone retailer with an annual turnover of Rs 1,000 crore.

3.7 Debt-Equity Imbalance

Mr Subramaniam saw the liquidity crunch coming in September 2008 itself and in fact, requested their bank

to lend Rs 155 crore to tide over the deficit. But the bank was not willing to lend the money because of the

meltdown. Another problem with Subhikshawas that it had grown mostly on debt with an initial capital base

of Rs. 32 crore. But the banks insisted on management to bring in more equity.

Subhiksha management wanted to keep equity low and raise more debt. They believed that this strategy would

return better money for shareholders as the stock market was booming till early 2008. Subhiksha envisaged an

investment plan of Rs. 1,000 crore (Rs. 400 crore equity and Rs. 600 crore debt) to increase the store count

and further to extend their business line to Consumer Durables Information Technology (CDIT) products

retailing. By then the stock market had begun to weaken. The bridge loan of Rs. 125 crore had to be repaid in

September 2008. Banks were reluctant to lend. But in spite of all these problems and impending crisis,

Subhiksha was diverting its working capital to fund expansion which resulted in defaulting vendor payments,

paying salaries, empty shelves, and other statutory dues.(Madhavan N, 2009).36

3.8 Revival Plan and Sad Demise

Subhiksha came with a revival plan built on the following:

1. The company had sought a two-year moratorium on interest and principal payable to the banks.

2. Subhiksha would close down its fledging Rs 350 crore fruit and vegetable mandis.

3. It would close down 10% of its 1,600 stores which were not viable.

4. The company‟s immediate requirement of Rs. 300 crore to pay for salary, vendors, rent and replenish

stocks had to be infused by its stakeholders.

However, things were not going smoothly. Subhiksha got legal notices from its vendors such as HCL

Infosystems and Hindustan Unilever (HUL) for defaulting on outstanding payment in October 2008 (Business

Standards Reporter, 2012).37

In February 2009, ICICI Ventures, having smelt irregularities. It wrote to

Registrar of Companies (RoC) to probe into the affairs of Subhiksha Trading Services from April 2007 (Press

Trust of India, 2009)38

because the audited reports were available as of April 2007 only. Litigations were filed

against the company by vendors, banks and employees. Kotak Mahindra Bank filed a petition in Madras High

Court to wind-up the operations of Subhiksha Trading Services. The case went from one court to other

including the Supreme Court. Finally, the Madras High Court passed the order to wind-up the company on

February 29, 2009 (Business Line, 2009)39

after finding that Subhiksha’s revival was not viable. Eventually,

Subhiksha founder Mr. Subramaniam was arrested on September 19, 2015 by the Economic Offences Wing

(EOW) of the Tamil Nadu Police (Business Standard, 2015).40




3.9 Conclusion

Subhiskha neighbourhood retail chain was a wonderful business model started with lot of imagination by its

founder Mr. R. Subramaniam. In the beginning, the Subhiksha‟s stores were professionally managed and the

growth was smooth. Number of Stores increased and also merchandise category were expanded. The retail

and supply chain strategies enabled the chain to offer their customers „Every-Day-Low-Pricing‟. Problems

accentuated when the company started expanding the stores in a reckless manner. The company did not infuse

the equity at right time and relied heavily on debt. With expansion on, there was not sufficient fund for

working capital management, paying vendors and employees. The problems compounded resulting in

litigations. Finally, the court ordered the winding-off Subhiksha, native-grown Indian retail chain and the

arrest of its founder Mr. R. Subramaniam.

References 1http://www.subhiksha.in/aboutus.htm

2 Shobha Warrier, “Success story of Subhiksha, India‟s largest retail chain: An exclusive Interview of Subhiksha

Managing Director R. Subramaniam”, www.rediffmail.com, February 05, 2007. 3Vinay Kamath, “Discount retail chain Subhiksha plans IPO – Proposes to roll out stores across the country soon”,

Business Line, February 24, 2006. 4www. subhiksha.in

5Business Line Bureau, “Retail can have a multiplier effect”, Business Line, October 11, 2004.

6Supriya Verma & Kewal Thakkar, “The Myth and reality of retail groceries”, The Economic Times, Bangalore,

September 26, 2007. 7 “The common man‟s retailer”, The Economic Times, Bangalore, October 02, 2007.

8 Shobhana Subramanian, “Small is the New Big. Why Subhiksha is saying no to hypermarkets?”, The Strategist,

Business Standard, September 23, 2007 9www.subhisha.in

10 Rajiv Banerjee, “Subhiksha draws up cluster-bombing plan”, Economic Times, Bangalore, December 06, 2006.

11Business Line Bureau, “Retailing space costs may ease”, Business Line, January 01, 2008.

12 Nitya Varadarajan, “Another Retail IPO, Subhiksha may finally hit the markets early next year”, Business Today,

December 16, 2007. 13

Business Standard, September 25, 2007. 14

Vinay Kamath, “ICICI ventures hikes stake in retailer Subhiksha to 24%”, Business Line, December 22, 2004. 15

Ratna Bhushan, “Food for retail thought”, Business Line, June 19, 2003. 16

Niranjan Mudholkar, “Small to Big – The Retail Story”, Economic Times, Bangalore,March 13, 2007. 17

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Padmapriya J, “Retailer Subhiksha may sell computers too”, The Economic Times Bangalore, April 15, 2008. 22

Debdatta Das, “Subhiksha defers IPO plans”, http://www.ndtvprofit.com/2008/05/06223754/ Subhiksha-defers-IPO-

plans.html, May 06, 2008. 23

Bijoy Ghosh, “After grocery, Subhiksha eyes mobile phone market”, Business Line, July 26, 2007 24

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Commodity Online, “Subhiksha now, will Reliance Fresh be next?”,

http://www.commodityonline.com/news/Subhiksha-now-will-Reliance-Fresh-be-next-15526-3-1.html, February 26,

2009. 26

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Sify Business, “If needed, I am willing to quit: Subhiksha chief”, February 26, 2009. 29

Reeba Zachariah & TK Rohit, “Tata Tele notice to Subhiksha”, Times of India, February 27, 2009. 30

Economic Times Bureau, “Worries galore at Subhiksha”, February22, 2009. 31

Vinay Kamath, R. Ravikumar, “Subhiksha revival hinges on speedy debt restructuring”, Business Line, February 14,

2009. 32

Ratna Bhushan, “Food for retail thought”, Business Line, June 19, 2003.

http://www.rediffmail.com/

http://www.ndtvprofit.com/2008/05/06223754/

http://www.commodityonline.com/




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Samidha Sharma & Dev Chatterjee, “Deloitte faces heat over Subhiksha's audit”, The Economic Times, February 26,

2009. 35

Nandini Sivakumar, “Subhiksha cut TDS for 6 months, but didn‟t remit”, Economic Times, August 13, 2009. 36

N. Madhavan, “Pushing the accelerator instead of brakes”, Mail Today, June 13, 2009. 37

BS Reporter, “Madras HC orders shutdown of Subhiksha”, Business Standard, March 01, 2012. 38

PTI, “Subhiksha management kept investors in dark: ICICI Venture”, Press Trust of India, February 23, 2009. 39

BL Reporter, “Court orders winding up of retail chain Subhiksha”, Business Line, March 01, 2009. 40

BS Reporter, “Subhiksha founder Subramanian held for alleged fraud”, Business Standards, September 20, 2015.

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