Subhiksha: Managing

store operations

ANKUR SHUKL A -002

AJAY KAUSHIK -006
AKSHAY GAT HE KAR -008
Subhiksha-The Introduction
Largest retail value chain in India with 1600 outlets started in 1997 .
From 150 stores in Sept 2006 all of which were in Tamil Nadu the company grew rapidly to over
1600 stores by Sept 2008 across the country.
The company’s investors include Wipro’s Azim Premji and ICICI Prudential Mutual fund apart
from the ESOP Trust.
Outline
Retail Stores
◦ Types of Retail Formats in India
◦ Complexities in Retailing

About Subhiksha
◦ Retailing scenario in India
◦ Retail format of Subhiksha
◦ About Subhiksha (Vision, Mission, Internal Analysis, Fund Raising)
◦ Segmentation, Targeting & Positioning
◦ Promotion, Distribution, Pricing & Competitors
◦ Decline of Subhiksha
◦ Reasons of Decline
◦ Revival Strategies of Subhiksha
Types of Retail Formats in India
Mom & Pop Stores (Kirana Stores)
Departmental Stores (Westside, Lifestyle)
Category Killers (Best Buy, E-Zone)
Malls (Inorbit, Ansal Plaza)
Discount Stores (Primus Retail)
Supermarkets (Haiko)
Street Vendors (Hawkers)
Hypermarkets (Reliance Fresh, Big Bazar)
Kiosks (CCD Express)
Internal Analysis
Establish itself as a neighborhood store
Everyday low price system
Wanted to attain greater penetration in all markets
Lease rental system for stores
Centralized purchasing
 What is the business model of Subhiksha?

Subhiksha was a chain of “no frills” discount retail stores that started initially with food & vegetables but later on
added mobile & medicines to its product offerings.
It worked on a hub & spoke model with centralized purchase system & warehouse that dealt directly with
companies to avoid multiple billing & negotiations from suppliers.
It optimized on the heavy discounts it earned from bulk purchases mainly on a regional level since trade with all
other FMCG companies were mainly fixed.
The pricing model in all its stores was ELDP across various SKU’s present in the store with a discount of about 8%-
10% offered against MRP. Although in a typical small store 70% of the space was allocated to FMCG products the
margins obtained from it was relatively low as compared to mobile & F&V categories. The retail model was
basically working “the Indian way” i.e. its primary customer segments included the middle & lower middle class
population.
It was also highly customer service oriented with most of its stores located along catchment areas of residential
locations. Subhiksha also had an aggressive & impulsive expansion policy with growth from just 10 to 1000 stores
in less than 8 years.
Business 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, has guided Subhiksha to
deliver savings to all consumers on each and every item that they need in their daily lives, 365
days a year, without any compromise on quality of goods purchased.
 Product Portfolio
Supermarket:
The supermarket includes quality groceries, packaged foods, cosmetics and toiletries, household provisions,
etc.
Fruits and Vegetables:
Includes fresh fruits and vegetables sourced directly from farms on city outskirts by Subhiksha and made
available to the consumers at very reasonable prices. Consumers get fresh produce atbest prices.

Pharmacy:
Subhiksha stores generally have a in store pharmacy which stores mostly basic medicines. All medicines are
made available to consumers at a flat 10% discount.

Telecom:
Subhiksha is recently forayed into mobile retailer business and offers handsets, recharge cards and
accessories from all leading cell phone manufacturer’s at lower prices.
Identify key challenges faced by Subhiksha.

The key challenges faced by Subhiksha would be the following

◦ Subhiksha added mobiles to its product offering with the logic that Nokia was growing faster than HUL
back in 2005. However by 2008 smart phone technology had emerged & it was not a viable option to
continue selling mobile phones from the store. Aiming to gain footfalls from this line of product range
was definitely a counter-productive idea.
◦ Subhiksha had allocated 70% store space to FMCG products which were gaining very thin margins.
Added to that it had 1200 different SKU’s to cater to 90% need fulfilment of the customer. This had huge
operational & economic considerations which was not sustainable in the long run.
◦ The fact that Subhiksha catered to low-to-middle class people stocking 950 branded & private label
merchandise in FMCG again was not seeming feasible enough to sustain.
◦ It was true that Subhiksha offered 8%-10% discount in every item purchased below MRP. But the same
did not result in significant savings from a consumer perspective. Also from Exhibit 5 we see that the “so
called” EDLP was on similar lines with comparable stores like Nilgiris & More. & hence loss in
differentiation strategy.
Contd.
Subhiksha had maximum footfalls during the first ten days of the month. However their minimum
inventory was constantly maintained at a fixed level all through the month. Dynamic inventory was still
in experimenting phase.
There was a misfit between the company’s strategic goals & supply chain goals which in turn resulted in
high expenses all through. While one can observe their motto was to serve the middle class to lower
middle class strata at affordable pricing it was also catering with best customer service practices.
Installing two cash counters, time motion study etc are examples of the misalignment.
Subhiksha paid very little importance to employee satisfaction. One can clearly observe from the case
that the warehouses, stores did not have facilities like air-conditioning. Instead of rewarding employees
through cash Subhiksha incentivised through in-house coupons which were of no significant use to the
semi-rural workers. This reason could be attributed to the high attrition observe in Subhiksha.
Although their inventory levels for grocery & mobiles were close to zero it had huge inventory of FMCG
products that had varying service levels. This in turn increased overhead costs.
Contd.
Transportation was sourced to a third party who had minimum commitment & additional
rupees/km clause. Instead if Subhiksha could have managed to vertically integrate into
transportation on its own it could have saved crores every year.
The Hoskote warehouse made use of minimum technology & almost every operation was
manual in nature. The company was planning to install a SAP module. This again depicts
Subhiksha’s slow adaptability to technological advances.
Owing to the fragile nature of F&V products the company incurred huge pilferage losses which
had no solid mechanism in place for cross-counter.
 
 Logistics and supply management
Subhiksha believed in the philosophy that if there is excess inventory in the system, it should
be kept in the store rather than in the warehouse subject to availability of storage space

So if there was excess stock, it was kept in the hub store because lead-time of supply from hub
store to another store was half a day compared to two days from the warehouse.

The warehouse delivered the goods to the store twice a day (F & V in morning and
supermarket in the afternoon).

Usually all the required supplies of the store were made from the warehouse but it was not
unusual to carry out inter-store transfer based on demand and inventory situations at relevant
stores. On an average, the store inventory was around six lacs
Inventory levels were very tightly controlled at the store .Unlike other firms; Subhiksha
managed to operate with inventory turns close to about 20-25.

The store compiled and sent electronically this information in the early afternoon to the MIS
department located in the area head office.

F & V had its own challenges. In the past, it was difficult to ensure that F & V would reach early
in the morning. Later, the delivery schedule was such that they reached the store before 7.30
am.

In the supermarket, the SKUs were divided into A to K classes in the descending order of the
sales value/period (demand/period times price/unit).
Greater attention was paid to the A to D category, each category having 100-125 SKUs, which
accounted for around 80% of the total sales

A-class SKUs were reviewed on a daily basis while B, C, and D class SKUs were reviewed twice a
week. The remaining SKUs (classified as E-K classes) were reviewed twice a month

Based on the category of the item, maximum batch quantity (MBQ) levels were fixed for each
SKU.

For example, MBQ for A category item would be fixed at 3 days of demand while the same for
B-D categories would be fixed at 6 days of demand and MBQ level for E-K categories were fixed
at 15 days of demand
 Inventory Management
According to the Subhiksha philosophy, a warehouse should operate as a cross-docking point
and should not keep much inventory

Its warehouse inventory for mobiles and F & V products lines was close to zero. In grocery, as it
bought materials in bulk and also had some processing lead-time, it maintained some amount of
inventory

Within FMCG products, it maintained stocks for A to D category of items. For other categories,
it acted as a cross-docking point.

The total inventory in a region (inventories at the stores within a region and the warehouse)
was very tightly controlled.

Category-wise inventory levels were monitored by R. Subramanian(Managing Director) himself.

 Information Technology

The MIS and the warehouses used the existing backend IT system (Microsoft Office).

The store made use of and further developed the existing internally developed 3V2 software.
This software was continuously improved to build customer intelligence

Loyalty cards were used to understand individual customer shopping behavior and preferences.

The backend system would however be made compatible with the store system. Also, 1 MBPS
line would be used to connect both the front and backend operations
 Transportation Management
The F & V SKUs were dispatched to the stores in the early morning (6 a.m.). The truck returned to
the warehouse at 11 am. About 14 vehicles were used for transport

A typical vehicle served the demand of 3-4 stores (called as the belt). The belt area layout,
loading, and unloading processes were sequenced to increase speed and reduce interference
and hence reduce the damage possibilities

Stores were combined into belts so that vehicle transportation got reduced. The transportation
was managed by a third party that could provide additional vehicles at short notice

The transport agreement consisted of minimum commitment plus additional rupees/km clause.
 Supply Management
Around 40 suppliers (10 are major) supplied to the warehouse as per the supply norms. For
example, Hindustan Lever Limited supplied every day. Most of the suppliers supplied the
products from their state depots

As a result, the warehouse did not incur sales tax

Some suppliers expected a minimum order quantity. Nestle supplied once in a week (from
Chennai depot) to manage the transportation costs

Average supplier lead time varied between 1 and 5 days.

Unfortunately, service levels of most of FMCG suppliers are in the range of 70% to 85% which
resulted in lack of knowledge which items would not be supplied and lack of supply from FMCG
players directly translated into stock outs into the stores, because of very lean strategy adopted
Retail Strategy
Subhiksha focuses on two factors for its model.
These are called the two C's:

1. Criticality of Cost.
2. Convenience of Buying
Internal Analysis
Small Store/Cost Saving.
EDLP.
Lower Infrastructure Cost.
Centralized Purchasing.
Marketing Communication.
Introduction of Subshikham card.
Establishment of Home Delivery and Online retail system.
EXPANSION Time LiNE
 In March 1997 opening of the first retail store in Chennai, with 5 lacs initial investment.
 March 99‐ 14 stores in Chennai.
June 2000‐ 50 stores in Chennai, ICICI ventures joins Subhiksha.
June 2002‐ 120 stores in whole of Tamil Nadu.
June 2006‐ 420 stores in other big states in India namely Gujarat, Delhi, Mumbai, Andhra Pradesh
and Karnataka.
Feb 2007‐500 stores across country
Dec 2007‐ 1000 stores across India
October 2008‐ 1600 stores across India
SWOT Analysis
Comparison of Subhiksha with other
Retail Outlets
Product Range
Positioning
Store Format
Strength
Price
How is Subhiksha different from a regular
Kirana store or the grocery section in Big Bazar?
Subhiksha is a no frills EDLP format store. It is different from the Kirana stores the traditional mom &
pop stores in the following ways:
◦ It sells products to its customers at an assured 8%-10% discount below the MRP. Whereas Kirana stores always
sell their items at fixed MRP.
◦ Kirana stores have high level of customer trust because of their credit lending capacity. The same trust cannot
be built in Subhiksha which could not offer any such facilities to its customers.
◦ The Kirana stores are very small in area & can accommodate only few SKU’s. Hence they store items that are
most relevant to the target segment. Unlike Subhiksha they are also no frills store but they incur very low
inventory & storage costs because of low SKUs
◦ Kirana stores primarily focus on one category for sale like FMCG & F&V
◦ Kirana stores are generally family businesses & hence problems related to human resource is easily solved.
◦ Kirana stores basically cater to the urgent & every day needs of the customer. Hence footfalls remain fairly
constant overall throughout the month.
◦ There is hardly any IT involvement in Kirana stores.
Subhiksha is different from the grocery section in Big Bazar supermarket because
 Big Bazar is concentrated to selling only FMCG & F&V products unlike Subhiksha which sold medicines &
mobiles.
 Big Bazar offers a slew of promotions all throughout the week & attracting footfalls into grocery is not
very difficult as it forms a part of the bigger chain. Whereas attracting footfalls into Subhiksha was
difficult all through the month.
 Subhiksha’s motto was to cater to the needs of lower middle class & middle class families whereas Big
Bazar is just focussed on “cost leadership” like Wal-Mart & does not differentiate on basis of customer
segments.
 Big Bazar has IT solutions like ERP implementation unlike Subhiksha.
 The scale of operations in one Big Bazar grocery store is very high as compared to Subhiksha. Hence the
fixed costs & other overhead costs accumulated over a period of time get distributed evenly.
 However unlike Big Bazar, Subhiksha is located closer to neighbouring households & is far more accessible
than Big Bazar.
 Subhiksha had been facing “serious problems” in
2010.What might be the reasons behind this?
The reasons behind the serious problems faced by Subhiksha back in 2010 were

Poor inventory management: Subhiksha had huge warehouses that functioned in the hub & spoke model storing excess
inventory & increasing expenses eventually.
Lack of strong HR policies: The company was not swift enough in reforming the policies relating to employees to retain
skilled workforce.
Lack of inter-function alignment: The company had no standardized procedure for all outlets to perform exactly in the
same way. Hence the misfit.
Misfit in the Responsiveness & Efficiency frontier: The core competence around which Subhiksha drew its model was EDLP.
However it also tried to capture responsiveness towards its customers by installing several cash counters, time motion
study, free home delivery & so on.
High implied Uncertainty: Due to its huge variety of SKU & large inventory it increased the high uncertainty in selling each
items.
Low focus on supply chain surplus: Subhiksha had extremely low focus on supplier performance & hence higher costs
incurred from suppliers resulted in low supply chain surplus. Their value proposition of low prices was as good as any
other store like More or Nilgiris.
 Reasons 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.

Over confidence and Aggressiveness.

Thank You