Growth Stagnates For One Of The Biggest Clients Of Consumer Firms
The Canteen Stores Department, among the largest clients for consumer goods makers, saw its growth stagnate.
Revenue rose by 5 percent on a yearly basis to about Rs 18,900 crore in the year ended March, according to a senior official privy to the numbers—the person didn’t want to be identified as the numbers are not public yet. The turnover was led by liquor and auto sales, which together accounted for over half the revenue.
The non-profit retailer operates 4,500 department stores from Leh, Jammu & Kashmir in the north to Nagercoil, Tamil Nadu in the south. Called defence canteens, the outlets cater to armed forces. They sell everything from whiskey and sauce to washing machines and cars at cheaper prices as the government charges lower taxes. That makes CSD the single-largest revenue generator for the makers of staples to shampoos. But demand from CSD has fallen because of curbs to prevent pilferage.
Earlier, defence personnel had a monthly monetary limit to buy products from the canteens. In the second half of last financial year, the department capped the amount in individual categories of products. It also started monitoring procurement and issued smart cards to prevent misuse.
While the measures to curb misuse paid off, they also caused the demand to stagnate.
Hindustan Unilever Ltd., India’s largest consumer goods maker, acknowledged that. Sanjiv Mehta, chairman and managing director at HUL, said after the fourth-quarter earnings that the company’s revenue share from army canteens has fallen from 6 percent to below 5 percent.
Other companies that count CSD among major revenue contributor include Reckitt Benckiser India Ltd., Procter & Gamble Hygiene and Healthcare Ltd., Glaxosmithkline Consumer Healthcare Ltd., Nestle India Ltd., Marico Ltd., Bajaj Electricals Ltd., Samsonite South Asia Pvt. and Jyothy Laboratories.
The biggest driver for sales were cars and two-wheelers in 2018-19. Revenue from automobiles surged 41 percent to about Rs 5,940 crore, the official quoted earlier said. The Defence Ministry expanded availability of automobiles across all its canteens during the year, ensuring cars, bikes and scooters are sold directly to the families of defence personnel.
Liquor sales rose 15 percent to Rs 3,000 crore as an increase in excise duty and state taxes pushed the sales of alcohol through the canteens despite the restrictions.
Revenue from food items stood at about Rs 3,121 crore, while household and personal care products contributed Rs 3,564 crore.
The sales of groceries at the defence canteens rose 4 percent to Rs 6,685 crore in the previous financial year, according to person cited earlier said, adding that the muted growth was a result of the restrictions, the official said.
In the budget for 2019-20, the allocation for the CSD was increased by Rs 1,000 crore to Rs 18,000 crore. But the department had asked for Rs 20,000 crore, the official quoted earlier said. The Defence Ministry, depending on the surplus, provides additional funds if required, the person said.
Still, Rahul Arora, chief executive officer Nirmal Bang Institutional Equities, doesn’t expect demand from canteen stores to improve. “I don’t think the situation will get any different from these levels or get worse.”