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Subhiksha: Managing Store Operations Case Solution & Answer

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Founded in 1997, Subhiksha had grown from one store in 1997 to more than 1,000 outlets in 2008. He sold FMCG, supermarket, pharmacy, mobile products, and fruits and vegetables (F & V). It was the largest supermarket chain selling mobile in India with presence in 90 cities. In 2008, organized retail accounts for about 4% share of the industry. Well organized retail has been identified as a high growth area in mid-2008, players who had entered the Indian retail had realized that the organized retail business in India would be difficult. Different actors (Reliance, Bharti, Birla and the Future group) have been experimenting with different formats and styles. Subhiksha decided to come with its own model which in his view was adapted to the Indian context. Subhiksha direct the middle and lower classes, and not the high-end customers. To do this, we work with a model of everyday low prices and to find several small shops closer to customers. At the operational level, constantly expected to increase efficiency of the supply chain to deliver goods at low prices. Subhiksha’s business model is explained by a detailed description of the operations of a store (Indiranagar) located in Bangalore. Operation of the distribution center that has served the Indiranagar store apart from serving another 58 shops is also described. The case examines the challenges of organized retail in general and specific problems of managing inventory and costs of a discount store. It also provides detailed data that can be used for system diagnostics supply chain Subhiksha. by Janat Shah, Rahul Patil Trilochan Sastry Source: Indian Institute of Management Bangalore 23 pages. Publication Date: 01 May 2010. Prod #: IMB323-PDF-ENG Subhiksha: Store Operations Management Solution Case

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Subhiksha Rise & Fall – Case Study

Subhiksha, once the blue eyed boy of Indian retail, R Subramaniam in 1997 pioneered the value retailing concept in India and has now become a case study on what not to do in the industry.

Subhikasha had a go to market strategy, they started off in Chennai by opening small (not more than 1500 sf) stores retailing food and groceries. Retailing at below market prices, using a low cost approach (eg. Non‐AC stores), helped the company succeed in its initial years, opening 150 stores in Tamil Nadu by 2006.

Downfall of the company began in 2006-07 when it took up an aggressive pan India expansion plan and opened a staggering 1400 stores across the country in less than two years. Store formats were altered to include other items like mobile phones on their shelves to offer a ‘one‐stop’ shop to the customer.

To fund the CAPEX of opening new stores Subhiksha took on Rs8bn debt, which added financial leverage to the already existing operating leverage in the business model. New stores failed to take off and the company was faced with the unprecedented slowdown at the end of 2008 (subprime crisis). The heavy interest burden blocked the equity funding and high rentals caught the company in a classic cash flow riddle. The company could not even pay its employee’s salary dues. It finally had to shut shop in February 2009.

Un-Mindful expansion, capital; structure and poor inventory management led to the failure. Worse was Venture Capitalists [ICICI] who funded the company never even bothered to take stock of the situation and thus shutdown was inevitable.

Related Reading:

• Azim Premji in Legal Battle with Subhiksha
• Subhiksha Group Valued at $500 Million
• Top 10 Strategies for Success – Part – I
• Subhiksha Mobile – Chain of Stores
• Subhiksha cheaper than Foodworld, Trinethra, Nilgiris etc

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Subhiksha: Managing Store Operations

By: Janat Shah, Rahul Patil, Trilochan Sastry

Founded in 1997, Subhiksha had grown from one store in 1997 to more than 1000 retail outlets in 2008. It sold FMCG, grocery, pharmacy, mobile products, and fruits and vegetables (F & V). It was the…

• Length: 23 page(s)
• Publication Date: May 1, 2010
• Discipline: Operations Management
• Product #: IMB323-PDF-ENG

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Founded in 1997, Subhiksha had grown from one store in 1997 to more than 1000 retail outlets in 2008. It sold FMCG, grocery, pharmacy, mobile products, and fruits and vegetables (F & V). It was the largest supermarket and mobile retail chain in India with presence in 90 cities. In 2008, organized retail accounted for about 4% industry share. Although organized retail was identified as high-growth area by the middle of 2008, players who had entered the Indian retail had realized that organized retail in India was going to be tough business. Various players (Reliance, Bharti, Birla, and the Future Group) were experimenting with different formats and models. Subhiksha decided to come up with its own model which in its view was suitable to the Indian context. Subhiksha targeted the middle and lower classes and not the high-end customers. To do so, it operated with an everyday low pricing model and located several smaller stores to move closer to the customer. At the operational level, it constantly planned to increase the supply chain process efficiency to deliver goods at low prices. The Subhiksha business model is explained through a detailed description of operations of a store (Indiranagar) located in Bangalore. It also describes operations of the distribution center which served the Indiranagar store apart from serving 58 other stores. The case discusses the challenges of organized retail in general and specific challenges of inventory and cost management for a discount retailer. It also provides detailed data which can be used for the diagnosis of the supply chain system at Subhiksha.

Learning Objectives

The Subhiksha case is a comprehensive case dealing with retail operations and supply chain issues in the retail context.. It is also an useful case discussing the complexity of introducing an unique business model in the Indian organized retail context. The case can be used in following courses: Service management, Supply Chain Management, Management of Operations, Retail Operations, Business Models for Emerging Economy.

May 1, 2010

Discipline:

Operations Management

Geographies:

Industries:

Food industry

Indian Institute of Management-Bangalore

IMB323-PDF-ENG

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Founded in 1997, Subhiksha had grown from one store in 1997 to more than 1000 retail outlets in 2008. It sold FMCG, grocery, pharmacy, mobile products, and fruits and vegetables (F & V). It was the largest supermarket and mobile retail chain in India with presence in 90 cities. In 2008, organized retail accounted for about 4% industry share. Although organized retail was identified as high-growth area by the middle of 2008, players who had entered the Indian retail had realized that organized retail in India was going to be tough business. Various players (Reliance, Bharti, Birla, and the Future Group) were experimenting with different formats and models. Subhiksha decided to come up with its own model which in its view was suitable to the Indian context. Subhiksha targeted the middle and lower classes and not the high-end customers. To do so, it operated with an everyday low pricing model and located several smaller stores to move closer to the customer. At the operational level, it constantly planned to increase the supply chain process efficiency to deliver goods at low prices. The Subhiksha business model is explained through a detailed description of operations of a store (Indiranagar) located in Bangalore. It also describes operations of the distribution center which served the Indiranagar store apart from serving 58 other stores. The case discusses the challenges of organized retail in general and specific challenges of inventory and cost management for a discount retailer. It also provides detailed data which can be used for the diagnosis of the supply chain system at Subhiksha.

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