We are a golden egg laying duck, we are in trouble.

We need their ( bankers and lenders)support and upon

getting it we will restart operations and repay all debt. It is not easy, but we have to make it happen, says R
Subramanian, Founder, Promoter, andManaging Director of Subhiksha Trading Services, which owns
Subhiksha theIndias largest (in terms of number of stores), food and grocery, small format,neighbourhood,
convenience, discount retail chain. Subhiksha whichmeans prosperity in Sanskrit is on the verge of
bankruptcy dated 2 Feb, 2009.
Subhiksha in Sanskrit means the giver of all good things in life.Subhiksha with a pioneering approach
and giving new definitions to the retailing ventured into the Indian retail industry. Since, their predecessors
are already existedand doing well in the market, they had to come up with an innovative approach tocompete
with them. They have made an extensive research on customer behavior and found that offering the
branded goods at a lower price than their competitors couldmake them stand in the competitive
retail industry.He wanted to "pioneer a new trend " because of what he had found out about the
retailindustry: that the No.1 retailer makes the most money, the No. 2 makes some money,while the third
(and the others) has to eventually shut shop.In the year 1997, Subhiksha opened its first store at
Thiruvanmiyoor in Chennai with aninvestment of around Rs 4-5 lakh, with the theme, why pay more
when you can get itfor less at Subhiksha
By March 1999, Subhiksha started expanding rapidly. From 14 stores, it was expanded to 50 stores by June
2000. In the next two years, it had 120-130 stores across Tamil Nadu.They decided to look at every part of
India which is significantly literate and is asignificant consumption market. Telecom companies are their
role model. Theyemployed capable regional managers and expanded. In 2004-05, they decided to have420
stores in places like Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006. In2005, Subhiksha
started recruiting people in various regions.Subhiksha is currently operating over 1,500 supermarket stores
across more than 100cities selling food, grocery, drugs, and telecom products across INDIA
Opening a chain of no-frills stores-no air-conditioning, no fancy lighting, and no touch-and-feel experience
(customers have to ask for products at Subhiksha stores)-was adeliberate strategy. Shops are located not on the
main road, but just off it, to takeadvantage of vastly lower rentals. The catchment area of customers is rarely
beyond atwo-km radius, since its customers usually come on two-wheelers or on foot.

The triumphant journey of Subhiksha:

Until little over two years ago, Subhiksha was only a local player with 150 stores(September 2006) operating
mainly in Tamilnadu. The retailer began growing rapidlyoutside the state, soon after infusion of private equity
capital by I-venture, the venturecapital arm of ICICI. I-Venture took 24 per cent stake in the companys
equity,which until then was primarily held by Subramanian and his associates.
Riding on the back of rapid expansion, Subhikshas turnover grew from Rs 330 crore in2005-06 to Rs 833 crore
in 2006-07, and then to Rs 2,305 crore in 2007-08 (year endingMarch 31, 2008). Likewise, having grown from
150 stores in September, 2006 inTamilnadu to 1,600-odd stores across the country in September, 2008,
Subhiksha has been the envy of its competitors. By the end of this year, it was looking at grossing aturnover of Rs
4,300 crore from 2,300 stores. Interestingly, all the growth was,however, fuelled from a small net worth base of Rs
250 crore having equitycomponent of Rs 180 crore (face value of Rs 32 crore).

Risk in retailing and expansion

We are not mad risk takers. We are not producing movies. We do a lot of research beforestarting business in an
area, and we have back-up plans in place. We work with verygood 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
worriesabout whether it would succeed or not. Consumers are smart and they are all priceconscious and they want to finish the work as fast as they can. They don't go to aprovision store for
fun.However, as it happens with many growth stories, the retailer could not keep pace withits growth and got into
liquidity trap as in the hope increasing its valuations, itkept postponing infusion of equity funds

Need for an IT Solution

The need was first felt when the company began to face problems managing its front-end and
supply chain operations using its existing local Enterprise Resource Solution(ERP). We were
facing a lot of difficulty in accessing data across different regions using this local solution,"
concurs Ankur Saigal, vice president (Tech Initiative), SubhikshaTrading Services. "Besides
business expansion brings its own complexities and weneeded a robust platform to streamline
our operations and control."Furthermore, the company needed a solution to manage the payroll
system. Although itdidn't have any HR issues at the ground level, sending the payroll to
employees on timewas getting difficult. The system worked manually, with a central team taking
care of running 2-3 payroll systems in a month depending on the availability of the
bandwidthand the entire process.Keen to avoid further problems, the company decided to invest
in a more effective ERPsolution and zeroed in on the SAP All-In-One solution in July 2007.

Supply chain woes bare Subhiksha shelves

Inventory management is austere, too. All goods are bought on cash to extract themaximum
discount from suppliers; SKUs (stock keeping units, or the number of itemson display) are restricted to the fastest
moving ones of about 1,500. Most of the SKUsare bought directly from the manufacturer, cutting the intermediary
out. A supply chainsoftware, developed in-house, keeps track of what's selling and what isn't. Managementis
divided into two simple sections: operations, which is centralized and looks aftereverything from ordering to
accounting, and stores, which is responsible for all store-level activity. There's one manager for every three stores,
and he reports to a chiefmanager responsible for business development, who in turn reports to a vice
president.The VPs are responsible for sales targets.Mr R. Subramanian, Managing Director, admits to a
communication failure ininforming customers why store shelves are empty. There is a lot of pain around
SAP(being implemented by TCS). We didnt think it would take so long. All our 1,650 storesare being converted
and we cannot run a legacy system alongside SAP. An intermediatesystem in place means we will lose control.
He says that the stock outs in the storescould lead to some business losses but says the chain will bounce back
soon.

Turndown began at Subhiksha:

The management has committed some eventual mistakes which have led the companytowards the downward
position. The first and big mistake committed by themanagement of Subhiksha is expanding the number
of stores rapidly without sufficientfunds in hand. They thought of raising equity during last
September but the things hadgone too far before they woke up. The global markets were stated collapsing
and therewere no possible chances of raising funds. .We got into trouble during the second half of last year,
when we were unable to tie upfunds for our ongoing operations. That slowly started choking and has
lead to paralysisof operations completely now, said Subramanian.
Consequently, in the following month (October, 2008) the company ran out of enoughfunds to run the
organization .Thereafter, Subhiksha has been continuously besieged by a set of problems from all sides.
1.Subhiksha Trading Services has come under fire from television channels for notclearing advertising dues
that run around Rs 8 crore.
2.Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore
againstwages, and Rs 20 crore against lease rents. The company, according to the report,is also carrying a
debt of Rs 700 crore at an average interest cost of 12 per cent perannum.

3.Expansion of Stores without adequate system control and IT Support. Thats whythere was a
huge Audit and abnormal losses in the system. And when they havestarted implement ion of SAP the time has
gone for survival of Subhiksha.
4.Maharashtra FDA, the state governments regulatory authority for food anddrugs, had asked
Subhiksha to suspend operations of its warehouses at Bhiwandi (Mumbai) for 20 days as well as had cancelled
licences of three of its vendors, charging that they had failed to maintenance health and hygiene normsas
prescribed by the regulator.
5. Many wholesale suppliers in Azadpur subzi mandi, or vegetables market, havestopped supplying fruits and
vegetables to Subhikshas outlets in the NationalCapital Region (NCR) surrounding the national capital. This
comes in the wakeof the company holding up payments for two to six months against normal creditperiod of
one month.
6.Lack of strong Hr policy and Staff--- Due to this Shubiksha was not able to retain the talent which he
initially bring into Junior, Middle and high levelmanagement. Whatever was remaining with it is all family
bound with nocommitment policy.
7.They were paying huge rentals for these stores, which was a huge drain on thecompany's finances..
There are huge frauds while entering in to rentalagreements by their own management people. There
was no proper check andcontrol on this cost though this is a very crucial part to defeat competitors
and to gain profitability in future. This, coupled with less than-expected footfalls, drovethe
operational costs to unsustainable levels
8.The wrong assumption that telecom segment is a sound, and profit makings egment. The CEO never looked
in to system losses arise from telecom.Subhiksha stores always sell handsets at below DP while its
benchmarking is to match DP. No control on inventory of mobile accessories and there stock valueand were
unable to circulate the working capital.