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August 19, 2016
Suneera Tandon, Quartz
New Delhi, 19 August
2016
The Indian defence services could teach the
country’s top private retailers a thing or two about making money.
A chain of 3,900 stores of the Indian defence ministry’s canteen stores
department (CSD) earned Rs236 crore ($35 million) in profit in
financial year 2014-15, according to a report in the Economic Times on
Aug.17, based on a reply to a right to information query.
For the same period, the Kishore Biyani-owned Future Retail, which runs
supermarket chains such as Big Bazaar and eZone, reported a profit of
Rs153 crore; the corresponding figure for Reliance Retail was Rs159
crore.
The CSD stores typically work on operating margins as low as 1%—this
figure can vary anywhere between 8% and 18% for a private retailer.
These canteens function on a not-for-profit basis, but their volumes
are huge. In 2014-15, their turnover stood at Rs13,709 crore, according
to the report, trailing that of Reliance Retail at Rs17,640 crore but
ahead of Future Retail’s Rs11,149.87 crore.
A big reason to the CSD stores’ better profitability is lower overhead
costs.
“CSD does not
have to bear two expenses that are major operational costs for
retailers—real estate and advertising,” explains Devangshu Dutta, CEO
of Third Eyesight, a New-Delhi based consulting firm. That’s because
they are located within easy reach of defence staff, typically inside
cantonments and not in commercial locations such as markets or malls.
“Staffing and
training costs are lower than private retailers since the management
workforce is partially shared with the standing armed forces. CSD also
has a focused, sometimes captive, audience which it doesn’t really have
to fight for,” Dutta said.
These stores account for a bulk of the turnover of large consumer good
companies. In fact, business from these canteens contributes between 5%
and 7% of total sales for some of them, according to estimates by the
Economic Times.
The country’s largest consumer goods firm
Hindustan Unilever, for example, counts CSD as its biggest customer in
south Asia. The same holds true for liquor major United Spirits.
Why CSD
canteens?
CSD canteens were set up in 1948 as stores to ensure “easy access to
quality products of daily use, at prices less than the market rates.”
Their customers were serving army, navy and air force personnel,
besides the retired ones and their families.
The stores have served Indians troops even during wars and natural
calamities.
For instance, during the Indo-China war (1962) and the Pakistan
incursions (1965), the canteens ensured swift supply of goods to Indian
troops, according to the CSD website.
In the 1970s, as the number of stores increased, the defence ministry
sanctioned an organized structure to manage them. Today, CSD has nearly
2,400 employees.
These stores reportedly serve some 12 million customers annually with
over 4,500 products such as television sets, audio and video systems,
refrigerators, soaps, shampoos, liquor, and even cars—all at prices
considerably lower than market rates.
In fact, liquor is the highest-selling category and contributes 26% of
CSD’s sales, followed by toiletries.
For those serving the country, these canteens are an inseparable part
of routine life and brands just cannot miss out on these stores.
(Published in Quartz)
