India

REASONS THAT TRIGGERED SUBHIKSHA’S FALL

Subhiksha – started in 1997 was only 150 Stores Company till 2006 – and suddenly grew to 1,600 stores by 2008. The rapid expansion brought in revenues, but over-confidence blinded the company which led to its downfall. They were over-confident that since they ran a good business, equity would always be there for them. They didn’t budget for a time when there would be no money (recession). Dominant reasons for the downfall were-

(1) Rapid expansion without consolidation and focus- the early years of Subhiksha was a mix of growth and consolidation. As the industry is having very less margin to offer, to generate high revenue they have to sell more. They started very aggressive expansion to generate revenue but undermined the importance of consolidation. The other reason why this expansion did not work was, at the beginning they started their business in South India. Their expansion in starting years was only in South Indian cities but later on they started their expansion all across the country. Managing the whole country suddenly became a herculean task which they were not able to perform.

(2) Correct Format & Wrong Strategy or Correct Strategy & Wrong Format-Subhiksha was neither a supermarket nor a normal retail shop. This special format required a special plan which they were not able to deliver.

(3) Small retail format- Subhiksha tried to compete with neighborhood grocery store on the promise of discount on MRP, and to fulfill his promise, while preserving the required margin they need to be able to negotiate substantially lower rates with suppliers. Subhiksha’s operations came to a standstill due to nan payment of salaries, huge debt burden and arrears to suppliers.

(4) Cannibalization of their own stores- Subhiksha’s strategy of carpet bombing their preferred location often lead to cannibalization their own stores customers. Though R. Subramanian states that he would rather prefer to be...