That's where Subhiksha has its work cut out. As AT Kearney's Mangalorkar points out, typically, small stores have higher structural costs in terms of rent, labour and overheads.

Subhiksha's marketing head Mohit Khattar observes that as new stores are rolled out, store costs (people, electricity, furniture and so on) will increase in a linear fashion, while non-store costs (technology, sales and marketing) will rise by just about 35 per cent for a 100 per cent increase in the turnover.

At Subhiksha, people accounts for 40 per cent of costs, while rents are only half that - average rents are about Rs 33 a sq ft every month, while Mumbai is naturally higher, at Rs 70 a sq ft. The chain keeps a lid on rentals by opening stores in middle-class localities, most of which are off the more expensive, main roads.

Also, the stores aren’t air-conditioned, which slashes electricity costs substantially. "We don't pay a mall premium and we're saving on air-conditioning, which is why we are able to offer far higher discounts than the bigger stores," agrees Subramanian.

The way to save, says E&Y's Mishra, is to sell a larger proportion of store labels. "That way, any disadvantage that the retailer has while procuring from big, branded suppliers can be effectively neutralised," he explains.

The chain has already started doing that. It is sourcing from contract manufacturers for a variety of products, including soaps, toothpaste and instant noodles. While Subhiksha doesn't own the Tatva, Bix and Zoop brandnames (some of the private labels it sells), it has exclusive rights over them and also enforces quality.

"They are twice as profitable as a national brand," says Khattar. Already, private labels account for 12 per cent of volumes, but Subhiksha's counting on that growing exponentially in the coming years.