CSD stands for Canteen Stores Department. Until few days back even I was alien to this acronym, however it was my summer internship project which insinuated me to understand this term profoundly. Well, what initially looked as a complex term was a big sales channel for FMCG and FMCD companies. It is then, while dissecting this term, I understood the importance of my summer project and hence decided to analyze length and breadth of CSD, its functioning, pricing of products, promotion and most important how to make a sale or obtain a contract.
1. To start with what is CSD?
CSD is basically a department under Ministry of Defence, which intends to provide quality FMCG, FMCD, Liquor and any other stuff which an individual may require for their daily need. So anything from a comb to car, you can buy at this place. You may say, what’s a big deal in it? One can get the most of above items at Reliance Mart too.
There’s definitely a big deal because these items are sold at below MRP rates and to be precise at a discount of anywhere between 10%-60% depending upon the item, the taxes it attracts, etc. For instance, a Himani sonachandi / amritprash 450 gms with a MRP of Rs. 175 can be bought for Rs. 79 at these Canteens; a whooping discount of approx. 55% which works out to be a huge savings for household. However, these benefits can only and only be availed by active and retired personnel of Army, Navy and Air force and paramilitary organizations serving under the functional control of the Army.
2. Why companies strive for CSD? What is it for them?
The CSD canteens sells 3000+ different products from Pencil to Car and on an average generates revenues of more than Rs. 5000 Crores annually. These canteens are spread across India from Leh to Port Blair.
From company’s perspective, they provide a stable sales channel for their products as once these products get approval and if they have potential, they can generate repeat sales and the best part they don’t have to incur any promotional or marketing cost especially for selling at CSD. On top of it, they also save on the cuts, which they usually pay to Distributors or C&F agents. Thus, all this results in huge volumes and huge savings for companies.
Currently, very few companies (read as large companies) are aware about these opportunities and it is these companies which are leveraging it to maximum extent. Thus, there is an enormous opportunity for different companies and especially companies which have niche product line ups.
3. Functioning of CSD
CSD has a hierarchical pattern of operation. On top is CSD, Head Office (HO), located in Mumbai, which controls the Administration, ordering of products, introduction and deletion of product, testing the quality of products and miscellaneous other work.
Second layer is formed by 34 Area Depots spread across the country, which are grouped under 5 regions viz, North, East, South, West and Central. They act as a link between HO and URC’s.
Final and tertiary level is URC’s (Unit run Canteens), which sell the products to their target. These URC’s are located in close vicinity to military bases. There are in all 3200+ URC’s spread across country from Leh to Andaman & Nicobar Island.
4. How it is able to sell at such discounted (read lower) rates…in spite of the fact that Company’s don’t sell them at loss?
Well, let us first quickly understand how companies arrive at the MRP.
A typical flow of goods takes place as follows:
It is based on this flow that MRP is calculated:
Step 1) Company Landing Price (CLP) includes cost of producing the product, profit, various taxes paid (for instance sales tax)
Step 2) CLP + VAT (if any) + Octroi (if any) = Distributor Landing Price (DLP)….cost of purchase for distributor
Step 3) DLP + Distributor Margin= Retailer Landing Price
OR Step 3) DLP + Distributor Margin + Wholesalers Margin= Retailer Landing Price (RLP)…Cost of purchase for retailers
Typically, a distributor may sell directly to retailers or he may sell to wholesalers, who in turn sell to Retailers. In latter case, the Distributors margin is shared with Wholesalers.
Step 4) Retailer Landing Price (RLP) + Retailer Margin = Maximum Retail Price (MRP)….price to end customer
In addition to above, there are Bulk buying Discounts at the level of Distributor/Wholesaler/Retailer
To sum up above equation:
MRP= CLP + Different taxes + Margins of Distributor/Wholesaler/Retailer + Bulk Buying Discounts
CSD, being a government department and working for the benefit of our forces, gets complete/partial tax waivers (Sales tax, Excise, VAT, Octroi, etc) depending upon Central and State government rules. Liquors generally attract heavy taxes, however at CSD you can get them at 30-40% less price and this is one of the primary reasons for it.
Apart from this, CSD mandates that all companies who want to conduct business with CSD have to work directly with them. No agents or distributor is allowed. This eliminates all the middlemen and their Margins.
In addition, based on its bulk buying capacity at India level (for 3200+ URC’s), CSD is further able to negotiate huge discounts.
All of the above components results in bringing down acquisition cost of goods substantially.
And if we look from company’s perspective, since the CSD’s distribution outlets reaches the length and breadth of the country, only CSD offers a supplier the most attractive and effective exposure to his products which he cannot otherwise, hope to achieve elsewhere without any extra investments on publicity and distribution. So at times, companies further pass additional discounts. All in all, a good deal which works for everyone.
I am sure that the next million dollar question would be how to enter this gold mine. Well, as you want to extract the gold from mine, it doesn’t come that easy. It goes through a series of procedures, tests, etc, which may take months to clear. But, be assured these are systematic procedures and at the end of the day, it is worth it. Lastly, I would just like to say that CSD is like an ocean, it is so big that everyone can get their space. Only catch is entering this ocean and marking your territory.
The article is authored by Dipen patani from NMIMS, Mumbai.
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