Making of Largest Retail chain in India : Subhiksha
February 8, 2007 | In: Uncategorized
Recently Rediff.com carried a very interesting interview with first generation entrepreneur R Subramanian, who started Subhiksha around 10 years ago, with its first store opened in Chennai in 1997.
Subramanian who did his B.Tech from IIT and PGDBM ( MBA) from IIM, Ahmedabad has many first to his credit like starting asset securitization in early 90s, IPO financing in 94 and debentures trading.
Some of the excerpts from this interview related to popular retail chain “Subhiksha”. http://specials.rediff.com/money/2007/feb/05bspec.htm
Entering the retail market ten years ago
There was no great logic behind entering the retail market in 1997. We made a study of two areas: software and retail. Between software and retail, we thought we were a bit late for software as Satyam, Infosys, Wipro, TCS, etc had already established by then. We didn’t want to be a small and late entrant.
In retail, we would be one of the early entrants, so we would have the learning curve much to our advantage. We allocated a Rs 5 crore (Rs 50 million) corpus to it and entered the retail business. There was a lot of thought process behind it. We wanted to attract not the top end customer but the aam aadmi.
From our research of three months, we found that consumers prefer buying groceries from closer home. So, we decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big store at one location in Chennai.
The next question was why would he come to our store abandoning the existing store? It had to be the price, because ultimately there is no difference between the branded products like say Boost or Surf or such things. So, we decided to sell branded products at a lower price.
On starting Subhiksha
We looked at all sorts of names; and finally we chose the Sanskrit word Subhiksha (prosperity) because it reflects the Indian ethos and it is a word that can be understood all over India. What we were trying to do was different from the western model; our model is truly Indian. Our theme was, why pay more when you can get it for less at Subhiksha?
In March, 1997, we opened our first store in Thiruvanmiyoor in Chennai with an investment of around Rs 4-5 lakh (Rs 400,000-500,000). We opened it with the clear idea that it is part of a larger system. We thought the day we opened, there would be a stampede because the prices were low and we would sell goods of Rs 30-40 lakh (Rs 3-4 million) by the month end. But there was nothing of that sort! We sold goods of only Rs 5-6 lakh (Rs 500,000-600,000) in the first month.
On his expansion plans
By March 1999, we started expanding rapidly. From 14 stores, we expanded to 50 stores by June 2000. In the next two years, we had 120-130 stores across Tamil Nadu. Another big thing was, in 2000, ICICI Venture invested in our company. Today, we have 145 stores all over Tamil Nadu.
We saw to it that the moment we got into a city, we started as many stores as possible there. Only that made business sense. Then, till 2004, we made sure that we consolidated before we expanded, though there was a lot of pressure on us to expand nationally.
We decided to look at every part of India which is significantly literate and is a significant consumption market. We wanted to be everywhere. We looked at the telecom companies as our role model. They employed capable regional managers and expanded.
Our business is also extremely local. We can’t sit in Chennai and run a store in Chandigarh. We decided to have very good quality people to run the region, area, town and the store.
In 2004-05, we decided to have 420 stores in places like Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006. In 2005, we started recruiting people in various regions. Today, we have 500 plus stores in all the places that we had planned. It will go up to 600-plus by the month end.
We are already India’s largest retail chain store with 500-plus stores. We plan to have 1,000-plus stores by the end of this year.
Risk in retailing and expansion?
We are not mad risk takers. We are not producing movies. We do a lot of research before starting business in an area, and we have back-up plans in place. We work with very good people, and if something goes wrong, we try to take corrective steps.
The big advantage we have is, we are not creating products. So there are no worries about whether it would succeed or not. Consumers are smart and they are all price-conscious and they want to finish the work as fast as they can. They don’t go to a provision store for fun.
On the entry of MNCs and Reliance in the retail market
Everybody has been asking me, are you worried about Wal-Mart coming to India? Ultimately Wal-Mart is also going to be run by people like us. The point is you need not worry about anybody’s entry. There is a huge potential for growth in India. There is potential for another ten people to come in.
Ultimately the share of the unorganised kiranas will come down and the share of organised sector will go up because of the efficacy in buying and distributing. Also, this is an extremely low margin business. Ultimately, everybody has to sell within the cost. It is not that we are geniuses; we have been in the business for ten years, and we have made enough mistakes and learnt from them.
I don’t think any child will learn to walk without falling down first, however good the parent is.
We made our mistakes when we were small. The bigger you are, the mistakes will cost you more.
For detailed reading of the full interview as published at Rediff, Kindly click here
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