MUMBAI: Which is the most profitable retail chain in India? Answer: The defence canteen stores. Its earnings exceeded those of all other chains, including Future Retail and Reliance Retail. The Canteen Stores Department (CSD), which, incidentally, is a not-for-profit organisation, earned Rs 236 crore during FY14-15, according to a Right to Information query. Comparatively, Avenue Supermart, which runs D’Mart stores, made a profit of Rs 211crore that year, Future Retail made Rs 153 crore and Reliance Retail Rs 159 crore.In terms of sales, too, CSD fared well, with its revenue of Rs 13,709 crore trailing only Future Group and Reliance Retail. The CSD’s retail outlets sell 5,300 products ranging from biscuits and beer to shampoos and cars to 12 million consumers — personnel of the army, navy and air force, ex-servicemen and their families. Started in 1948, it is managed by the defence ministry and comprises 3,901unit-run canteens and 34 depots. It has more than 600 suppliers competing to provide a range of products including toiletries and cosmetics, household goods, footwear and accessories, food items, stationery, electronics and consumer durables, liquor and vehicles.“CSD is definitely a critical channel. While we are not as focussed as we should be, there is a lot to be done to increase its contribution to our overall sales,” said Krishna Rao, deputy marketing manager at Parle Products. “They expect a higher margin so they can pass on the benefit to the end-consumer.” While vendor companies offer slightly better discounts to CSD than to local kiranas, products are still sold at very low prices because the government waives a substantial amount of taxes.CSD’s operating margin is 1%, which it claims on its website is lowest for any retailer in the world. For most consumer product and liquor companies, CSD accounts for 5-7% of their total volume sales.It is the biggest customer across South Asia for Hindustan Unilever, the country’s largest FMCG company, and United Spirits Ltd. A spokeswoman for USL, India’s largest liquor company, said CSD is very important, especially for premium scotch brands such as Johnnie Walker and Black Dog. “For any company, a channel as big as CSD is surely their first priority and the company would want to stock its products immediately,” Nitish Kapoor, regional director at Reckitt Benckiser South Asia, was quoted as saying in a CSD coffee table book.Liquor (26%) and toiletries (23%) account for nearly half of CSD’s sales, while auto and white goods contribute 20%. Most companies renegotiated terms of trade after temporary destocking at CSD in 2012 due to internal issues and have now set up dedicated divisions to handle it as a client, similar to modern trade or general trade accounts.Samsonite has almost 180 officials dedicated to CSD. “It is very different in terms of distribution as we have to supply products in far-flung areas compared to demand mostly from civilian consumers in cities. While it is undoubtedly our largest client and as a brand, we take pride in supplying to CSD,” said Jai Krishnan, COO at Samsonite South East Asia.However, experts said ecommerce companies armed with deep discounting are gradually eating into its share. “Markets like Punjab, Uttar Pradesh, Bihar and Jharkhand used to report big army canteen demand, but this has progressively reduced with the emergence of strong ecommerce and retailers, who are selling the entire range and sometimes with promotions,” said Videocon Chief Operating Officer CM Singh.For the white-goods segment, defence canteens contributed about 4% three years ago, a share that has halved now. Durable goods makers blame it on the emergence of ecommerce companies, which also offer a wider selection of products than the defence canteens or even big retail chains.