Transfin.
HomeNewsGuidesReadsPodcastsTRANSFIN. EOD
  1. Reads
  2. Deep Dives

Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies

Jul 13, 2018 5:44 AM 6 min read
Editorial

Stand-up comedian Kunal Kamra jokes in one of his gigs gone viral on YouTube, “Baba Ramdev is bigger than Cadbury right now…”

 

He’s not wrong.

 

Patanjali Ayurved Limited, a Haridwar-based consumer goods company clocked INR10,561cr ($1.5bn) of sales in 2017, growing by 111% to put to shame most established fast-moving consumer goods (FMCG) companies in the country. According to data by VCCircle the company’s growth has been nothing short of exceptional, with sales practically doubling each year since 2013.

Patanjali reported revenues of

INR850cr ($123mn) in FY13,

INR1,195cr ($173mn) in FY14,

INR2,014cr ($292mn) in FY15

INR5,000cr ($725mn) in FY16

and doubling again in FY17, seamlessly taking over much older competitors such as Nestle and Godrej.

Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies
Source: Alokprasad [CC BY-SA 3.0  (https://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], from Wikimedia Commons

Where it All Began

 

The beginnings of this success story can be traced to 1990, when Acharya Balkrishna and Swami Baba Ramdev set up the Divya Yog Pharmacy Trust to organize yoga camps and manufacture Ayurvedic / herbal medicines. With popularity of Ayurvedic products on the rise, both wished to expand and diversify their business portfolio leading to the inception of Patanjali Ayurved in 2006. There has been no turning back since.

 

The company’s tale borders on the edge of whimsy. Sans fancy marketing strategies or celebrity names to back its brand, the company has today become a household name. Elaborating on its growth plans, the face and personal Brand of the company i.e. Baba Ramdev, claimed in 2017 that they would continue to “double revenue [each] year” to cross INR20,000cr ($2.9bn) by March 2018 to subsequently exceed annual revenues of FMCG giant Hindustan Unilever (HUL) by 2019.

 

To give some context, Unilever had set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing Company around 1931. This was followed by the incorporation of Lever Brothers India Limited in 1933 and United Traders Limited in 1935. The three entities merged to form HUL in November 1956. It was through a dozen and more mergers, acquisitions, and alliances with key players such as Brooke Bond (1984), Tata Oil Mills (1994), Lakme (1996), and Modern Food Industries (2000) that HUL today has risen through 85 years to become the leading FMCG company in India.

 

Against this background, a 12-year old organization’s claim that it shall overtake the FMCG giant is indeed a bold one!

Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies
Acharya Balkrishna, 98.6% owner of Patanjali Ayurved

Rise of Patanjali 

 

Patanjali’s meteoric success can be credited to a combination of low prices, a ‘naturally herbal’ and ‘ayurvedic’ proposition as well as its successful ‘swadeshi’ positioning. Baba Ramdev as the Yoga Guru leveraged his popularity to promote and add credibility to its products. Moreover, very competitive pricing ensured that products were accessible to middle and lower-middle class India, a segment often ignored by established companies.

 

To illustrate, a 60ml pack of Patanjali Neem and Tulsi Facewash is priced at INR45, while 100ml of a comparable product by Himalaya (Himalaya Neem Face Wash) sells at INR150. Patanjali prices its 200ml Kesh Kanti Shampoo at INR85, whereas Head and Shoulders is pegged at INR145 for a 180ml pack. Most Patanjali products are discounted at 20-30% vs. competition.

 

Key Drivers of Growth

 

What are the drivers behind such ‘affordable’ pricing? Patanjali’s low operational cost base and minimal advertising/promotional spend are key.

 

The former is due to the company's direct sourcing network with respect to farmers. Moreover, only 5%-6% of total 2017 sales was spent on marketing vis-à-vis INR3,500cr spent by HUL (10% of total sales) and INR500cr-INR600cr (10%-12% of total sales) by Procter & Gamble.Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies

Patanjali Distribution

 

An effective distribution strategy also plays an integral role in permitting lower prices.

 

Patanjali began its distribution through dedicated stores. Akin to a franchise model, these stores were essentially free Ayurvedic consultancy clinics run by entrepreneurs (who bring in the equity) who can leverage Patanjali’s brand and serve as a distribution channel for its products. Categorized as Arogya Kendras, Chikitsalaya Kendras and Swadeshi Kendras, Patanjali trained and certified doctors nominated by these stores and granted them credibility in the market. Free trustworthy consultancy assured high footfalls. Courtesy network effect, the brand and its demand grew exponentially.

 

Once a sizeable consumer base was built, the next step was to expand distribution towards general stores. Recent tie ups with Future Group and e-commerce marketplaces like Amazon and Flipkart illustrate the company’s intent to widen reach and explore possibilities beyond brick and mortar.

 

Patanjali’s disruptive growth has not been without its fair shares of controversies and accusations. Of late the company has been riddled with controversies around tax evasion, land grab, lack of quality control and failure to gain approvals.

 

Baba Ramdev’s devotees form a key voting constituency, creating conditions for political favouritism. 

 

According to a report by Reuters, the company has acquired more than 2,000 acres of land for building factories and research centres since the present government took office in 2014. According to the same report, Patanjali received discounts of up to 80% of market price on the land purchased. Any preferential treatment raises eyebrows especially when complemented by quality control concerns. In 2017 the Indian Army Canteen stores suspended sale of Patanjali products after they failed to meet minimum quality requirements.

 

It has been suggested that Patanjali's non-adherence to stringent standards driven by a perceived immunity from requisite regulatory action may be another factor driving lower prices.
Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies

The Way Forward

 

While Patanjali has made its mark in a rather competitive FMCG sector, it remains to be seen if they are able to hold their moat. The company has never really disclosed its source of funds. Managing Director Acharya Balkrishna earlier in the year confirmed its search for investments to fund ongoing projects such as food processing. He also confirmed talks with Moët Hennessy Louis Vuitton SE (LVMH) seeking a INR3,000cr ($435mn) investment from the French luxury brand.

 

In its attempt to grow inorganically, Patanjali has recently made an INR5,700cr ($826mn) bid for debt-ridden Ruchi Soya, which has its expertise in Nutrela Soya products and refined oil segment.

 

These changes aside, growth seems to be tapering off. For FY18, the company reportedly “closed the year around the same level as the previous fiscal year’s revenue [INR10,561cr]”, in spite of expectations of revenues to double to INR20,000cr.

 

Acharya Balkrishna credits it to the lingering effects of demonetization and GST. Interestingly during the same fiscal, HUL and ITC clocked 12% and 11% Y-o-Y growth. A drop in quality and shortage of supply have been cited as headwinds driving consumer churn.

 

Moreover, HUL and Colgate having advanced their game by introducing similar herbal products leaving consumers spoilt for choice. The next leg would call for renewed efforts from the company as Baba’s credentials might not be able to keep the boat afloat if not combined with innovative high quality products.

 

Aware of its rising competitors, Patanjali is all set to make a breakthrough in international markets, starting with an investment of INR5,000cr ($725mn) in five new food parks in Madhya Pradesh, Maharashtra, Andhra Pradesh, Assam, and Uttar Pradesh. The unit in Madhya Pradesh will be dedicated to products to be exported to the US, the UK, and Canada, besides neighboring countries like China. The company also aims to hire over 35,000 salesmen across India. Baba Ramdev has also dropped hints around entering the fast-food business, taking on multinational restaurant chains like McDonald’s, KFC and Subway. With an Election year bringing in political re-alignments, only time will tell whether Patanjali will face or can flourish on a level playing field.

 

(We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)