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Sambhar Mafia - Cooked To Kill!

Tuesday, December 09, 2008

Subhiksha Sails Through Choppy Waters

Subhiksha, the retail venture of R Subramanian is facing a crisis of grave magnitude. The supermarket chain which has its roots in Chennai has grown too big, too fast in the last few years. While their model had several flaws (No frills / unattractive stores, frequent stock outs), their aggressive growth outside South India indicated that they were probably doing well. The deterioration in the equity markets put paid to Subhiksha's IPO plans. Poor sales and unavailability of easy credit might have resulted in a situation where Subhiksha is not able to pay employees, suppliers and landlords. The New Indian Express carried a cover story on Monday (8th Dec) explaining the situation. Another report in NowPublic has also mentioned similar complaints.

More than 700 employees of 97 stores run by Subhiksha, the supermarket chain in the city have not been paid their salaries for the last two months by the company, which has told them to pick up groceries from the stores in lieu of their pay packets.

However, with the shelves empty — all major suppliers of goods such as HLL have stopped supplies as the firm has defaulted on payments — the employees are in a state of panic. (Link)

Subhiksha has since denied the allegations.

I had tried Subhiksha during their initial days. Back then, the shops didn't allow the customers inside and one had to give a shopping list to the counter staff who would collect the stuff from the respective shelves. With such a concept there was no possibility of an impulse buy as Subhiksha didn't provide a shopping experience. They then tweaked this model to allow customers inside the shop. The shelves were pretty ordinary and one could notice that they had run out of stock for most of the key items. One had to visit other departmental stores to complete their shopping requirements. The only thing which drew people to Subhiksha was the aggressive pricing. They used the pricing power to enter the field of pharma retail. Their offer of 5% discount for pharma products met with strong resistance from the Pharma Distributors and Retailers Association which sensed that their trade will be affected if Subhiksha Medical shops were allowed to expand. Stock outs were another common phenomenon in the Pharma business as well. With so many problems, one could feel that Subhiksha was never among the top of the mind recall of the shoppers. 

I could sense Subramanian's ambitions when I spotted him at the Giant Hypermarket in Tampines (Singapore) sometime in 2007. The shop was teeming with weekend shoppers when Subramanian was busy observing the behaviour of the shoppers in the different sections. He came across as unassuming and hardworking. Aggressive expansion, poor back-end infrastructure, improper demand forecasting together with extremely bad credit and equity markets have dented Subhiksha's growth plans. 

This is not the first time Subhiksha has been at the receiving end. Even biggies like Reliance Retail are in retrenchment mode. The big question now is whether Subhiksha will fold up. Azim Premji, in his personal capacity, recently picked up a 10% stake in Subhiksha (the stake was acquired from ICICI Ventures). Shutting down unprofitable stores, laying off people and resolving the back-end problems would help them recover somewhat from the current crisis. The other option is to put them up for sale. Whatever be the outcome, Subhiksha has some serious rethinking to do.

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4 Comments:

  • true..
    also, their mobile pricing was one of the talk of the town. but whomever i heard it from added a statement 'the handsets that they sell have considerably old manufacturing dates'.
    did not want to take risk, so i nvr tried.

    By Blogger januM, at 8:14 PM  

  • They are in the midst of a new software implementation... hence the empty shelves. Check out BusinessLine, they have put out a statement

    By Anonymous Anonymous, at 1:23 AM  

  • If they are in the midst of implementing a new software Mr. RS will not pay the salary for 3 months or what. Daily living of people are going tuff day by day. I have no idea how Mr. RS (fraud) is having a good night sleep? A strong action should be taken against him.

    By Anonymous Anonymous, at 2:31 PM  

  • If smbdy is saying that the comapny is payng the salary continuesely for each much(or in nxt month), i think he/she is the only employee , who is getting salary............

    come on R.S, dont make people fool......
    subhiksha is going under a huge finacial crisis, and if goverment hvnt provided any help, there will be situation of starvation to the employee of subhiksha. But every body has a fear in his mind, that who will take the first step.

    I request all, please join hands together. Because not much people are aware of the real picture, and officials are not doing any communication to the employees.

    If the company is not in stuation to pay salaries, then they should say upfront, but the company is neither paying not denying.

    Your career is being f***ed in front of your eyes. This is the mind game, and there is only one resolution........."join hands together and come out of it".

    Regards,
    A well wisher, who is aware of the internal situation

    By Anonymous Well Wisher, at 2:29 PM  

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