Ramaswami Subramanian, Managing Director, Subhiksha Trading Services

For the last two weeks, R. Ratnakumar has followed an amusing routine. Every morning, he gets up at four and hops into his car to reach Chennai's Koyambedu-a congested wholesale market for fruits and vegetables-by half past four. Over the next three-and-a-half hours, Ratnakumar skillfully negotiates (haggles, actually) the price and quantity of the two dozen different fruits and vegetables he buys every day. It's a war of nerves and bluster, and Ratnakumar must stay his ground to get the best deal, not just in terms of price, but quality (Koyambedu dealers can cheat, and if you've ever taken an autorickshaw in Chennai, you know what we are talking about).

Ratnakumar could have been your average neighbourhood fruit store owner, except that he's in reality a manager (legal) at the Chennai-headquartered discount retailer Subhiksha Trading Services, and currently in charge of a "special project". Before Ratnakumar graduated to striking deals, though, his 37-year-old boss Ramaswami Subramanian had him do the routine for several days, where he would only watch Koyambedu's frenetic wee-hour trading, taking in the peculiar lingo, learning how the various fruit cartels in the market operate, how other big buyers such as Pazhamudhir Cholai (a fruits-only retailer) negotiate, and how to tell, say, a Malta orange from other oranges.

If the 38-year-old puts himself through the gruelling routine gleefully, it's because of his employer. Subramanian, you see, has always been unconventional in his methods. In 1996, when he gave software the go by and turned his attention to retail, after having dabbled in financial services, the typical thing to do would have been to pick up an existing retail model-something like a departmental store-and run with it. Subramanian, son of a central banker, did no such thing. Instead, he worked backwards from the market. His initial groundwork had yielded some interesting insights into the workings of the retail industry. It seemed that globally, the No. 1 retailer made most of the money; the No. 2 managed to get by, but the others had to eventually down the shutters.

In Chennai, a market traditionally more receptive to organised retail, there were some 15,000 kirana stores, besides RPG Group's FoodWorld. Surviving in between the two categories of retailers needed some out-of-the-box thinking. After some more research and analysis, the IIM-A grad of 1989, zeroed in on a discount store format that, as it emerged, is uniquely Indian. With Rs 5 crore in capital from promoting company Vishwapriya Financial Services, Subramanian launched Subhiksha, with a simple proposition: It would sell everything at a discount (of 5 to 17 per cent) to the mrp. Today, the chain has 139 stores in Chennai and some other cities of Tamil Nadu, 1,000 employees, and by the end of this fiscal will have Rs 230 crore in revenues and Rs 5 crore in net profits. All created by a short, unassuming man with a razor-sharp mind (at B-school he was reverentially nicknamed thalaivar, which is Tamil for Chief, for perennially topping the class).

SPOTTING A NICHE

A big part of the reason why Subra-manian has done much better than what his critics expected is Subhiksha's (Sanskrit for prosperous) unique hybrid model. It is one that has the systems, processes, and clout of a big organised retail chain, but the no-frills convenience and access of a neighbourhood store. The choice of positioning has meant that Subhiksha caters to the middle class, both upper and lower. Therefore, the model has been configured in such a way that it drives costs out of the system in every area of its activity.

Consider how Subramanian, an IIT Madras alumnus, has achieved that. For starters, Subhiksha stores are bare bones. Their size ranges between 1,500 and 2,000 sq ft, they have no air-conditioning, no fancy lighting, and no attractive display. In fact, customers can't even touch and feel the product they want to buy. Subramanian's argument: What Subhiksha sells is not fashion but grocery and food items such as rice and detergents, which do not require touch and feel. The closest that Subhiksha shoppers get to a touch-and-feel experience is at a model store in Tambaram, where a wall-to-wall display shelf stocks samples of each product sold in the store. The samples have a label each stuck underneath to the shelf, and the customers must note down the item code number on the order form they are given upon entering the store. A counter help takes the form, picks out the ordered products from shelves behind the counter, and delivers them along with the bill for payment. The only other retailer who follows a system similar to this is the government-owned Central Supplies Department (CSD). Subramanian explains his unorthodox methods: "Unlike other players, Subhiksha has built up consumer expectations and we must ensure that we are the cheapest."

SHE'S HOT & HOW

For turning conventional retail wisdom on its head with a made-for-India format For getting consumers hooked to the concept of no-frills, no-touch discount shopping For proving his critics wrong by actually making profits with a contrarian model

The supply chain is geared to deliver on this philosophy. Most of the products are sourced directly from the producer or manufacturer. For instance, rice is bought from mills in Raichur, pepper from Wynad, and cardamom from Ooty. All products are purchased on cash to squeeze out the maximum discount possible, and stock keeping units (SKUs, or the products in the store) are restricted to the fastest moving ones of about 1,500. A supply chain software keeps track of inventory, and a fleet of trucks does milk runs from the warehouses to keep the stores well stocked.

Daily innovations are things that improve processes and add to wafer-thin margins. Take distribution, for example. Until a few months ago, about 18 trucks used to leave the central warehouse in Chennai at seven in the morning to supply to all the 70 stores in the city, and return by three in the afternoon. Thereafter, the vehicles would have nothing else to do. Nowadays, a staggered delivery system and better route planning have allowed Subhiksha to reduce the fleet size to 11 and ply it longer.

Similarly, when it emerged that order fulfilment was taking more time than it should, Subramanian and his team came up with a simple solution. They simply transplanted the stock management system from their pharmaceutical department, where shelves and SKUs are coded uniformly and SKUs stored in categorised bins to reflect the way warehouse stored its own stock. The results were immediate: The staff did not have to waste any time looking for products, besides which stock-out situations were minimised. Says Subramanian, who did a two-week stint at Citibank after IIM, before joining his mentor (late) S. Vishwanathan at the ailing Enfield Industries to help him turn it around: "What we learnt is that the whole process should have a factory-like sameness and efficiency."

Entrepreneurial Passion

Despite Subhiksha's growth, the chain is pretty much a one-man show. Subramanian, because of his obsession with getting things right, is hands on in all areas of the business. Part of it is actually unavoidable. For two reasons. One, retail is a nascent industry and not too much of ready-made talent is available in the market. Two, given the modest margins with which Subhiksha operates, it would be unviable to rope in expensive top-notch talent, which may or may not fit in with the chain's austere style of functioning.

Ergo, Subramanian's strictly regimented day at work begins early and winds up late in the evening. He is usually up at half-past five in the morning and begins by reviewing the previous day's work and drawing up an "action plan" for the day ahead. Between half-past six and quarter-past seven, he speed reads at least eight newspapers, including two regional dailies. By quarter-past eight, after a few minutes of prayer, he is off to work in his black Mitsubishi Lancer, where he invariably eats his breakfast of idlis or cornflakes.

Although none of his working days is typical, it is long and hectic just the same. Subramanian makes it a point to visit each of the 70 shops in Chennai at least once a month, and those outside once every six months. Earlier, visits to the warehouses used to take eight hours out of his weekly work schedule, but now that's been cut down to four. All important decisions-which could range from changes in SKUs to store location to supplier agreements-are made by Subramanian. He's also the point man for investors in Subhiksha, including ICICI Ventures, which owns a 10 per cent stake in the company.

Despite Subhiksha's growth, the chain is pretty much a one-man show. Subramanian is totally hands on

While recruitment of store staff is done by an external agency, Subramanian insists on personally interviewing managerial hires. He's even set aside a fixed time for the interviews: 6:30 pm to 9:00 pm. There's a set of qualities that he looks for in each category of his employees. For example, the chief manager is expected to have team management expertise and an ability to think on his feet. The manager must pack boundless energy to carry out daily duties and interface with customers. At the end of the first three months, the new manager's performance is reviewed. The way Subramanian does it is to sit with the concerned manager and do a man-on-man appraisal. The decision to stay or leave, then, becomes mutual. Still, the longest he is able to retain a manager is 15 months. "It's the attitude that matters, I don't lay any emphasis on book learning or marks," says Subramanian.

The store staff is hired from areas nearby and is trained for 20-25 days in three or four phases. Once in every five days they are tested for speed and productivity-how long does it take for them to gather and bill 10 items. Until a year ago, the attrition rate used to be a high of 25 per cent, but now is down to 10 per cent, partly because of an increase in entry-level salaries. A front-end employee with a high-school certificate starts off on Rs 3,000 a month, with provident fund and other benefits. Of the 1,000-odd employees, only a quarter are on Subhiksha's own payrolls.

Over the years, Subramanian has put in a management structure that despite some selective weaknesses has supported the quick growth. Broadly, there are two teams: The backoffice team looks after centralised operations such as accounting, warehousing and it, while the front-end team manages the stores. There's a manager for every three stores who reports to a chief manager for business development who in turn reports to a vice president. The VPs-there are five of them-are responsible for the sales targets and answerable only to Subramanian.

EVOLVING BUSINESS

But as Subhiksha embarks on phase two of its growth, which involves going to newer locations such as Mumbai and Delhi, Subramanian will need a much more robust structure, which at the same time must be flexible enough to adapt to local needs. No doubt, the man knows as much. He first thought of growing out of Tamil Nadu two years ago, but refrained from making the move because of his unfamiliarity with markets outside. Even in Tamil Nadu, Subhiksha made mistakes, but fixed them as it went along. But a new market may be less forgiving of supply problems or order fulfilment delays (FoodWorld ran into severe problems after it opened in Pune, and it took a long time to sort them out). Therefore, Subramanian had to perfect the existing system as much as possible before exporting it to, say, Mumbai.

Subramanian's ambition is to be remembered as one who changed the Indian consumer's perspective on retail

Having established the chain in Tamil Nadu, Subramanian is trying out new things with the discount store format. Ratnakumar's early morning trips to Koyambedu are part of a pilot project that Subramanian has started in Chennai, and that is of vending fresh fruits. The case for it is compelling enough. Subhiksha has 1.5 lakh customers, and if each of them bought fruits worth Rs 200 a month, it would mean Rs 36 crore in additional revenues a year. But it wasn't the first time that Subhiksha tried its hand at selling produce. Its earlier attempt to sell vegetables failed because the losses from wastage exceeded the profits it earned on them. Subramanian didn't give up, and decided to try fruits instead because of their longer shelf life. He also decided to understand the market dynamics thoroughly before making another attempt. Which is why Ratnakumar had to make "dry runs" to Koyambedu the first several days.

A growing customer base has prompted Subramanian to add newer lines to the chain's departments. One is 350 new SKUs of branded goods where no discount is available, but have been added because of customer demand. Another is a direct-to-home supplies of medicines. To kickstart the experiment, a field force was sent out to each of the existing customer households to understand their medicinal requirements. Currently, Subhiksha's representatives are in the process of convincing its grocery shoppers to also buy medicines.

One thing that the chain has going for it is the discount it offers on medicines. Drug stores generally have a margin of 17-20 per cent, but Subramanian is willing to do with 7 per cent and pass on the rest to his customers. The interesting bit: Even at this level, the percentage margins are double that of grocery and more than 10 times that of fruit. The business is tricky, though. So far in Chennai, anybody who tried selling medicines at a discount-like True Values, which lasted but a year-has had to shut shop. Subramanian is hoping Subhiksha won't meet the same fate.

To be sure, there's a long haul ahead of him. His self-admitted ambition is to be remembered as a man who changed the Indian consumer's perspective on retail. So far he's played his cards carefully. Watching his expenses, choosing locations carefully, managing suppliers and customers with an earthiness that's typical of a southerner. The ballgame now is vastly different: He's talking of 2,000 stores across the country in another eight years. That would mean revenues of Rs 6,000 crore, making him the undisputed discount chain warrior. Could things go wrong? Certainly. But one thing is for sure: One way or another, Subramanian is an entrepreneur to watch.