BMT6180

Logistics and Supply Chain Management

A Classic Case of Lack of Strategic Fit: Rise and Fall of Subhikaha

Professor – Dr. Stephan Thangaiah IS

Submitted by
Name – M SIVANESAN
Reg No – 19MBA0002
1. What lessons does Subhiksha’s failure hold for Indian retailers seeking to
capture the large market through low price leadership route

The Biggest Mistake By The Management Was Expanding The Number Of Stores Rapidly
Without Having Sufficient Funds In Hand:
 They thought of raising equity during September 2008 but things had gone too far.
Global markets were reported collapsing and no possible chances of raising funds
remained. By October 2008, the company ran out of enough funds to run the
organization. Since then, Subhiksha has been continuously troubled by a set of problems
from all sides.
Poor Financial Management:
 Subhiksha Trading Services has come under fire from television channels for not clearing
advertising dues that run around Rs 80 Million. Subhiksha is believed to owe Rs 350
million against goods, Rs 180 million against wages, and Rs 200 million against lease
rents. According to the reports, Subhiksha is also carrying a debt of Rs 70 Billion at
an average interest cost of 12 per cent per annum. Uncontrolled increase in no. of stores
and personnel were bleeding their treasury. Subhiksha worked on very slim & zero
margins. Thus cash flows were high where as inflows in terms of margins were non-
existent.
Expansion Of Stores Without Adequate System Control And IT Support:
 On auditing, huge gaps were revealed financially as proper documentation was not
performed. They started implementation of SAP, but it was too late by then.
Supplier Bargaining Power:
 Many wholesale suppliers in Azadpur vegetables market have stopped supplying fruits
and vegetables to Subhiksha‟s outlets in the national capital region (New Delhi). This was
due to the company holding up payments for two to six months against the normal credit
period of one month.
Poor Inventory Management:
 Shelves at Subhiksha stores were usually empty. Stock-outs in the store led to loss of
business for the retail giant. Lack of communication (delay in implementation of SAP)
between the storage facilities of Subhiksha and their outlets proved to be costly. Customer
dissatisfaction was the overall result.
Strong Competition:
 Thus sinking, Subhiksha had to compete with its high profile competitors like RPG,
Reliance retail, Future group etc. Reliance Retail has set up 700 odd stores by 2008 almost
at the rate of one store per day. Future Group has begun opening a new no-frills discount
retail chain called KB‟s Fair Price Stores, a format similar in concept to Subhiksha stores.
Reliance Fresh on the other hand is high-end in terms of display, ambience and size.
Poor Supply Chain Management:

 Downstream supply chain of Subhiksha was not integrated. Subhiksha acted as a re-seller
at times by buying products from other vendors and selling them at almost zero margins.
Subhiksha tried to increase scale on bulk quantity purchases from vendors and a very
liberal credit term handed to them. Subhiksha delayed most of their payments to vendors
and this resulted in vendors moving back from further business with them.

 Subhiksha financed most of their operations and expansion plans through secured or
unsecured debt from banks. They were considering raising capital through equity route
however stock market started falling globally after collapse of Lehmann Brothers and they
are left with no option to go through this route. A certain amount of debt is good when a
company is making above average returns, however a company losing money in
operations and expansions will bleed with high debt financing. This is what happened in
case of Subhiksha.

2. Give argument to support the statement that Walmart has achieved good strategic
fit between its competitive and supply chain strategies
 The best argument to support the statement that Wal-Mart has achieved very good strategic
fit is their success as a company. Competition today is supply chain versus supply chain, not
company versus company, so a company’s partners in the supply chain often determine the
company’s success. Wal-Mart’s strategic focus on cost is evident in their competitive,
product development, supply chain, and marketing strategy. Their marketing strategy of
advertising everyday low prices appeals to consumers and does not disrupt the supply chain
by causing surges in demand. Visiting one of their big box stores reveals low-priced
merchandise, both national and store brands, stacked from floor to ceiling without elaborate
displays.
 Challenges Faced to Operate Smaller Format Stores like Subhiksha

Challenges faced
while
implementing IT

Challenges Challenges Challenges faced

faced from
location faced by form
Subhiksha competitors
decisions

Challenges
posed from
marketing
decisions

Challenges in Indian retiling - Post information technology

 In India, economics of small-format organized retailing is very challenging due to strong

competition from neighborhood kirana stores and vegetable vendors. Subhiksha did not
compete with the neighbour retailers and left the market before customers felt its presence
and before it could achieve the target of doubling the stores across the country. It failed to
deliver the services and had gone into severe debts.
Challenges from implementation of information technology
 “We are facing a lot of difficulty in accessing data across different regions using the local
ERP system” Ankur Saigal, Vice-president (Tech) and Subhiksha Trading services. Wide
spread retail chains rely on information technology as it plays an important role for speed
and accurate service to the customer. Even small individual retail outlets are benefiting
from information technology. The enterprise resource planning solutions help all sizes of
the companies by designing sales modules, relationship management, POS system, and
shipping orders. Information technology is extremely valuable function by providing a
direct link with the accounts receivable and inventory modules (Randy and Michael –
November, 2006). The company decided to invest more on effective ERP like SAP and has
taken long time to implement than expected accompanied by many problems like lack of
technical expertise and system users.

Challenges faced from competitors

 Subhiksha faced competition from strong multinational giants like, Reliance, More,
Fresh@Heritage, Big Bazar and many more local kirana stores. The strategies adopted
by these organized retailers like -ambience, display, availability of merchandize, window
shop- ping, free on board pricing are not followed by Subiksha. Table 2 shows the
comparative analysis of reputed retail stores at Film Nagar and Hyderabad.

Challenges from poor marketing decisions

 With increasing customer awareness, retailers should offer unique or special assortment
of goods that suits the demands of the customers at lower prices than its competitors. No
customers want to pay more for the same product. Products were not available at the
stores due to lack of stock or it could not make consistent decisions on promotional
services, product assortment, store décor and service levels. It did not focus on frequent
festive and promo- tional offers from time to time to attract and retain the customers.

Challenges from location and layout decisions

 Location and layout plays an important role in the success of every retail store. Though
there are number of stores located in major places they not in proximity to the market and
 there is low focus on target customers. Lack of parking place, poor visibility of
merchandize, improper maintenance of breadth and depth of the stores has created lot of
problems.

Conclusion
 Subhiksha operated for around 10 years; first 7.5 years growing moderately and last 2.5
years expanding at very aggressive pace. Even though starting in nascent Indian organized
retail sector they could not enjoy the benefits for long.
 Failure of the company can mostly be attributed to their own mistakes and to some extent
the coinciding of their expansion plans with global economic downturn. Subhiksha,
unlike many other enterprises, did not mitigate their risk by maintaining appropriate debt
and equity exposure for financing and could not service its mounting debts.