Business

Should Patanjali’s Dizzying Growth Worry the Competition?

Pricing, branding and Baba Ramdev are the ingredients that have helped the company reach these levels.

File photo of Acharya Balkrishna and Baba Ramdev of Patanjali Ayurveda. Credit: PTI

File photo of Acharya Balkrishna and Baba Ramdev of Patanjali Ayurveda. Credit: PTI

It is a business miracle of sorts. A consumer goods company that started in 1997 and was coasting along for almost ten years till 2007, has suddenly emerged as a leading player in the Indian FMCG space. From shampoo, biscuits, ghee and noodles, and now jeans – no other Indian company has a product portfolio this wide.

In a press conference held in Delhi on April 26, Baba Ramdev and Acharya Balkrishna, the co-founder of Patanjali Ayurved, declared that the company clocked a sales turnover of Rs 5000 crore for the year ended April 2016. Sales climbed up steadily from a humble Rs 453 crore [2011-12] to Rs 849 crore [2012-13], to Rs 1191 crore [2013-14], to Rs 2006 crore [2014-15] and finally to the astounding Rs 5000 crore mark. No other FMCG company has been able to achieve such organic growth in recent times.

The Hurun Rich List 2016 published recently has listed Acharya as one of the top 30 richest Indians [ranked 26]; given the fact he owns 94% of the company and with the company’s turnover hitting Rs 5000 crore this year and set to hit Rs 10,000 crore FY 2017, the analyst seems to have done a simple multiple based calculation of Acharya’s wealth.

What is Patanjali’s secret sauce, or should one say secret asana? What explains this remarkable trajectory? What are the branding lessons one learns from this story? And should packaged goods MNCs and even readymade apparel brands be worried?

There are several ingredients that go to create the Patanjali magic, and while we don’t know if the momentum will sustain, it is worth studying the success story so far.

The cost economics: Any large MNC operating in this space generally looks at a gross margin (Profit Before Tax) – after corporate overheads of 10% and marketing/advertising expenditure of approximately 13% — of approximately 20 percent. As against this, Patanjali is thought by industry analysts to be operating at less than 10% margin, (corporate over heads are said to be low and Baba Ramdev takes no salary) and less than 5% marketing spends. The net savings thus amount to 25%. Not surprising then that the brand is able to offer products like honey, shampoos and toothpastes at a 25% discount to the market leader. This should naturally have any rival worried.

Brand ambassador: The other big factor in its favour is the image of Baba Ramdev. He is a recognised face all over the Hindi speaking parts of India and now beyond. He is seen by his followers and admirers as someone who is not in it for the profit motive and moreover, perceived as an embodiment of good health – who else can perform such contortions with his body? Ramdev has effectively come to signify quality and good Indian – sanskari – values.

One core profitable product: It is reported that the biggest selling product from Patanjali’s stable is the ghee made from cow’s milk. Market reports say that almost Rs 2000 crore of the Rs 5000 crore top line comes from this one product. It is here that the astute marketing of Patanjali comes into play. Patanjali ghee is in fact sold at a premium to the other organised sector players; there is no way to confirm this, but it is more than possible that most if not all the profits of Patanjali comes from ghee.

Patanjali has overturned a conundrum all brand marketers struggle with. Consumers tend to think a brand is successful if it offers many variants and extensions. But trade (mainly retailers) hates to carry multiple products from the same brand unless there is constant demand. The Patanjali brand straddles numerous categories and has therefore created a larger than life image for the brand. And it is possible that these multiple offerings help each other. It is believed that most of the Rs 5000 crore sales comes from just three products – ghee, toothpaste and hair oil/shampoo. But offering a multitude of products has helped build a strong brand aura. Over and above, Patanjali has set up an estimated 5000 own brand stores, which is unheard of.

The company has now announced that Patanjali will soon be launching its own version of denim jeans, albeit with a ‘desi’ touch. A friend of mine, the owner of a successful apparel brand, told me 10 years ago that he was planning launching ‘yoga pants’. He explained how these pants do not ‘ride up’ when you do your various asanas and would be a big hit with women. He eventually sold his business, but one wonders if Patanjali jeans will be on those lines, made of denim, that one could wear while doing yoga? Will they also come in the various colours and odd sizes that are particularly suited to Indians?

Who buys Patanjali products? Obviously a lot of people. There is a different dynamic here that must also be considered-because of Baba Ramdev’s telegenic personality that cuts through the socio-cultural and economic layers of our complex country, we are probably seeing diverse classes of consumers adopting a brand for the first time in their life. The immense popularity of Patanjali ghee points to the fact that Baba Ramdev has managed to convert millions of consumers from unorganised, unbranded, loose (sold in loose form) product purchase to a branded packaged purchase. This is a tremendous movement. It is also possible that poor consumers who were not comfortable with buying a ‘videshi’ shampoo or toothpaste, are willing and happy to purchase a Patanjali shampoo and toothpaste. The same may now apply to jeans.

In marketing text books this is called ‘brandification’ of a category. When Hindustan Lever launched Rin detergent bars, they managed to convert consumers from unbranded soap bars to a branded detergent bar. Today, large FMCG players are perhaps not innovative enough with new products, new variants, new offers-they tend to play it safe. Baba Ramdev has filled that gap.

Should MNCs operating in India be worried ? If I were the global boss of an MNC operating in India, I would ask my Indian CEO to tell me how he/she can ride on the coat-tails of Patanjali and reach the middle and lower income consumer. My message would be – don’t fight Patanjali, learn from it.

Ambi Parameswaran is brand strategist and founder of Brand-Building.com. His is the author of bestselling book Nawabs Nudes Noodles – India Through 50 Years of Advertising, published by Pan Macmillan.