Aug 8, 2008

Business - Interview Ramaswamy Subramanian (Subhiksha)

With the competition emulating his neighbourhood store model, retail chain Subhiksha's chief shares some tips on which formats will work and which won't.
Ramaswamy Subramanian is a difficult customer — he never has time to spare and he’s not into food. Not the perfect candidate for Lunch with BS. But India’s most successful modern retailer (Subhiksha has the highest sales per square foot among modern retailers though it’s ranked Number 2 in terms of sales) is in Mumbai and we decide to try out the pasta at Spaghetti Kitchen in Phoenix Mills, the former textiles mills compound in Mumbai’s Lower Parel that is today home to some of the country’s top retail labels. The idea is to get Subramanian to walk around the stores of India’s largest retail chain, Kishore Biyani’s Future Group, and get his comments on the competition. Subramanian, however, is too smart to fall into the trap and refuses to do the walk-around, saying that he’s sure to say something politically incorrect. So, we have a polite lunch, while I try to bait him to talk about the competition, writes Shobhana Subramanian.
In true Tamil style, we’re having an early lunch; the rosemary potatoes we’ve ordered as starters are spicy enough for my guest. Subramanian, who’s just turned 42, believes in doing things fast — whether it’s rolling out stores or talking. And since he’s constantly on the phone, I ask if he’s always been so hyper. He has, he says — his mother had a tough time controlling him as a child. And he says he’s always been something of an anti-status quo person. He didn’t live on campus while in IIT Chennai, though he had no choice at IIM Ahmedabad. That, in retrospect, was a good thing because he was in good company: the class of ‘89 produced some really enterprising businessmen including Sanjeev Bikhchandani of, Rashesh Shah of Edelweiss Capital and Nirmal Jain of India Infoline. In a class that also had Rahul Bhasin of Barings Private Equity, Subramanian was the topper, and by quite a distance.
Being the topper didn’t help him at Citibank — where he was at the money desk — which left him ‘cold’. “I expected some special treatment and that was probably not justified. But even otherwise, I didn’t see any kind of vision or attempt at team-building. What Citi did for me in the 15 days I was there was to show me the gap between what it could do for me and what I wanted to be.” His slightly-longer stint, of two years, with Enfield, then in dire financial straits, was a great learning experience — from dealing with vendors, making sales pitches and managing cash flows, the experience helped him at Subhiksha which he set up 1997. In between, he ran a finance company that did retail funding for IPOs.
We look for the most spicy pastas on the menu; my guest is missing curd rice. He opts for some fusili with a tomato-based sauce while I decide to try the spaghetti with pesto sauce. “I do try out other cuisines but like a true Tamil I never feel complete without thair shadam (curd rice),” admits Subramanian. Unlike most Tamils though, he’s not a Kamal Hasan fan and hasn’t seen Dashavatharam. Neither is he keen on music concerts though he does listen to a lot of Tamil film music on his Bose speakers — his one indulgence is electronic gadgets. He’s a newspaper addict and reads nine dailies every morning before his visit to the neighbourhood Ganesh temple.
The gruelling pace of work — Subhiksha has rolled out nearly 1,000 stores in the last three years — has left Subramanian little time to catch up with friends. He hasn’t been for a holiday in six years and his two-and-a-half-year-old daughter, Sumukhi, has to wait up for him till after nine every night. But she’s responsible for his much improved temper — it used to be terrible, he says, joking that he was close to digging pins into dolls. What could also have helped is that competition hasn’t done well as most expected. “Two years back, when all the big guns were setting up shop, we thought it would be tough but I don’t think the numbers are too hot,” he says. I ask why retailers don’t seem to be making money. “Possibly because there’s too much expansion, especially in places like Chennai. Also, in India you cannot be relevant just because you are differentiated. How many customers are really looking for the 20th variant of jam?”
Comparing the Westside and Shoppers Stop models, he points out that in a category like apparel, having control over 50-60 per cent of sales through store labels, which is how Westside does it, makes a lot of sense. “It hasn’t happened yet but Shoppers runs the risk of getting undercut if someone chooses to offer discounts on brands. Maybe it won’t happen with an Arrow, but it could happen with smaller brands.” He’s also not sure how well hypermarkets will work because people, he says, will not travel a long distance to buy food and groceries. “With Indian laws not permitting stores to charge prices higher than the MRP, convenience stores will remain competitive and it’s only for apparel that people will make the effort to go any distance.”
He’s convinced, though, that the Subhiksha model will work because it caters to the masses and the scale will allow it to procure cheaper, and therefore sell at everyday low prices. The store label strategy, he claims, is already working in categories where they exist — in-house brands contribute about 13 per cent of sales.
Subramanian predicts that the top three players in the industry will end up sharing the bulk of the profits. Subhiksha posted a net profit of Rs 41 crore last year on revenues of Rs 2,300 crore and is targeting profits of Rs 120 crore by March 2010. Though the company has been talking about an IPO for quite some time now, Subramanian says delaying it may be a smarter thing to do since the growth can be funded from the current net worth of Rs 260 crore. [That’s because unlike some other retailers, Subhiksha doesn’t buy properties.] The listing, he says, should give ICICI Ventures an exit.
Will he sell out at some point, I ask. “Right now, I don’t see any reason to get out. On the contrary, it might be a good time to acquire something because there can be some consolidation.” Brave words at a time when real estate prices are still high and the economy is clearly slowing down. But then, Subramanian always exudes confidence and he’s never perturbed about anything. That’s probably what has helped him come this far. With both of us skipping dessert, the bill has just about made it to four digits — in keeping with Subramanian’s low-cost mantra. Subramanian rushes off for a board meeting, leaving me wondering why ICICI Ventures wants to get out if Subhiksha is doing so well.

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