Perhaps not, since the discount-store chain has earned a profit for itself in its very first year.

By R. Sridharan

Finding the head-office of a fast-growing chain of 21 discount stores is, surprisingly, more time-consuming than shopping at one of them. For, the Chennai-based Subhiksha Trading Services (Subhiksha) is housed in a nondescript, three-storeyed building tucked inside a shady by-lane. Not even a nameplate points the way; instead, a handwritten cardboard placard at the foot of the staircase simply states: ''Subhiksha-2nd Floor.''

Inside, the office of Suraj Srinivasan, the 29-year-old Director of Subhiksha, is equally unpretentious: a large table, a white-board displaying a priority-list, and a rickety air-conditioner. Explaining the Spartan surroundings, Srinivasan says: ''Discounting has to be a part of your supply chain. Which means that all of us have to cut costs. Therefore, the choice is between a plush corporate office and more stores. I prefer the latter.''

He would. Ever since Subhiksha opened its first store in Thiruvanmiyur (Chennai) on March 8, 1997, it has spawned 20 more in the city-an average of over 1 a month. In 1997-98, its first year of operations, the company registered a turnover of Rs 17.53 crore. And while the company may even have made marginal gross profits, the figures were not available to BT since Subhiksha's annual report had not been finalised. By end-1998, Subhiksha plans to open 9 more stores, and projects a turnover of Rs 41.50 crore for 1998-99-a rate of growth of 136.73 per cent.

Promoted by Venture Capital Partnership Fund-an asset management company floated by the Vishwapriya Group which specialises in financial services, in 1996-Subhiksha's promoters include non-resident Indians as well as domestic investors, who refused to be profiled. Nevertheless, BT examines this successful start-up in organised retailing, in a country where the unorganised kirana store dominates thanks to its proximity to the customer, the latter's familiarity with the shop-keeper, and the credit system.

It took Srinivasan a year of research to come up with the retailing format of a discount store. A survey revealed that a consumer looks for 4 core attributes in a store: its proximity, the quality of groceries, the price of branded groceries, and the availability of products. This immediately ruled out the capital-intensive supermarket system. Apart from the fact that the customer dislikes travelling 5-odd kms to shop, she attached no premium to doing so in an air-conditioned, aesthetically-designed environment.

Reasons Srinivasan: ''Supermarkets don't account for even 10 per cent of the groceries sold in Chennai. Besides, air-conditioning and other such frills amount to your charging the customer for them without giving her a choice.'' Agrees Simon Bell, 32, Principal Consultant, A.T. Kearney (India): ''In the Indian retail context, the way forward is to adopt a format that focuses on fast-moving, large-volume items. Upscale models don't seem to work yet.''

Subhiksha, therefore, decided to focus on price, and set up a chain of small, but functional, stores. And attract the thrifty Chennaite by shaving the sticker-prices on a range of 2,500 grocery-products and 2,400 medicines by an average of 8 per cent. For example, if your neighbourhood store sells a 500-gm pack of Surf Excel for Rs 65, you could pick it up for Rs 60.25 at any of Subhiksha's discount stores; a 1-litre can of Saffola oil that costs Rs 72.90 for Rs 69.50; and even a strip of Crocin, which retails for Rs 6.30, for Rs 5.70.

Avers Srinivasan: ''Discount retailing has proved to be the only viable format across the world.'' Adds B.A. Kondandaraman Setty, 53, the Managing Director of another retailing chain in Chennai, Vivek's: ''Discounting works well in some product-categories, like groceries. Since these products are purchased every month, even a 10 per cent discount adds up to a sizable annual saving for the customer.''

To render its strategy viable, Subhiksha started off by attacking the costs in a system that yields operating margins of barely 2 per cent. To start off with, none of Subhiksha's 21 retail outlets is company-owned; each of them is on a long-term lease of 10 years. Then, fixing vendors for the store's furniture and equipment helped lower purchase-costs by 5 per cent. And the lay-out is strictly functional; self-service is not allowed in order to eliminate pilferages, which, typically, account for 5-8 per cent of retailing losses. In a latter-day variant of the kirana system, Srinivasan installed PCs to replace the watchful owner.

So, a composite bill is generated for all your purchases at the pay-in counter. You pay up, and take the bill-which does not list the items you have purchased-to the delivery-counter. The person there calls up the bill number, and keys in the details of the items, which have, in the meantime, been collected by a shop assistant. If, and only if, the data keyed in at the delivery-counter matches that fed in at the cash-counter is a detailed bill printed out. The time taken for a typical transaction? This reporter did a week's shopping of groceries-and medicines-in 12 minutes flat.

Therein lies a flaw. Points out Pradipta Mahapatra, 48, the CEO of RPG Enterprises' Retailing Division: ''Subhiksha has done well. But not letting customers touch and feel what they buy takes the fun out of shopping.'' Perhaps, but they aren't complaining. Says a regular customer, S. Suresh, 29, a Sales Officer with SmithKline Beecham Consumer Healthcare: ''It's simple. Subhiksha offers the lowest prices. Each time I go there, I can see a saving over my previous purchase.''

That's possible because the savings are maximised in the supply chain. Subhiksha has set up a centralised purchasing system that deals directly with companies. For instance, it purchases sugar from a distributor who supplies at only slightly-above-mill-prices. And other Fast-Moving Consumer Goods (FMCGs) are bought directly from 150-odd companies. Says Srinivasan: ''If each store were to individually make purchases, there would be a multiplicity of bills, interactions with companies, and unnecessary expenditure.''

While the goods are stored in 3 godowns-one each for pharmacy, branded FMCGs, and unbranded groceries-Subhiksha's fleet of 10 tempos supplies its stores once a day. As holding costs are the retailer's single-biggest expense, it helps that all the stores are connected by modems, facilitating inventory-planning. Finally, the retail chain makes spot payments against deliveries.

In return, it gets cash discounts-and that's what keeps prices down. Says Srinivasan: ''It's simple. The supplier helps me with inventory-control, and I help him with his cash-flows. We believe in squeezing the supply chain, not the supplier.'' Agrees A.T. Kearney's Bell: ''That's the rule globally. Everybody in the supply chain works together to squeeze the most out of the system.''

But the discounting strategy hasn't pleased everyone. Unhappy with the discounts Subhiksha was offering, the Indian Chemists & Druggists Association threatened to boycott companies supplying it with medicines, and agitated outside its stores. When the battle went to court, since Subhiksha has a licence to vend medicines, which are classified as ''essential supplies,'' it ordered that supplies be maintained. Warns Mahapatra: ''Discount retailing is a new concept. Retailers used to higher spreads will find the switchover unappetising.''

That doesn't worry Srinivasan, who is now exploring the possibility of discounting other product-lines-like clothes. But, his present focus is on building sales volumes, which will help him strike better bargains with manufacturers. Smiles Srinivasan: ''With volumes, our profitability will go up.'' When that happens, Subhiksha's start-up strategy will boast of a premium that has been built on a discount.

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY