How a Yoga Guru Is Mastering the Consumer Goods Market in India
Can an Indian yoga master and spiritual guru pose a threat to
established multinationals in the fast moving consumer goods (FMCG) market in
the country? Baba Ramdev, a 51-year-old politically networked saffron-robed
yoga expert and astute businessman, certainly believes so. Patanjali Ayurved,
the company he front-ends, recently posted revenues of Rs.10,561 crore ($1.6
billion at Rs64.34 to a dollar) for the financial year 2017 (April 1, 2016 to
March 31, 2017). That’s double of what it posted last year. What’s more, while
most FMCG firms in the country grew around 8% to 12% annually over the past
five years, Patanjali has grown over 20 times; in 2012, it reported a turnover
of Rs.446 crore ($69 million).
Positioned on the plank of ayurveda and the goodness of natural
ingredients, Patanjali prides itself on being a home-grown brand that offers
its products around 15% to 30% cheaper than competition and ploughs back its profits
into nation-building activities such as education and supporting farmers. It is
the fastest growing FMCG firm in the country and has one of the widest product
portfolios. In January this year, a study by the Associated Chambers of
Commerce and Industry of India (ASSOCHAM) and market research firm TechSci
Research, said: “Patanjali Ayurved has turned out to be the most disruptive
force in the Indian FMCG market.”
At a recent press conference in New Delhi, Ramdev and Acharya
Balkrishna, CEO of Patanjali and a close friend of the yoga guru, declared the
company’s 2017 results. Incidentally, Patanjali is an unlisted firm with no
obligation to disclose its numbers. Balkrishna owns around 95% while the rest
is held by a small group of individuals. Ramdev himself apparently has no stake
in the firm. Addressing the media, Ramdev and Balkrishna said that profits have
grown 100% since last year. They are now looking to double the turnover to
Rs.20,000 crore ($3.1 billion) in the current year and aiming to cross Rs.1
trillion ($15.5 billion) over the next five years.
Towards meeting these targets, the company has planned various
steps. These include investing Rs.5,000 crore ($777 million) in new
manufacturing facilities, rolling out new products and increasing the
distribution and retail network. Patanjali’s retail presence includes a mix of
exclusive franchise outlets, modern trade, neighborhood stores and online. So
far, the company has invested mainly through internal accruals. It is now
looking to raise bank loans.
Ramdev has always been very vocal that he is fighting against
the “economic colonization” of the domestic market; Patanjali advertisements
talk of “rescuing India from economic slavery and loot of foreign companies”
and appeal for “boycott” of foreign firms. At the press conference in New
Delhi, he said: “So far, FMCG has meant MNCs in India; we have broken that
monopoly.” In a direct reference to the American oral care giant
Colgate-Palmolive, he added: “We don’t know when Colgate will close its ‘gate’
… they have already de-grown.”
Ramdev was referring to the impact Dant Kanti, Patanjali’s
toothpaste, has had on Colgate-Palmolive. He claims it has a market share of
14%; industry analysts say it could be anywhere between 4% and 14% depending on
the sampling universe. The American firm derives nearly 75% of its India
revenues from toothpaste and is the leader in this category in the country. In
a presentation to investors, the company said that its market share in India
dropped from 57.4% in 2015 to 55.6% in 2016. Several brokerages have flagged
competition from Patanjali as a threat to MNC giants in the toothpaste segment.
For instance, in January, broking house Prabhudas Lilladher said in a report on
Colgate-Palmolive: “We believe that toothpaste is perhaps one of the few
categories where Patanjali has been able to create a strong niche and has right
to win.”
The Patanjali Effect
That Colgate-Palmolive is taking cognizance of Patanjali is
evident from some recent measures. For instance, while earlier the company,
which has been in India for the past 80 years, had herbal variants with neem
and clove, last year it launched an India-specific toothpaste called Cibaca
Vedshakti. Positioned as “packed with the goodness of natural ingredients to
help keep dental problems away,” it includes lemon, cloves, eucalyptus, basil,
camphor and thymol. Cibaca Vedshakti is priced lower than Patanjali’s Dant
Kanti. In an investors call in 2016, Bina Thompson, senior vice president,
Colgate-Palmolive, said: “In India, consumers believe strongly in natural
ingredients.”
Earlier this year, Hindustan Unilever (HUL), the Indian
subsidiary of Unilever, the Anglo-Dutch consumer goods giant, launched around
20 products including toothpastes, shampoos and skin creams under its relaunched
brand Lever Ayush. These products have been co-created with Arya Vaidya
Pharmacy, a leading Ayurveda institute. Interestingly, while Ayush was launched
as a premium brand in 2001, the relaunched Lever Ayush is positioned as a mass
brand with products priced between Rs.30 and Rs.130 (less than $2). HUL has
also rolled out natural variants under brands like Tresemme and Fair &
Lovely in India and is reported to be bringing in a new brand called Citra, an
organic skin care line from Indonesia.
In an investors call in October last year, acknowledging
Patanjali’s growing presence, Andrew Stephen, head of investor relations at
Unilever, said there were a “couple of great examples” in India in the herbal
segment that “everybody is looking forward to with great interest.” Talking to
business daily Economic Times in December last year, Sandeep
Kohli, executive director-personal care, HUL, said: “Ayurveda is a growing
trend …. Lever Ayush is designed to attract and retain consumers with authentic
ayurveda-based offerings.”
Indian firms with strong ayurvedic offerings are also reworking
their portfolios. At Dabur India, for instance, ayurvedic products currently
contribute around 60% of the company’s domestic sales. Dabur plans to increase
this to 75% by 2020. “In India, herbal and ayurveda will be the dominant themes
for us. There is a realization that there is a bigger opportunity for us in
ayurveda than we thought,” Sunil Duggal, CEO of Dabur India told business
daily Business Standard last year. In an earlier
interview with Economic Times, Duggal had said: [Ramdev] is someone
no one has dealt with before and therefore there are no existing analogies
which can match him. So, we have to deal with [Patanjali] differently.”
Abneesh Roy, senior vice president at Edelweiss Financial
Services, notes: “Because of Patanjali, ayurveda is becoming core to the
strategy of all other companies.” Ankur Bisen, senior vice president-retail at
consultancy firm Technopak Advisors, agrees. “Take for instance, [Indian]
companies like Dabur, Emami and Hamdard. They have been selling ‘Indian’
products like red tooth powder, chyawanprash (an ayurvedic formulation that
helps build immunity), etc., for decades. But they took the route of
multinationals to position these products as modern products or underplayed
these products in the market. Patanjali’s success has made them re-think the
approach.” S. Ramesh Kumar, professor of
marketing at the Indian Institute of Management Bangalore (IIMB), adds: “MNCs
and others will be forced to introduce lower- priced offerings.”
“Patanjali Ayurved is a rising star that came in from literally
nowhere and put the fright into long entrenched competitors
across the FMCG space,” says Harish Bijoor,
brand-strategy specialist & founder, Harish Bijoor Consults.
According to Bijoor, Patanjali has trifurcated the FMCG segment in India.
“The first: MNC competition. The second: Indian MNCs fighting the [global]
MNCs, vertical to vertical. The third: Baba-cool companies
of the type represented by Patanjali Ayurved and the likes
of Sri Sri Ravi Shankar, Baba Ram Rahim and a whole tribe of gurus
who also happen to make FMCG.”
Racing Ahead
At present, Patanjali’s portfolio comprises more than 500 products
across food, personal care, home care and health care. Cow ghee (clarified
butter) is its highest selling product with sales of Rs.1,467 crore ($227
million), followed by toothpaste (Rs.940 crore/$146 million) and shampoo
(Rs.825 crore /$128 million). Other key products include bathing soap (Rs.574
crore /$89 million), mustard oil (Rs.522 crore/$81 million), wheat flour
(Rs.407 crore/$63 million) and honey (Rs.335 crore/$52 million). It even has
noodles in its product collection. The company claims to have 15% market share
in shampoo, 14% in toothpaste and 50% in honey. Currently, the bulk of
Patanjali’s products are manufactured at its facilities in Haridwar, which is
around 130 miles from New Delhi; the rest are from third-party manufacturers.
India’s branded FMCG segment is estimated to be more than $65
billion at present and, according to a study by the Confederation of Indian
Industry and Boston Consulting Group, it is expected to grow to
$220billion-$240 billion by 2025. Media reports say that Patanjali, which began
as a small pharmacy in 1997 and ventured into FMCG In 2006, is now the second
largest FMCG player in India after HUL, which clocked Rs.30,782 crore ($4.7
billion) for the trailing four quarters. (India accounts for around 8% of
Unilever’s sales and is the biggest among emerging markets). Patanjali is
reportedly ahead of giants like Nestle India (Rs.9,159 crore/$1.4 billion),
Colgate-Palmolive (Rs.4,010 crore / $622 million), GSK Consumer Healthcare
(Rs.3,784 crore/$587 million) and P&G Hygiene and Healthcare (Rs.2,388
crore/$370 million). It is also giving old and established Indian firms a run
for their money. ITC’s non-cigarette FMCG business clocked Rs.10,337 crore
($1.6 billion) for the trailing four quarters, Godrej Consumer Group Rs.9,134
crore ($1.4 billion) and Dabur Rs.7,690 crore ($1.1 billion).
Edelweiss’ Roy feels it would be more accurate to put Patanjali
among the top three or four FMCG players in India since firms like P&G also
have unlisted entities in the country which should be taken into account. At
the same time, he adds: “Patanjali is easily the most successful FMCG company
in India in the past many years. It is … giving well entrenched companies a run
for their money. By next year, it should become the second largest FMCG company
in the country.”
Bijoor thinks that further doubling turnover in one year is “a
stupendous task,” but he adds that “with all the plans in place
and considering the fact that Patanjali products are
distributed in only 6% of retail outlets nationally today, the potential
exists.” However, Bijoor notes, it’s important to recognize the fact that the
brand is still “largely regional and suffers from poor distribution.”
A.K. Prabhakar, head of research at financial services firm IDBI
Capital, feels that Patanjali’s $3.1billion target for FY 2018 is unrealistic.
In an interview with Business Standard, he pointed out that other
firms are resorting to aggressive pricing to take on Patanjali. “I believe 20%
to 25% growth is a more realistic and achievable target.”
A Dream Run
So what is the magic behind Patanjali’s phenomenal growth so
far? Experts cite three key factors. Ramdev’s personal brand equity,
Patanjali’s disruptive pricing, and the company’s positioning of the goodness
of ayurveda and natural ingredients.
Take Ramdev himself.
Indians, by and large, have always had a leaning towards spiritual gurus.
Ramdev, with his friendly demeanor, seems to have a special connection with
them. His yoga camps, televised yoga sessions and free health consultations are
all extremely popular. Ramdev is also highly politically networked and seen to
be particularly close to the Bharatiya Janata Party headed by Prime Minister
Narendra Modi. He has strong nationalistic leanings and is vocal about them.
One of Ramdev’s pet agendas is repatriation of black money. Another is to drive
foreign companies out of India. All these along with his business acumen
(Ramdev is closely involved in all critical aspects like new product
development and pricing), and many a controversy (he claims homosexuality is a
disease and that he has a cure for it), make for a potent combination. The
brand ambassador of Patanjali, Ramdev, is a brand by himself.
An October 2015 Edelweiss report co-authored by Roy says: “For
the consumers, Baba Ramdev remains the face of Patanjali and its products. Baba
Ramdev, during his yoga sessions, showcases the Patanjali products. After the
session, he makes the attendees aware of the benefits of using Patanjali
products. Till date, close to 70 million people have come in contact with Baba
Ramdev through his yoga camps and it is believed that this can increase to 200
million going ahead. This highlights the potential reach that the Patanjali
brands can have without much mainstream advertising. Also, being associated
with Baba Ramdev helps in creating a perception among consumers that being
ayurvedic, Patanjali products are healthy.”
“Ramdev’s widespread popularity, propelled by televised yoga
camps, has provided the brand push for Patanjali,” says Devangshu Dutta, chief
executive of consulting firm Third Eyesight. Pointing out that over the years
Patanjali has successfully built the momentum to “displace previous ayurvedic
market leaders in the consumer’s mind and create a credible alternative to
multinational brands,” Dutta adds that Patanjali’s “Indianness” is a challenge
to multinationals, while its sheer size and penetration is a challenge for
other Indian companies. “A flat management structure enables rapid
decision-making that allows the business to be extremely flexible and
aggressive when it needs to be.”
On the controversies
surrounding Ramdev, Dutta notes that worldwide, successful brands are built
more on public relations than on advertising, and controversy is a very strong
driver of PR. “In that sense, the Patanjali group has had rich dividends from
its approach to PR. Starting from the image of a swami in saffron robes
propagating consumer products to using food safety concerns around market
leaders’ products to their advantage and openly taking a swadeshi [nationalistic]
stand against multinational brands, the Patanjali group’s PR voice is strong
and clear. Whether this will remain so as the business grows is something only
time will tell.” (In 2015, when Nestle’s Maggi noodle brand was embroiled in
controversy over high levels of lead and MSG, Patanjali quickly launched
instant noodles to plug the demand gap.)
Another strong plank of
Patanjali is good quality at disruptive pricing. Most Patanjali products are
priced around 15% to 30% lower than competition. In a media interview,
Balkrishna said: “We buy raw material directly from farmers and we work on a
single channel right from the farmer to the end consumer and that is the real
reason why our quality and costs are under control.” Other factors that
contribute to Patanjali’s competitive pricing include lower overheads (salaries
and administrative costs, for instance, are much lower than those of regular
corporates), lower distribution margins and lower advertising and promotional
spending.
Interestingly, while its advertising costs are lower than others
(according to Balkrishna the company’s ad-spend is less than 3% of turnover),
Patanjali is among the top advertisers in the country. Balkrishna attributes
this to tough negotiations. “Differentiated advertising” has been a “pivotal
factor” propelling Patanjali into the limelight, notes Edelweiss’ Roy. He
points out that Patanjali ads highlight the pricing difference with
competitors, educate on the benefits of the product, emphasize that Patanjali
is an Indian firm and claim that unlike MNCs, Patanjali is extremely involved
in charity and nation building. “From our survey it has emerged that these
advertisements create a buzz among the target audience and encourage trials,”
says Roy.
IIMB’s Kumar points out that with its positioning of “value for
money,” Patanjali would be successful in several categories “due to the simple
reason that the penetration of brands in most categories is still low in an
emerging economy.” Bisen of Technopak Advisors feels one reason for Patanjali’s
success is “the subtle shift in consumer lifestyle and needs that manifested in
a latent demand that other companies missed out.” Another reason is the
“package of wellness, nationalism and natural synced with the social and
political narrative” of the country. Bisen adds: “Positioning the quality,
purity and natural promise at value pricing created a strong demand pull. This
pull was aptly serviced through an ecosystem of distribution that supported
fast proliferation in the market. No other FMCG major earlier used exclusive
brand outlets for their product range.”
Sustaining Momentum
Going forward, does Patanjali have the potential to make a big
dent in the performance of other players? It’s a mixed bag, says Bisen.
Pointing out that it is easier to grow in a few categories and reach scale, he
says: “In the FMCG space, if the initial idea is a success, the challenge comes
in replicating the idea to other categories, managing growth and managing
category extensions. Also, the leading FMCG majors have all spent significant
time now to appreciate Patanjali as a key competition and have developed strong
counter-offensives. Therefore, the initial years of easy march may now hit some
[roadblocks].” Potential threats for Patanjali, Bisen notes, include
“spreading itself too thin, [a] change in the social and political narrative that
dilutes the nationalism theme, and strong response from competition.”
Another headwind could come from the new goods and services tax
(GST), whose objective is to replace all taxes levied by the federal government
and the states with one central tax. At present, ayurvedic products are taxed
only 5%, but under GST the levy will go up to 12%. This could impact
Patanjali’s pricing significantly.
Patanjali needs to be
“totally paranoid” about quality as it expands, says Bijoor. “If Patanjali
messes up on quality as it expands, it will pay the price. That price will be a
quick glass-ceiling for its volumes.” IIMB’s Kumar suggests the biggest
challenge for Patanjali is to scale up and make the products available
across the country. “This involves several aspects of sourcing, manufacturing
and distribution.”
An October 2016 Edelweiss
report observes that distribution remains an area of improvement for Patanjali.
It notes that according to a survey it conducted, while 35% users believe that
availability of Patanjali products is a problem, 49% of non-users have not used
Patanjali due to non-availability. The report adds that buying Patanjali
products from kirana (neighborhood “mom and pop”) stores is still small at
around 26%, while for most other consumer goods companies this is 70% to 80%.
However, a January 2017 Edelweiss report seems more optimistic.
It states: “Patanjali has over 5,000 retail outlets and its products are
available through around 1 million shops. By FY18, it plans to scale up its
shop portfolio to over 3 million. Apart from this its products have strong
presence across modern trade. Once it has 3 million outlets, its penetration
will be comparable to the likes of Britannia, Colgate, Dabur, etc., though
below HUL’s network of over 7 million shops.”
Patanjali watchers also say that any major impact that Patanjali
makes on global multinationals is likely to be restricted to India.
New Battle Fronts
In the meanwhile, Ramdev wants to open other battle fronts. To
challenge restaurant chains such as McDonald’s, KFC and Subway, Patanjali plans
to enter this segment. “We are working on the business plan and branding,”
Ramdev told press reporters, adding that the company is working to put together
around 400 vegetarian recipes. “When we get these recipes together, all these
multinationals serving chicken or mutton will have a hard time countering us.”
Patanjali is also planning to enter the apparel business with jeans and
sportswear and compete with firms like Levi’s, Nike and Adidas.
Not everyone is enthused about these proposed expansions. Says
Bisen: “I am wary of category extension beyond FMCG so early in the journey,
when the market potential in FMCG itself is huge. Dairy, processed food and
condiments are all exciting spaces. If I had private capital to allocate,
I would focus on consolidating my position in the chosen space.”
A sharp critic when it comes to Patanjali’s “greed” to spread
across categories, Bijoor says: “There is a line it must draw for itself. Using
ayurveda is a good thing to do. But stop where ayurveda stops, and stop where
ayurveda looks ludicrous.” He cautions that Ramdev and Balkrishna must not
dissipate attention at this stage. “Width is important, but depth
in those areas where you have achieved early and big success is
a must. Never compromise on that.”
“To my mind, the Patanjali brand is rooted intrinsically in
well-being, so growth in food seems a natural outcome to me but not packaged,
fast-food and snacks,” says Dutta. “Similarly, there are areas of apparel, such
as yoga-wear, which would be a natural extension, but jeans would seem to
challenge the integrity of the brand.” At the same time, he points out that
most brands these days “don’t care to create or maintain a core ethos” and most
consumers have “only a passing, superficial engagement” with them. In such an
environment “more tangible and immediate factors, such as the price and
availability” play an important role. Dutta notes: “Currently, the Patanjali
Group is following economic logic, the way any business would – identifying
areas in which it can create significant turnover and margin using its brand
name and goodwill.”
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