Up till a few years ago, Utility Stores were popular with the general public due to the low prices they offered. However, they have since lost market share to supermarkets and warehouses.

The cost of running the stores on an outdated model, coupled with the slashing of government subsidies, have made the stores financially unviable and unsustainable.

Created in 1971 by taking over 20 retail outlets of the Staff Welfare Organisation, the Utility Store Corporation (USC) became an important instrument of price moderation in a period of high inflation.

However, the running of 5,327 utility stores across the country along a model intended for just 20 stores, and one developed in the 70s, has turned these stores into a permanent loss churning entity.

The USC is incurring increasing liabilities because no corrective measures are being taken. According to an estimate, the corporation is incurring daily losses of around Rs14 million.

A senior officer of the Ministry of Industries and Production told Dawn that while “USC is the second largest, state-owned loss-making entity after Pakistan Steel Mills,” various options are available for restructuring the organisation and turning it into a profit-making business.

It was decided in 2007 to establish a store in each Union Council (UC) to provide subsidised products. So far, these stores have been established in 4,254 of the country’s 6,882 UCs and the number of its employees has swelled to 13,451.

The expansion of USC was seen in terms of both the opening of new stores and the dumping of excessive staff, mostly on a political basis.

The cost of running the stores on an outdated model, coupled with the slashing of government subsidies, have made the stores financially unviable and unsustainable

Over the last three years, the government has used USC as a tool for wooing public support while a proper business model was not pursued to ensure store profitability.

According to official data, 4,470 out of 5,327 utility stores are incurring losses, with some stores based in based in major cities of Abbottabad, Islamabad, Karachi, Lahore, Multan, Peshawar, Quetta, Sargodha and Sukkur.

To assess the viability of continuing these USC stores two criterions were adopted, one of which was performance against sales benchmarks.

According to data, more than 2,000 stores churn out sales of less than Rs500,000 and 470 stores make sales of less than Rs100,000. In both cases, these stores were marked as unviable and have been shortlisted for either restructuring or closure.

The increase in the number of stores has not been substantiated by an increase in sales. In 2012-13, sales were recorded at Rs94.03 billion which fell to Rs87bn during the next year, and to Rs59bn in 2016-17.

A USC official listed three factors for the drastic decline in sales. He said the imposition of advance tax and sales tax on items added to operational expenses, that the decision to discontinue sale of utility ghee was estimated to have caused a loss of around Rs20bn per annum. The lack of capacity and finances to procure full quota sugar has also led to losses of around Rs3bn per annum.

Other issues have further added to the financial woes of the corporation. The misuse of subsidies in the Ramazan package caused shopkeepers to buy in bulk so that slow moving and heavy stocks piled up for certain vendors. All of these resulted in cash flow problems and supply stoppage.

The total outstanding USC subsidy is Rs25.7bn and management has to recover an additional Rs1.8bn from employees who embezzled during the sale of those goods declared damaged. Expired goods worth millions of rupees have been also purchased from vendors. These have resulted in cash flow problems as well as affected store operations.

Working capital has therefore come down from Rs6.4bn to Rs130m while USC’s total liabilities to vendors are worth around Rs5.6bn.

USC employees have recently pinned responsibility for losses on the Board of Directors. The association has demanded the board be disbanded immediately and a new board be set up under the Industries and Production secretary.

“It was decided in principle to reduce this number,” a ministry official said, adding that a summary will soon be sent to the prime minister for approval.

There are many options for making USC financially viable, including the implementation of various successful business models, especially the Canteen Stores Department (CSD) model. USC has never remained in profit and survives on subsidies. Sales have dropped due to tough competition from other stores which offer goods at lower prices.

The priority should be to do away with loss-making stores and introduce automated inventory to keep an eye on stocks electronically.

Published in Dawn, The Business and Finance Weekly, January 29th,2018