Success story of Subhiksha, India's largest retail chain

When R Subramanian became an entrepreneur and started a retail chain called Subhiksha, there were not many entrepreneurs in India. In his family too, there were no entrepreneurs.

After obtaining an engineering degree from the Indian Institute of Technology-Madras, he decided to join Indian Institute of Management-Ahmedabad as he was sure about one thing -- that he would not leave India to go abroad.

Ten years after Subhiksha was set up, the retail chain has around 500 outlets all over India which Subramanian wants to double by 2007-end.

In an exclusive interview with Contributing Editor Shobha Warrier, Subhiksha managing director R Subramnian talks about his adventures, the success of his retail chain and also his future plans.

Staying back in India after studying at the IIT

I was one of the few students who didn't go to the United States for higher studies. Going to the US never fascinated me. I don't know why. I had always been doing unconventional things, so it was kind of offbeat not to go to the US.

I preferred doing something in front of my own people rather than going to a foreign land because this gives you more satisfaction and recognition. And the sense of achievement is far greater than doing the same thing in a far-off land.

Even the US was not the same US in the mid-eighties. Being one among the many workers and researchers there did not fascinate me. India is your country and you will get as much opportunity as anybody else. If you don't do well here, you have only yourself to blame.

On choosing to study at IIM-Ahmedabad

That is why an MBA seemed a logical corollary because hardcore engineering was not really my cup of tea. Even when in IIT, I went and did Economics, and took electives like Accounting and kept topping those subjects. I was always doing different things from what everybody wanted to do. So, I joined IIM-Ahmedabad.

At that time, my intention was to get into a good company like Pond's in Chennai and probably work in its marketing department. After my summer training at Pond's, they offered me a job too.

But I got interested in the investment bank department of Citi Corp and I was one among the three who were recruited by them from IIM-A. After working there for 3-4 weeks, I realised that that was not where I wanted to work. I felt you were cut off from the world and living in a world of trading. I felt you were doing more and more of the same and earning more and more money. That was not what I wanted to do in life.

The thought of doing something on my own came to my mind then. It was 1989 and there were no VCs (venture capitalists) to fund your ideas and investors chasing you in those days.

There was no precedent in my family for me to dream of becoming an entrepreneur. My father used to work for the Reserve Bank of India and his brothers too were in government service. My cousins, after studying at various IITs, went abroad. That was how it was.

Leaving the investment bank and joining hands with Enfield

I called Mr Viswanathan of Enfield who had given me an offer when I was a student of IIM-A and asked, 'Is your offer still on?' He said, 'Yes.' I resigned from Citibank and came down to Chennai. My family in Chennai was shocked. Resigning from Citibank to join a sick company was unthinkable.

What I saw was this: it was a manufacturing company which would have all spectrums of job. I was with Enfield for two years from 1989-91.

Starts his first company called Viswapriya

I wanted to start a company of my own and told Mr Viswanathan about it. He asked me from where was I going to get the money? I had no idea. I told him I would figure out. He then told me that he would give me money to set up the company and I run it for him. As long as I could run the company, it was fine with me. He provided me with the money, and in 1991, I set up my first company called Viswapriya.

We got a galaxy of very good people on board. We basically did three things. We bought debentures from thousands of people who had them in very small numbers and consolidated as 1 lakh (100,000) or 2 lakh (200,000) debentures and invested in mutual funds. And the investors got a monthly income. Every time the money went to lakhs of investors, it went from Viswapriya and that way our company's name became popular.

It was a good business to start and we were the pioneers in it. After we started, all the big guys got into the business. So it was good fun.

Starting asset securitisation

Today, everybody is talking about 'asset securitisation,' but in 1992, it did not exist in India. When we released a project to do asset securitisation, it was a huge hit. Three months after we did it, the State Bank of India did it, and a month later, ICICI Ltd too started. As we were the first guys, it was noticed; some small company in Chennai starting something like this for the first time in the country. It was making money, it was making us survive and also, it made people notice us.

The big breakthrough

The big breakthrough nationally came in 1994 when we started a new product IPO financing, which we called Prime Advancing. We created the first loan anywhere in the world for a guy who applied for shares without collateral, without guarantee. This industry and we, both, boomed.

Customers were making tons of money, and we were also making tons of money. So it was a win-win situation for everybody.

In 1994-95, we lent Rs 200 crore (Rs 2 billion). In 1995-96, we lent Rs 1,200 crore (Rs 12 billion). Our net profit zoomed to around Rs 25 crore (Rs 250 million). Of course, competition came soon. And then in 1996, the stock market collapsed.

Entering the retail market ten years ago

There was no great logic behind entering the retail market in 1997. We made a study of two areas: software and retail. Between software and retail, we thought we were a bit late for software as Satyam, Infosys, Wipro, TCS, etc had already established by then. We didn't want to be a small and late entrant.

In retail, we would be one of the early entrants, so we would have the learning curve much to our advantage. We allocated a Rs 5 crore (Rs 50 million) corpus to it and entered the retail business. There was a lot of thought process behind it. We wanted to attract not the top end customer but the aam aadmi.

From our research of three months, we found that consumers prefer buying groceries from closer home. So, we decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big store at one location in Chennai.

The next question was why would he come to our store abandoning the existing store? It had to be the price, because ultimately there is no difference between the branded products like say Boost or Surf or such things. So, we decided to sell branded products at a lower price.

On starting Subhiksha

We looked at all sorts of names; and finally we chose the Sanskrit word Subhiksha (prosperity) because it reflects the Indian ethos and it is a word that can be understood all over India. What we were trying to do was different from the western model; our model is truly Indian. Our theme was, why pay more when you can get it for less at Subhiksha?

In March, 1997, we opened our first store in Thiruvanmiyoor in Chennai with an investment of around Rs 4-5 lakh (Rs 400,000-500,000). We opened it with the clear idea that it is part of a larger system. We thought the day we opened, there would be a stampede because the prices were low and we would sell goods of Rs 30-40 lakh (Rs 3-4 million) by the month end. But there was nothing of that sort! We sold goods of only Rs 5-6 lakh (Rs 500,000-600,000) in the first month.

Yes, consumers were very surprised, and they gingerly looked at the products and asked, are they seconds or old stock or defective products? In the first year, we opened ten stores in Chennai.

We also started selling medicines at a discount. On the third day of our opening the pharmacy, there were about 100 people outside our store in the morning. We thought all of them were waiting to buy from our store. What we were expecting on day one happened on day three, we thought happily. But we soon found that they were not there to buy anything; they were chemists from the neighbourhood who had come to do a dharna (protest) saying we could not sell medicines at a discount.

Finally we had to go to court, and it was only in 1999 that the Supreme Court gave a ruling that we could sell medicines at a discount. We were doing quite well on the pharma front and we enjoyed all the attention we got.

Another thing is the medicines that we were selling at a discount were bought mainly by the elderly who have no fixed income and they welcomed any discount. We were quite happy to be able to help them in some way. Medicine retailing is more of a service than business for us. Of course, it is good business for us too. But our main motto is service.

On his expansion plans

By March 1999, we started expanding rapidly. From 14 stores, we expanded to 50 stores by June 2000. In the next two years, we had 120-130 stores across Tamil Nadu. Another big thing was, in 2000, ICICI Venture invested in our company. Today, we have 145 stores all over Tamil Nadu.

We saw to it that the moment we got into a city, we started as many stores as possible there. Only that made business sense. Then, till 2004, we made sure that we consolidated before we expanded, though there was a lot of pressure on us to expand nationally.

We decided to look at every part of India which is significantly literate and is a significant consumption market. We wanted to be everywhere. We looked at the telecom companies as our role model. They employed capable regional managers and expanded.

Our business is also extremely local. We can't sit in Chennai and run a store in Chandigarh. We decided to have very good quality people to run the region, area, town and the store.

In 2004-05, we decided to have 420 stores in places like Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006. In 2005, we started recruiting people in various regions. Today, we have 500 plus stores in all the places that we had planned. It will go up to 600-plus by the month end.

We are already India's largest retail chain store with 500-plus stores. We plan to have 1,000-plus stores by the end of this year.

India is a large country and there are still opportunities to avail of. Though now, the thought of opening stores outside India is not tempting because there are enough opportunities in India. We may look at overseas markets too. . . Maybe later, after we open 2,000 or 2,500 or 3,000 stores in India.

Risk in retailing and expansion?

We are not mad risk takers. We are not producing movies. We do a lot of research before starting business in an area, and we have back-up plans in place. We work with very good 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 worries about whether it would succeed or not. Consumers are smart and they are all price-conscious and they want to finish the work as fast as they can. They don't go to a provision store for fun.

On the entry of MNCs and Reliance in the retail market

Everybody has been asking me, are you worried about Wal-Mart coming to India? Ultimately Wal-Mart is also going to be run by people like us. The point is you need not worry about anybody's entry. There is a huge potential for growth in India. There is potential for another ten people to come in.

Ultimately the share of the unorganised kiranas will come down and the share of organised sector will go up because of the efficacy in buying and distributing. Also, this is an extremely low margin business. Ultimately, everybody has to sell within the cost. It is not that we are geniuses; we have been in the business for ten years, and we have made enough mistakes and learnt from them.

I don't think any child will learn to walk without falling down first, however good the parent is.

We made our mistakes when we were small. The bigger you are, the mistakes will cost you more.

Satisfaction

There are two kinds (of satisfaction). We genuinely believe that through efficiency, we are helping the consumers save more. We are also happy that we are bringing in a model that is Indian, capable of supporting the middle class of India.

On what he does other than thinking about Subhiksha

I would like to say I think of Subhiksha all the time, but I do not. I read a lot, mainly online. I lead a reasonably balanced life. Working 12-13 hours a day six days a week, is my working pattern. I keep Sunday evenings and afternoons only for family. But I travel 12-15 days a month visiting all the Subhiksha regions.

I am a pretty cool person, relaxed all the time. I am not hassled about anything. Personally I am not a very ambitious person; I am happy with my curd-rice! What gives me a kick is to show that a business model from India is superior to a business model imported from the West.

We are living in an age where we do not have to be taught by the West what we should do in our country.