subhiksha- Decision analysis

8/13/2019 subhiksha- Decision analysis

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SUBHIKSHA RETAIL STORES

Presented by Group 4


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Subhiksha- Background

Founded in 1997 by R. Subramanian

Subhiksha means Giver of all things Good

Ideology: Customers prefer to buy groceries and other items from shops

close to their home, and they like to get it cheap

Initial Investment of 4 lakh

Tag line of Bachat mera adhikar, Subhiksha mera Abhimaan

In 2000, ICICI ventures bought 15% stake for Rs. 15 Crore

In 2008 , Azim Premjis Zash Investments bought 10% stake for Rs 230

crore


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Subhiksha stores- in numbers

First Store in 1997

Opened 9 more stores in that year

1999- 19 stores

200050 Stores

2003140 Stores

2004 -Decided to Expand to outside Tamil Nadu

2006- 160 Stores

2007670 Stores

2008 March -1320 Stores

2008 Sept - 1650 Stores

510 Stores

650 Stores in 1 year

330 Stores in 6 months

Aggressive

ExpansionPhase


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The Rise

1 shop in 1997 grew into 1650 shops in 2008largest retailer in India atthat time

Revenue increased by 700% in the period 2006-2008 (Rs 3.3 bn to Rs 23.05

bn

In March 2008, Subhiksha was named as one of the worlds top 50 Local

Dynamos by the Boston Consultancy Group.


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The Stumble

August 2008- Reports of Subhiksha not paying salaries to staff and defaultingon rent

By the end of 2008, most suppliers backed out from supplying

Could not rise enough capital for its operations

Stopped operations in 2009


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The Case

Case Questions1. With reference to the Indiranagar store and Shastri Nagar stores, was

the decision to expand to new regions instead of revamping the

existing stores and generating revenue from them a sound one?

2. Can any of the decision making tools, if employed, show that the

decision was wrong?

Case ObjectiveTo Understand Subhiksha business model

To understand the benefits of revamping a store and opening a

new store

To use decision making criteria under risk and uncertainty to

determine the decision made by Subhiksha was a sound one


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Case Methodology

The operations of two stores are explainedNew store at Indiranagar and

Revamped store at Shastri Nagar

The case analysis focuses on the aggressive expansion phase where they

deviated from their previous norm & started 300 new stores in every 6

months on average

The cost of operating of each store is found out from the data, and profits

calculated

Possible decisions and outcomes are formulated

Payoff Matrix is created and analyzed the decisions based on it

Analyzing the decisions marked as favorable in each of the decision making

criteria


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Decision Analysis: Assumptions & Calculations

Category ofitem Monthly Sales % Gross Margin Gross Profit in Value

Supermarket 900000 15 135000

F & V 300000 30 90000

Exhibit 6: Monthly Store cost

Particular Amount

Rental 40000

Wages 60000

Electricity 10000

Security 10000

Dump 30000

Allocation of warehouse 34000

Monthly warehouse cost of

2000000


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Outcomes(Gross profit)

Alternative High Moderate None

Revamp 50 stores 16142500 7861635 -8700000

Open 50 new stores 4541650 183300 -8533350

Open 150 new stores 13624950 549900 -25600050Open 300 new stores 27249900 1099800 -51200100

Do Nothing 0 0 0

The Payoff Matrix

High sales value =1.5x(moderate sales value)


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Decision Analysis : Decision Tree

Revamp 50 stores

Open 50 stores

Open 150 stores

Open 300 stores

Do Nothing

Highest

EMV5101378

0

-7616800

-1269467

-3808400


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Revamp 50

Stores

Revamp 50 Stores

0.3333

0.3333

0.3333

16142500

-8700000

7861635

5101378

High

Low

Moderate


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Decision making under uncertainty

Maximax Criterion

Outcomes(Gross profit)

Selection

Criteria


MAXIMAX

Criterion

Revamp 50

stores 16142500 7861635 -8700000 16142500

Open 50 new

stores 4541650 183300 -8533350 4541650

Open 150

new stores 13624950 549900 -25600050 13624950Open 300

new stores 27249900 1099800 -51200100 27249900

Do Nothing 0 0 0 0


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Maximin Criteria

Outcomes(Gross profit) Selection Criteria


MAXIMIN

Criterion

Revamp 50

stores 16142500 7861635 -8700000 -8700000Open 50

new stores 4541650 183300 -8533350 -8533350

Open 150

new stores 13624950 549900 -25600050 -25600050

Open 300new stores 27249900 1099800 -51200100 -51200100

Do Nothing 0 0 0 0

Pessimistic approach

suggests to do nothing


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Equally Likely Criteria


Alternative High Moderate None Equally LikelyRevamp 50

stores 16142500 7861635 -8700000 5101378.3

Open 50

new stores 4541650 183300 -8533350 -1269467

Open 150new stores 13624950 549900 -25600050 -3808400

Open 300

new stores 27249900 1099800 -51200100 -7616800

Do Nothing 0 0 0 0

Same outcome as

the decision tree


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Opportunity loss table


Alternative High Moderate None Minimax Regret

Revamp 50 stores 11107400 0 8700000 11107400

Open 50 new stores 22708250 7678335 8533350 22708250

Open 150 new stores 13624950 7311735 25600050 17066700

Open 300 new stores 0 6761835 51200100 42666750

Do Nothing 27249900 7861635 0 27249900

Revamping stores

minimizespotential loss

Minimax Regret Criteria


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Conclusions

From the result of our analysis, we can conclude that their decision of

aggressive expansion was based on a highly optimistic perspective of the

outcome

This backfired on them as the optimistic view is not suited for the retail

business scenario in India

A fairly safe option would have been to revamp their already established

and prosperous stores

In early 2008, when they were in serious debt, they should have gone for

the pessimistic approach and halted the expansion


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Also, the current retail business scenario in India has changed.

Organized retail has grown significantly and retail stores are now easily

accessible.

They no longer possess their old stores as they used them to pay off their debtsNot only do they not possess their initial competitive advantage in terms of

accessibility and first mover advantage, they also have to start from scratch by

obtaining new stores

Thus we recommend that they start with a new model designed on the basis of

the current retail scenario

Recommendations


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References

1. Chabra, P. (2008). Subhiksha Failure: On the wings of some vanity & wax.Retrieved

October 13, 2013, from Business & Economy:

http://www.businessandeconomy.org/29042010/storyd.asp?sid=5192&pageno=22. Dr. L. Suresh Mallya, D. P. (2012, jan-jun). CRITICAL EVALUATION OF A FEW INDIAN

ENTREPRENEURS.AMET International Journal of Management, 65-66.

3. Dr. S. Mani, A. S. (2011, MArch). SUBHIKSHATHE RETAIL PHENOMENON THAT

FLATTERED TO DECEIVE. PRERANA -Journal of Managementthought and Practtices,

47-49.

4. Goswami, D. P. (2010). Subhiksha: To Make-over or not to Make-over?Journal of CaseResearch, 81-98.

5. H.M. Jha Bidyarthi, A. K. (2010). From Subhiksha (Prosper) To Iksha (Perspire):The

Topsy-Turvy Story of Indian Retail Business Model.American Journal of Economics and

Business Administration, 153-156.

6. Janat Shah, R. P. Subhiksha: Managing store Operations.Boston: HArward Business

School.

7. K. Suvarchala Rani, D. S. (2013, June). Small Format Retail Chain: The case of

Subhiksha. Pacific Business Review International, 5(12), pp. 56-60.

8. Sriram, R. (2011, Aug 25). Why Subhiksha Trading Services collapsed. India.


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subhiksha- Decision analysis