operational analysis of subhiksha

8/7/2019 Operational Analysis of Subhiksha

http://slidepdf.com/reader/full/operational-analysis-of-subhiksha 1/6

OPERATIONAL ANALYSIS OF

SUBHIKSHA RETAIL STORE

Submitted To:

Proff. M.H.Varma

Roll No. 10BSP0775



About Subhiksha:

Subhiksha was an Indian retail chain selling groceries, fruits, vegetables, medicines and mobile

phones. It began operations in 1997 with the theme Why pay more wnen we can getit for lessat subhiksha and was closed down in 2009 owing to financial mismanagement and a severe

cash crunch. It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit) came to his mind.

Organised retail, in India, was non-existent. Subramanian, an IIT Madras and IIM Ahmedabad

alumnus, was then into the financial services business of asset securitisation. Research revealed

that grocery was one of the largest categories of spending for the average customer, that they

were extremely price sensitive on groceries and that discount stores were the largest growing

format. But unlike in the West, people in India preferred to shop groceries close by. The model

slowly fell into placea large number of small stores with easy accessibility offering products at

a discount.

Pr oduct Var iety:

Subhiksha offered customers a wide selection to choose from:

y Q uality groceries, packaged foods, cosmetics and toiletries all available in the lowest

prices.

y A large range of fresh fruits and vegetables sourced directly from farms.

y All medicines were made available to customers at flat 10% discount.

y Subhiksha was once the largest mobile retailer and offered handsets and accessories

from all brands like Nokia, Motorola, LG etc.

C apacity Utilization:

Subhiksha began with a single grocery store at Chennai in 1997. Subhiksha stores increased

from 50 in 2000 to 140 by 2002-03(spread across 30 towns in Tamilnadu) to 670 by 2006-07 to

1650 by September, 2008. Subhiksha had three models:

y Pharmacies only which are 150 square feet in area.

y Departmental stores plus pharmacies, 1000-1200 square feet, and

y Supermarkets plus Pharmacies, 1600-2000 square feet.



Pr oductivity:

Subhiksha had around 25000 employees working under it and The humungous quantum of

money raised was spent largely on store expansion (without caring about store-by-storeviability) and not on strengthening the backend including supply chain, distribution and

replenishment logistics or improving customer experience or even building employee

capabilities.

Supply C hain management:

Interestedly, at Subhiksha, a person will find limited choice in some product ranges. Subhiksha

stocked generally two or more popular brands in each product segment. This generallyconstituted about 95% of sales even in stores which stock a large number of brands. This was

implemented to make its model even more efficient in supply chain management and offering

low prives to the customers. Subhiksha used to get about 30 days credit from suppliers and

used about 7 days for its cycle saving 23 days value. Subhiksha had to face furious opposition at

every stage from fellow retail traders as manufacturers and companies have tried refusing to

supply Subhiksha. The tactic of offering pharmaceuticals at a 10 percent discount in particular

caused a great deal of controversy. Pharmacy companies, distributors and chemists have been

up in arms against the discounting by Subhiksha. To be able to offer such a high level of

discount and still be profitable, Subhiksha needed three things,

1. Large volumes to enable volume discounts from

2. Manufacturers and cut out middleman

3. Slash overheads and inventory costs.

It played a major role in procurement of FMCG products. System of determining order for every

store Minimum Bay Quantity (MBQ) system was followed. There was no continuous

replenishment of stocks (CRS). CRS was tried to be followed earlier nut it did not work due to

high amount of damages and pilferages. There were around 400 stock keeping units (SKU) in

FMCG and 133 were ordered every day.

I nventor y Management :

Credit defaults at later stages caused supply breakages. Hence it led to situations where either

there was huge store inventories going bad or the stores simply did not have stocks.

Inconsistency resulted in customer dissatisfaction with store franchise. Furthermore,



unrestrained practices like reselling to other retailers, made companies squeeze supplies. In the

rush to pump R.O.I. and turnovers, Subhiksha stores were resorting to indiscipline and wasteful

practices.

Ener gy Management:

Between 2006-07 and 2007-08 Subhiksha doubled its stores (from 670 to 1,320), tripled itsrevenues (from Rs 833 crore to Rs 2,305 crore) and almost quadrupled profits (from Rs 11 crore

to Rs 39 crore). By then Subhiksha had become the country¶s largest mobile phone retailer withan annual turnover of Rs 1,000 crore.

Multi- location:

Subhiksha was a multi-location, professionally managed and vibrant organization. It had the

pan India presence with stores across Delhi, UP, Punjab, Haryana, Gujarat, Maharashtra,

Andhra Pradesh, Karnataka, Kerala and Tamilnadu.

St r ategies:

y Its USP was offering the branded goods at a lower price than the competitors.

y Subhiksha followed an everyday low price scheme where it offered low prices everysingle day.

y Apart from following the discount model, it also followed the carpet bombing model

used by STARBUCKS so that it could be nearly at every corner of the city.

y Introduction of Subhiksha cards for customers that provided them with discount every

time they swiped their card and also aided in home delivery.

y The use of Bar code system helped in identification and billing of the product at the

point of sale.

F ailur e:

The management had committed some eventual mistakes which had led the company

towards the downward position. The first and big mistake committed by the management

of Subhiksha is expanding the number of stores rapidly without sufficient funds in hand.

Consequently, the company ran out of enough funds to run the organization.



y Subhiksha 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, was also carrying a

debt of Rs 600 crore at an average interest cost of 12 per cent per annum.

y Expansion of Stores without adequate system control and IT Support. Thats why there

was a huge Audit and abnormal losses in the system.

y Lack of strong Hr policy and Staff--- Due to this Subhiksha was not able to retain the

talent which initially bring into Junior, Middle and high level management.

y They were paying huge rentals for the stores, which was a huge drain on the company's

finances. There were 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.

Analysis and suggestion:

y Subhiksha was concentrating more on expansion than on increasing sales and profit.

y It chose debt over equity to fund expansion.

y It was not redefining its goals from time to time keeping in mind the external and

internal environment.

y There was lack of communication which led to its downfall.

y It made a mistake of diverting working capital to fund expansion and consequently

vendor payments were defaulted.

y It should go in for much delayed corporate debt restructuring(CDR) to bring it back to

life.

operational analysis of subhiksha

Documents