Purveyor of retail prosperity

The financial flux may have impacted Subhiksha, but R. Subramanian, the man who rewrote the rules of organised retail, is confident of surmounting it.

Tanvi Varma/Money Today        Print Edition: February 19, 2009

The financial flux may have impacted Subhiksha, but R. Subramanian, the man who rewrote the rules of organised retail, is confident of surmounting it.

The fuzzy logician: Perhaps it had to do with a latent deviant streak. Why else would an IIT graduate not head for the US, as did the rest of his class in 1987? Why would he spurn the lucrative call of investment banking and scurry for a sick firm after an MBA from IIM Ahmedabad? Perhaps it had more to with discernment and a dream, not deviance. For, even at 23, R. Subramanian was clear he wanted to be an entrepreneur. His education and employment were mere means to achieving this end. Which is why he thought it fit to quit Citibank's investment banking division within 15 days of joining it in 1989, and move to Enfield, a motorcycle manufacturer in its death throes?

R. Subramanian
R. Subramanian, 43
Education: B. Tech, IIT, Chennai; MBA, IIM, Ahmedabad
Age at starting Subhiksha: 31
Initial investment: Rs 50 lakh
Source of fund: Internal accruals
Company: Subhiksha
Annual turnover: Rs 2,300 crore (2007-8)
No. of employees: 15,000
No. of branches: 1,320

My family, where everyone is in government or quasi-government service, was flabbergasted. But I was certain I wanted to be in an entrepreneurial set-up and that Citibank was not the place to learn skills for a real world entrepreneurial stint," explains Subramanian. After two years with Enfield, he felt he had learnt enough to embark on his own venture. He saw opportunities in the under-exploited financial services sector. "It was flexible and required more ideas and intellect, rather than physical capital," he says. His employer at Enfield saw the potential and offered to fund him. "The understanding was that once the business started to make money, I would buy out his stake," says Subramanian.

The first enterprise: That's how Viswapriya was born in 1991, among the first companies in the pre-liberalisation era to deal with asset securitisation and IPO financing. "IPO financing grew to be the largest personal lending product in the country for the NBFC and banking sector, even ahead of home loans," he points out. Though the company raked in profits of almost Rs 15 crore and was acquired by Subramanian in 1999, the business took a major hit in 1996 when the stock market crumbled. "Its fortune was linked to the economy, which was on a downturn," he says.

The obvious business solution was to diversify, albeit in an uncharted territory. "We looked at multiple business opportunities that required limited capital and more intellect and where we could leverage our internal capabilities" he says. His two choices were software and retail. In software, there was a start-up disadvantage because the established biggies ruled the space. In contrast, retail seemed under-developed. Subramanian's strategy was to remove the notion that organised retail was for the wealthy and to ensure that modern retail could deliver to the masses.

This came to be the USP of Subhiksha, which means prosperity in Sanskrit. "Indian consumers buy groceries close to home, often paying the maximum retail price. The idea was to enable the aam aadmi to be able to buy close to home and pay less," he says.

Fortunately for Subramanian, the business space was not crowded when he began. A subdued economy meant little or no real competition, low real estate prices and reasonably priced human capital. Though his lack of background in retail could have been a weakness, he feels he carried "no baggage". Still, the Subhiksha ship faced multiple headwinds. First, there was the problem of converting theoretical understanding of retail to practice, especially in areas like supply chain. Next, the organisation had to battle scepticism on its ability to fight the neighbourhood kiryana store. "It was not easy to get the vendors to respect the volumes and get the higher margins that we needed to sustain our discounts," he explains.

Tips for launching a retail start-up:
• Customer is king.Your business should focus on delivering superior consumer value.
• Look for business opportunities that leverage internal capability.
• Be frugal even if you have VC money and spend as if it is the last rupee you have.
• Never underestimate the value of research. Analyse both your market and your customer.
• Keep track of competition, specially if it is doing better than you.

Subhiksha is born: Subramanian's aim was clear: to provide better value by creating economies of scale. The research involved analysing the market structure, consumer buying behaviour and the cost structure of kiryanas. His business planning team comprised people who had worked with him at Viswapriya, while key domain skills were recruited from outside. Almost nine months went into the research, and in March 1997, Subhiksha was launched with an initial investment of Rs 50 lakh, all from the internal earnings of Viswapriya. Subhiksha was an idea ahead of its time: the first six months were not easy for the Chennai store as the consumers were not used to the concept of discounted goods and thought it was a ploy. Several other stores were launched to test the model and achieving the scale was a struggle, but then the consumers realised that the savings were real. They broke even in 15 months.

The numbers: By 2000, Subhiksha's capital requirement had grown to Rs 5.25 crore and the company managed to get venture capital funding of Rs 15 crore from the ICICI Venture (for a 10% stake). "It was easier to get investors as we were running a visible business and in a very different way," says Subramanian. In the past three years, Subhiksha's growth has been exponential: the business has grown 10 times and there are more than 1,000 stores. The revenues have ballooned from a modest Rs 21 crore in the first year to Rs 2,300 crore in 2007-8.

The status: Although the organised retail space is far more crowded-with big names like Reliance Fresh, Big Bazaar and Food Bazaar-than it was when Subhiksha opened shop, Subramanian is cautiously optimistic about holding his own. He, however, concedes that competition is raising the ante. He isn't particularly worried about the economic slowdown: its impact will be minimal on chains like his because the bulk of what they sell is staples. In fact, he feels consumers are more likely to look for extra value now. The biggest concerns are property and people costs, which have seen an unprecedented rise in the past three years. In fact, the industry buzz is that Subhiksha has been under pressure because of these costs. Refuting this, Subramanian wants to raise Rs 200 crore in debt to meet the working capital requirement and to focus on increasing Subhiksha's dominance in core areas like food, grocery, pharma and mobile retailing. His target: Rs 10,000 crore in revenue from 4,000 stores by 2012. It might be a tall order, but Subramanian has another latent streak. It's called tenacity.

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