Govt likely to ration consumer goods in Army Canteens
What's the story
At a time when most FMCG players have just started recovering from the tepid sales growth after the GST rollout, they are likely to witness a fall in their high-volume Canteen Stores Department (CSD) business.
The Centre is expected to impose restrictions on the sale of consumer goods in 3,900 Army Canteens across India to control the alleged "leakage" and misuse.
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Information
CSD: The retailing platform for defence forces
The CSD is the single largest customer of FMCG companies in India. About 5-7% of the consumer products sales in the country take place through Army Canteens. Prices of items at CSD stores are 10-40% lower compared to regular retail channels.
GST Implementation
The GST rollout and its effect
The GST rollout adversely impacted most FMCG companies and Army Canteens.
In the run-up to GST, distributors and wholesalers reduced their stocks despite a healthy consumer demand.
This destocking by traders led to a fall in sales for FMCG companies in April-June quarter.
Also, several Army Canteens experienced a shortage of goods even 2-3 weeks after the GST implementation.
Information
Hindustan Unilever Ltd, biggest supplier to CSD
HUL supplies most of the consumer goods to CSD stores; Army Canteen sales account for about 7% of HUL's yearly sales. HUL earlier announced destocking by CSD stores due to GST led to a 2% drop in its sales in April-June quarter.
Purchase Limit
Purchase limit for CSD cardholders already exists
The purchase of consumer goods is capped at Rs. 10,000 per month per CSD cardholder.
However, this has not stopped cardholders from buying discounted items in excess.
The government is expected to ration the FMCG sales by 20-40% on highest-selling products, depending on the category.
CSD General Manager M Baladitya, however, said he is unaware of any government's decision to impose a new cap.
Consumer Demand
Consumer demand would get fulfilled by other channels, say companies
A new purchase cap for CSD customers means they will have to spend more money to buy extra goods from regular retail channels.
Dabur CEO Sunil Duggal said the government's proposal would shrink their business; however, he said the decline would be compensated by higher sales in other retail channels.
Samsonite expects a sales drop but hopes they would normalize in a year.
CSD Stores
Monthly limits on certain products
Some CSD cardholders say some of the stores already are imposing monthly caps on certain consumer products.
According to them, some of the monthly limits are 10kg of rice, 36 biscuit packets, 18 bars of soap, and 5-15 bottles of liquor bottles.
Liquor sales (26%) and daily grocery items sales (23%) accounted for nearly half of the CSD's Rs. 17,000cr-worth sales in FY17.