How a Concoction of Patriotism and Brand can work March 2018 issue

How a Concoction of Patriotism and Brand can work

What started as a small pharmacy a decade back is today the fastest growing FMCG company in India, targetting Rs.10,000 crore in revenues in FY2017. Patanjali Ayurved Limited (PAL) has given the reigning monarchs of India’s FMCG space a run for their money. Domestically, its basket of products have become runaway hits. While exports have been negligible till date, an in-the-making exports strategy and production from the under-development SEZ unit near Nagpur promises to take Patanjali global. The company already has 12 countries on its “sniper” scope. Can the Baba Ramdev-Acharya Balkrishna duo make Patanjali's 'quick rise to stardom' count by taking the brand beyond borders too?

Anupama Polasa | March 2017 Issue | The Dollar Business

A couple of decades ago if someone told you that a monk could give seasoned business masterminds a run for their money, you would have taken it in jest. Not today. For Baba Ramdev and his Patanjali Ayurved has proved the naysayers wrong. Merging yoga with ayurveda, and of course politics, this bearded guru in saffron robes has prepared a concoction of 'brand and patriotism' that millions in India love to savour without batting an eyelid. He is a monk who rides a Range Rover, loves to hog the limelight and attracts controversies like a magnet. He preaches ‘swadeshi’ and detests foreign brands. He has also been fanning a new wave of nationalism that has become corner stone of his burgeoning FMCG empire, which is already worth thousands of crores. His retail arsenal, with over 500 products, ranging from shampoo to toothpaste, from detergent to biscuits, to ayurvedic medicines have forced already established FMCG players to sit up and take notice. So, what makes him and his company a credible threat to MNCs in India and soon, quite likely across First World markets? To seek an answer to this and many other such questions, we started our journey to Patanjali Yogpeeth, the womb of this homegrown soon-to-be Indian multinational.

The Roots

It was around 9 am on a chilly January morning and we were about to reach Patanjali Yogpeeth, one of the largest yoga centres in the world, located some 20-km away from the holy city of Haridwar on the Delhi-Haridwar highway. The drive through the highway stretch between the hotel we were put up for the night and our destination – Patanjali Yogpeeth – was nothing short of a quick adventure. For it had rained heavily the previous night and the stretch, which was dug up almost everywhere (the highway was being upgraded to a six lane-one), was littered with potholes and puddles that tested our driving skills and possibly took a toll on our vehicle’s steering and suspension. It took us about 45 minutes to cover a traffic-free stretch of under 5 km; imagine!
    
As soon as we entered the sprawling campus of Patanjali Yogpeeth I (Patanjali Yogpeeth comprises two campuses, named Patanjali Yogpeeth I and II), it started drizzling again. Though we could sense a downpour hitting us in no time, we could not resist spending some time out in the open and admiring the simplistic appeal of the Yogpeeth's headquarters (they call it Sadbhawana) from where the operations of India's fastest growing FMCG company are currently being masterminded. [The feeling was no less grander than strolling in the gardens of the Pentagon and guessing where NATO will attack next!]

Interestingly, the rather large car parking at Yogpeeth was almost full on this rainy winter morning. The vehicles parked had registration plates of several states, near and far – a rather compelling evidence of the fact that Patanjali has made its presence felt across the length and breadth of the country.

 


"Patanjali plans to export FMCG products to 12 countries including US & UK"

 

Om, Amla, Bael, Paye

Well, the only object that seemed out of place in the entire minimalistic set-up was a luxurious white Range Rover parked right outside Sadbhawana’s main entrance. We learnt later that it was owned by Acharya Balkrishna, aide of Baba Ramdev and the man behind Patanjali’s astounding success in a short span of time. And, it was specifically to meet him that we were at Patanjali Yogpeeth. We called up his office to let his secretary know that we had reached, and were not surprisingly greeted with "Om" instead of the familiar "Good morning" or "Hello" at the other end of the line – an apt precursor that indicated that this visit is going to be a lot different from our past stopovers at other English-speaking and fans of Western-culture, first-name calling corporate offices.

We had to wait a while before we could meet Acharya Balkrishna. [We were told that "some important business meetings" had come up.] As we awaited our turn to meet Acharya Balkrishna, we saw his secretary fielding requests for meetings with the man who has given India’s FMCG majors a run for their money. Sharp-suited retired army generals, businessmen, patients with political  backgrounds, and many other favour-seekers – we could see people from all walks of life waiting patiently alongside us.

Meanwhile, we were served an assortment of amla (gooseberry) and bael (wood apple) candies along with Divya Paye (herbal tea). We were urged to taste amla candy while being briefed about its great nutritional and health benefits. In fact, gooseberries are a part of almost every conversation if you are at Patanjali. And this admiration for the berry is understandable; for it is this very fruit that had put Patanjali on India’s FMCG map, for the first time, some 11 years back.

Meet The Billionaire

What’s more intriguing though is that the company that started out with a loan of Rs.50 crore in 2006 has a projected turnover of Rs.10,000 crore for FY2017! So, what factors have contributed to the company’s rapid growth? What has worked to Patanjali’s advantage in a market that has been ruled by multinational giants like HUL and ITC for many years now? And above all, is exports the next logical step towards success for this home-grown FMCG giant?
An aerial view of Patanjali Yogpeeth.Located on the Haridwar-Delhi highway,between Haridwar and Roorkee, it's one of the largest yoga centres in the world and the headquarters to India's fastest growing FMCG company – Patanjali Ayurved Ltd.

Several such questions came to mind during our eager wait to meet the modest billionaire who has masterminded the disruption in India's multi-thousand crore FMCG and OTC consumer products market and owns a 97% stake in Patanjali Ayurved. [Forbes estimates Acharya Balkrishna's net worth at $2.5 billion and places him at the 48th position in its 2016 list of India's 100 richest people.]

After a short wait, we were ushered into Acharya Balkrishna’s office. His office was a curious mix of a well-adorned modern C-suite and a traditional high-ranked bureaucrat’s workplace. Acharya Balkrishna sat behind a huge executive table in his inimitable all-white dhoti and kurta, a large metallic portrait of Baba Ramdev hanging on the wall right behind him. The only thing which seemed incongruent with his image was an iPhone, placed neatly on his table. [Another question that struck me at that point - could Patanjali get into electronics too? Who knows! A Made-in-India cellphone isn't rocket-science, is it?] He courteously guided us to the chairs on the other side of the table.

“How did it all begin?” - we began dealing our question cards to him. "The journey of Patanjali started about two decades ago when we registered Divya Yog Mandir as a trust in January 1995. Interestingly, at that point in time we had neither the means nor the money to get the trust registered. In fact, we had to borrow Rs.10,000, the amount required to take care of registration formalities," answered he.

A Giant is Born

So, it all started as a small pharmacy selling ayurvedic medicines in Haridwar in 1995. While Baba Ramdev continued teaching yoga, his childhood friend Acharya Balkrishna was curing patients using Ayurveda. And they were doing it for free. This continued for a few years, with the duo slowly pedaling their way to popularity in and around Haridwar. They got their big break in 2002 when Sanskar TV, a Hindi spiritual channel, signed Baba Ramdev for a 20-minute yoga programme. The programme became an instant hit, and so did Baba Ramdev. A year later, in 2003, another Hindi spiritual channel Aastha featured Baba Ramdev in an early morning Yoga programme called “Divya Yog”. It was this programme that made Baba Ramdev a household name across India. Since then, there has been no looking back.

A few years later, in 2006, the duo established the Patanjali Yogpeeth Trust. It was this trust that laid the foundation for Patanjali Ayurved Ltd., a company that was incorporated the same year. The objective was to provide ayurvedic products and medicines to patients on a large scale. But wasn’t a trust enough to serve the purpose? Was there really a need to establish a company? “In 2005, Brinda Karat, a CPI(M) leader, made false accusations against our work. That is when we realised that even if we work with the goal of helping the society at large we will have to face difficulties and accusations, and that we need to be prepared to deal with such things. We decided to set up a separate company that is not linked to the trust, to deal with such problems,” says Acharya Balkrishna.

The Amla Magic

One day, as luck would have it, they saw some farmers cutting gooseberry (amla) trees. When they asked them why they were destroying the trees, they replied that there is no market for the fruit. It struck them that they could produce juice out of the berries and make it a part of their product portfolio as it offered huge health benefits. And that’s when Patanjali Ayurved’s FMCG journey began in earnest. Come today, and Patanjali Ayurved has turned out to be the most disruptive force in the Indian FMCG space – boasting of a huge product portfolio comprising over 500 products, across FMCG categories, from soaps to toothpastes and from noodles to health drinks.

Patanjali Yog Gram, a naturopathy treatment centre, situated near Haridwar, that combines yoga and ayurveda to heal patients.

What's more? The company’s products are available in 15,000 exclusive stores, over 3,000 Patanjali Chikitsalaya Kendras, apart from being present at over 1 lakh retail outlets including that of big retail chains such as Big Bazaar, Reliance Fresh, Ratnadeep, etc., across India.

"We had never thought of getting into the world of business or dealing with worldly concepts like profit and growth. We just wanted to combine yoga and ayurveda to serve people. In fact, we don’t think of business or profits even today, though we are now into manufacturing and sales of several products," adds Balkrishna.
 
But that still did not explain Patanjali's spectacular rise to fame. How come two individuals, with no experience in business operations and marketing, are today giving MNCs a run for their money? And above all, what makes this young company a threat for established FMCG players that have been in the Indian market for decades now?

Game Changer

“What makes Patanjali a credible threat is that it does not try to beat other FMCG companies at their game; it changes the game for them,” states a 57-page report released in January 2016 by Mumbai-based brokerage IIFL. While low and smart pricing, natural and herbal offerings, and indigenous ‘swadeshi’ positioning are some well-acknowledged factors contributing to Patanjali's success, not many know that it's the company's innovative sales and distribution network that has been behind its remarkable rise in such a short span of time. Patanjali has for real mastered the art of supply chain and distribution it seems!

"Patanjali has created a captive market which is health-conscious, looks out for affordable products, believes in the philosophy of swadeshi (home grown) and above all trusts Baba Ramdev," states a study by Prof. Brijesh Singh and Dr. R. K. Gopal of PES University. While FMCG multinationals have been using traditional marketing and distribution channels, Patanjali has relied on an unconventional distribution strategy (comprising a captive dealer network of chikitsalayas, arogya kendras, etc.) that has been effective in catapulting it to where it is today.

Further, Ramdev's ardent supporters, who were also early adopters of Patanjali's products, have been the biggest factor contributing to the company's success. They not only allowed Patanjali to experiment with a wide range of products, but also marketed its products better than paid advertisers would have ever done. "Ramdev’s followers became evangelists for Patanjali’s products. They went out and convinced their relatives and friends to buy the company’s products. It was like a team of few lakh people marketing for you at no cost. The word-of-mouth has been phenomenal," says Arun Jethmalani, Managing Director, ValueNotes Strategic Intelligence. Interestingly, as per rough estimates, some 20 crore individuals have already attended Patanjali's yoga classes – thanks to some 10 lakh trained yoga instructors registered with Patanjali that conduct over one lakh free yoga classes every day. And, not to say, these yoga-camps-cum-clinics, are also the key retail outlets for Patanjali's products. And, this number is only growing with each passing day.

 

"Baba Ramdev’s followers became 'evangelists' for Patanjali’s products"


Yet another reason for Patanjali's success is its low overhead costs. Administrative costs of established FMCG players are usually around 10-15% of their revenues, but in Patanjali's case they amount to just 2-3% of its turnover. And when it comes to target audience, Patanjali has been smart on that front too. "Many companies have tried to capitalise on the ‘natural and organic’ bandwagon, but Patanjali has been the most successful among the lot. The ‘synthetic to natural’ trend is premiumisation-agnostic and class-agnostic. As a result, Patanjali has been able to target both low and high income groups on the proposition that its products are natural and that it offers quality products at attractive prices," says Jubil Jain, Assistant Vice President – Research, PhillipCapital (India).

Trucks lined up at the transport depot inside Patanjali Food Park near Haridwar. Patanjali Ayurved has already set up an in-house transport arm, which owns about 200 trucks as of date.


Where it all began

All this has resulted in a meteoric rise in Patanjali’s revenues in the past few years – from Rs.450 crore in FY2012 to Rs.5,000 crore in FY2016. And the duo doesn't want to stop here. "Patanjali is well on its way to touch the targeted Rs.10,000-crore mark in revenues in FY2017. We hope to continue to double our revenues, year-after-year," says Acharya Balkrishna with great confidence. And it sounds believable, considering the company’s remarkable performance over the last few years. But then, to achieve such big targets Patanjali would require to augment its manufacturing capacities. It cannot rely on its current manufacturing units to achieve the turnover target, assuming the demand for its products only goes up from here.

Spread across 150 acre, the existing manufacturing facility is located about 35 km from Patanjali Yogpeeth. We were told that every day some 200-300 trucks roll out of the said food park loaded with consignments of candies, juices, soaps, tootpastes, flour, etc., apart from a wide range of ayurvedic medicines. And they are destined for every nook and corner of the country. The food park accounts for about 70% of Patanjali’s total annual production, while the rest is manufactured in small factories located near the Yogpeeth. These impressive numbers fueled our curiosity and soon we were on our way to the action zone.

Made In Patanjali!

Interestingly, the narrow road to Patanjali Food Park from the Yogpeeth runs through small villages and there is not a hint that a large industrial establishment is anywhere in the vicinity. We too realised that we were nearing a Food Park when we saw around 10-12 trucks with the insignia of Patanjali Transport lined up at a large gate. [Patanjali Ayurved has already established an in-house road transport arm, which owns about 200 trucks.] As we approached the gate, a couple of Central Industrial Security Force (CISF) personnel came up to our vehicle. It was a tad surprising to see CISF protecting a food park considering that the stated mandate of CISF is to “provide security to major critical infrastructure installations of the country.”

Since we had been hearing a lot about gooseberries from the moment we had stepped in Patanjali Yogpeeth, our first stop inside the food park had to be nothing else but the gooseberry juice plant. And not surprisingly, the fragrance of concentrated gooseberries was all-pervading. For, nearly 27,000 litre of gooseberry juice is produced here every day. We were then guided to the juice-packaging unit. While we could see both humans and machines around us, a large presence of workers inside the factory indicated that the operations were not fully automated (except for a few specialised processes).

This made us doubt the products’ acceptability in the developed markets, particularly when it comes to passing through stringent quality checks in the West. But then, Patanjali has created reasonable brand equity across markets and this would have not been possible if had loose quality controls. "Despite a high growth trajectory, not only in terms of revenue but also in terms of horizontal expansion, it is commendable that Patanjali has been able to maintain the quality of its products in its ever-expanding portfolio," agrees Jain.

The Size Factor

Another challenge that Patanjali might face going forward is managing its organisational capability. Patanjali has already grown big. And if it grows bigger, the question is can it manage the rapid expansion? “Be it an FMCG company or a company like TCS, after a while it is not just about the product. It is about the entire organisational capability including aspects like marketing, sales, distribution, quality control, etc.

Hence, the management needs to focus on building a holistic organisation around these requirements," says Jethmalani. Patanjali's remarkable rise may be a result of the faith that Baba Ramdev’s disciples have on him, but then the Baba-Acharya duo knows where exactly they are headed and what they need to do to get Patanjali to the spot they want it be in the next few years. They have in recent times focused on organisation building and have hired experienced top level professional managers to orchestrate their growth.

Spreading Wings

While the company has already started exploring possibilities of setting up several food processing units across 430-acres of land that has been recently allocated along the Yamuna Expressway, it plans to export ayurvedic products from its upcoming facility at Multi-modal International Cargo Hub and Airport at Nagpur (MIHAN). Patanjali also plans to export orange juice from the said SEZ unit in Nagpur. "The unit we are setting up in Nagpur is a large one and we expect it to generate more than Rs.5,000 crore in export revenues every year," says Acharya Balkrishna.

An aerial view of Patanjali Food & Herbal Park near Haridwar. Spread across 150-acre it accounts for 70% the company's total production.


The company is even outsourcing manufacturing so that it can meet the growing market demand. For instance, Patanjali has recently entered an agreement with Mumbai-based Ruchi Soya Industries for refining and packaging of edible oils that would be sold under the 'Patanjali' brand. "Patanjali, with its aggressive marketing and expansion strategies and ever diversifying product portfolio would dominate the market in the forthcoming period," concurs a joint report titled ‘Indian FMCG Market 2020’ by Assocham and TechSci Research.

Interestingly, the company that had stayed clear from advertising for most years until now, has been all-aggressive with an advertising campaign featuring Baba Ramdev himself. According to Broadcast Audience Research Council India (BARC) data, between January and December 2016 Patanjali almost doubled the number of advertisements it airs on TV channels every week. As per BARC, Patanjali’s weekly ad insertions on television jumped 180% from 11,897 in the first week of January to 33,381 in the week ended December 30, 2016. And if experts are to be believed, Patanjali is spending a massive Rs.500 crore annually in promoting its products across India. However, this number is still small when compared with advertisement budgets of biggies like HUL and ITC that spend about Rs.4,500 crore and Rs.900 crore, respectively, on advertising every year.
 
A flaw that critics though point out in Patanjali's advertising and messaging strategy is its over-dependence on Baba Ramdev’s popularity. If his image takes a beating (a possible scenario, as he has courted controversies and drawn the ire of many over his statements on infertility, homosexuality and religion), Patanjali’s fortunes may nose-dive.

Over the next few years, Patanjali also plans to expand its retail footprint by adding 4,000 distributors, more than 10,000 company-owned outlets and 100 Patanjali-branded stores and supermarkets. The company has even announced the setting-up of six new factories in the next five years, taking the count of manufacturing facilities to nine.

Roadbloacks

So far so good. Patanjali has shaken up the Indian FMCG industry by growing at an unprecedented pace. But can it stay on-course this fast-growth trajectory for long? No big secret that with the emergence of Patanjali, many FMCG companies have realised that the ayurvedic products market is bigger than what they thought it to be. Now each one of them is coming up with products in this category. Every FMCG company is working on a brand extension or on launching new ayurvedic products. The competition is going to increase for Patanjali. "Going forward, I don’t think Patanjali will be able to grab more market share. Having said that, it will continue to grow because the market will grow,” says Jethmalani.

And then there are controversies (which have been an integral part of Patanjali’s journey so far) that the Baba-Acharya duo needs to take care of if they want the company to be on a smooth growth trajectory. Patanjali is often accused of playing the same game as MNCs in the garb of ‘swadeshi’ and ayurveda. While multinationals doubt Patanjali's claims of quality, critics accuse the company of false promotion. Critics even claim that there is nothing ayurvedic in food products like noodles, corn flakes, biscuits and that the products are similar to that of other MNCs. "Use of just natural ingredients doesn't make products ayurvedic," they reason. Patanjali's share of controversies also include its recent tussle with Food Safety and Standards Authority of India (FSSAI) on the issue of necessary approvals required for its noodles. There were even reports of insects found inside the packet of noodles in Jind, Haryana.
 
Critics also believe that Patanjali’s supply chain is still not robust enough to give established FMCG players a run for their money. "Absence of an effective supply chain and logistic network may prove to be a challenge for Patanjali going forward. The company needs to address the issue. Secondly, Patanjali needs to stay clear of controversies and manufacture quality products rather than just marketing them as quality products," says Surbhi Goyal, Director, Stellarix Services Consultancy Ltd. Now that’s something serious! However, Acharya Balkrishna rejects these allegations with a laugh. "First it was Brinda Karat, then it was the previous UPA government in the Centre, and currently it's the Harish Rawat-led Congress government in the state of Uttarakhand that have tried hard to put a spanner in the works. However, we have always emerged clean from all controversies. In fact, they have benefitted us as the consumers' trust on Patanjali has only grown stronger. We grew fast, thanks to these controversies," he adds. Whatever it may be, one thing is sure that Patanjali has changed the way the FMCG industry functions in India. And the only way it is going to go from here is upwards!

The next frontier

Patanjali, it seems, will remain the shining star of the Indian FMCG market for the next few years at least. But then it won’t grow at a pace it has been till now. The reason is simple – with size comes sloth. So, what should be the next logical step to growth for Patanjali? Well, the duo seems to have taken care of this aspect too! Patanjali is now planning to export FMCG products to nearly 12 countries including US, UK and Middle East. But does it have the structure and capability for large-scale exports? If it has, why has it stayed away from this lucrative zone so far?

An inside view of amla (gooseberry) juice processing unit at Patanjali Food Park near Haridwar. The unit has a capacity to process 27,000 litre of amla juice every day.


“Our exports numbers, so far, have been negligible as we haven’t made any serious effort to tap overseas markets. But we know that outside India there is a huge population, comprising both Indians and foreign nationals, that like our products. In fact, we have already started exporting to countries like Russia, Canada, UK, US and some countries in the Middle East. The primary reason that exports have not taken off till date is that we have had no export-oriented strategy in place. Once our unit in MIHAN commences operations, we will see tremendous growth in export revenues,” reasons Acharya Balkrishna.

Industry insiders like Jethmalani however believe that Patanjali will have to go the conventional way, if it wants to taste success in overseas markets. “And it is going to be a long haul. The easy market for the company is where there is a large Indian diaspora. My sense is that they should first go to these markets and follow the conventional route. If they are looking at countries in Middle East, there are many Indians who are familiar with the brand. I don’t know what they are going to do in terms of selling it to someone in China. They might have to build a completely different organisation," says Jethmalani.

Further, most of these markets have very strict sanitary and phytosanitary requirements. If Patanjali wants to successfully penetrate these markets, critics believe that it needs to further improve the quality of its products. "I feel that the growth will slow down a bit as Patanjali makes a foray into international markets. Patanjali is still not US Food and Drug Administration (USFDA) approved and it does not have the required certifications to export to many of these developed countries. So, yes, international expansion may prove to be a big challenge for Patanjali," says Surbhi Goyal, Director, Stellarix Services Consultancy Ltd. Once again, Acharya Balkrishna doesn’t see this as much of a challenge. “As far as USFDA and similar regulatory approvals are concerned, they should not be a problem as we will follow approved procedures and adhere to the guidelines as stipulated by various food safety authorities across the globe,” he counters.

Sounds doable! But can it do this without its brand ambassador – Baba Ramdev, a magnet that has pulled consumers toward Patanjali’s offerings in India? Can Patanjali leverage his image when it comes to tapping into potential markets outside India, considering he is still not largely a very popular face outside India? Well, that's probably where Baba Ramdev will keep the "face" factor aside and use yoga (which already is one of India’s best original exports to the world)! The point is, many including the likes of Deepak Chopra and Bikram Choudhury have flogged yoga to build business empires, with various degrees of success, but none have tried to take on FMCG giants in the process. As per Balkrishna, we could expect Patanjali to export products valued in excess of Rs.5,000 crore by FY2018. Tall dreams; possibly, but isn't that what Patanjali has been all about in recent years - tall dreams and taller achievements?

 

"So far Patanjali hasn’t made any serious effort to tap overseas markets"

 

Will Patanjali succeed where others fear to tread? While Patanjali has made a habit of doing the undoable, only time will tell if foreign markets will propel Patanjali to newer heights or cut short its dream of making a 'Born in India' brand a common noun in FMCG and health product spaces around the world. Till then, keep an eye out for some daily's headline reading, "Patanjali crosses Rs.5,000 crore in export revenues".

 

“Patanjali arrived just in time to ride the Ayurveda wave”

Arun Jethmalani, Managing Director, Value Notes Strategic Intelligence Pvt. Ltd.

TDB: What factors contribute to Patanjali's success?

Arun Jethmalani (AJ): The primary reason behind Patanjali’s success is that people – whether in India or abroad – are now more health conscious. Other companies were very tentative in their understanding of the potential of the ayurvedic FMCG market. So, you had companies like Dabur, which started off with ayurvedic products but were not aggressive enough in marketing their products. Patanjali has shown that aggression. There was a wave and Patanjali arrived just in time to ride the wave. The other thing that Patanjali did well was to leverage Baba Ramdev’s popularity among yoga and ayurveda enthusiasts. He has millions of followers across the globe and his relationship with them is very strong. People trust him and that has helped Patanjali grow fast, across markets. Another factor that contributed big time to Patanjali’s success is that Ramdev’s followers became evangelists for Patanjali’s products. They went out and convinced their relatives and friends to buy the company’s products. It was a team of few lakh people marketing for you at no cost. The word-of-mouth has been phenomenal.

TDB: Many FMCG brands are re-entering the ayurvedic products market. What impact will this have on the market?

AJ: Indeed, there will be an impact. With the emergence of Patanjali, many FMCG companies have realised that the ayurvedic products market is bigger than what they thought it to be. Now each one of them is coming up with products in this category. Every FMCG company is working on a brand extension or on launching new ayurvedic products. The competition is going to increase. Going forward, I don’t think Patanjali will be able to grab more market share. Having said that, it will continue to grow because the market will grow. People these days are increasingly demanding ayurvedic and organic products.

TDB: Critics believe that Patanjali’s supply chain is still not robust enough to give established FMCG players a run for their money. Your take.

AJ: This is something that I don’t agree with. As of now they seem to be managing well. To be able to grow to this size, a company necessarily needs to have a decent supply chain in place. It may not be as sophisticated as a HUL or ITC as of today, but Patanjali has certainly managed their supply chain efficiently. It’s hard to believe that they are completely disorganised.

TDB: Is Baba Ramdev big enough a brand to attract consumers beyond the Indian diaspora?

AJ: I am not sure. Patanjali may start off with just Indians and then expand. But, it will not happen very quickly. It will take a long time, and it will have to spend on advertising. Patanjali will have to go the conventional way. That is going to be a long haul. The easy market for the company is where there is a large Indian diaspora. My sense is that he will first go to these markets and then follow the conventional route.

TDB: Patanjali has courted controversy for not receiving Food Safety and Standards Authority of India (FSSAI) approvals. With plans to export, do you see Patanjali changing its strategy to deal with health and safety regulations? Will this impact its expansion plans?

AJ: Patanjali will have to send its products for testing and their plants will have to be inspected. But again, as of now, I do not know much about the company’s international plans. Having said that, there are some markets that do not have that many regulations. So, my sense is Patanjali will first tap those markets. To enter EU and US, the company will have to spend a lot of money. And then there is the risk attached that if its products do not get approval in these markets, it will bring a bad name to the brand. It is going to be a challenge.

TDB: Patanjali is now expanding its manufacturing operations outside Haridwar in four other locations across India, including Noida and Nagpur. From a financial standpoint, can Patanjali manage this expansion spree?

AJ: The company is profitable and have financial sources not linked to it. Although the company is not listed on stock exchanges, if it goes public it will do well. Also, I am not sure if the company is going to manufacture everything in-house or opt for contract manufacturing. Typically, many FMCG companies opt for contract manufacturing. If Patanjali is planning to set up new plants, then yes, that is a lot of money. It may set up an ancillary unit though. That would make logical sense.

TDB: What is the biggest threat for Patanjali?

AJ: I think it’s all about managing ‘organisational capability’. Patanjali has already grown big. And if it grows bigger, the question is can it manage the rapid expansion? Be it an FMCG company or a company like TCS, after a while it's not just about the product. It is about the entire organisational capability including aspects like marketing, sales, distribution, quality control, etc. If Patanjali doesn’t focus on these aspects, there will remain weaknesses that others may exploit or it may run into problems such as quality issues. Hence, the management needs to focus on building a holistic organisation around these requirements. And it takes years to do something like that.

 

“They needs to improve its Supply Chain & Logistic Network”

Surbhi Goyal, Director, Stellarix Services Consultancy Ltd.

TDB: Patanjali Ayurveda is currently one of the fastest growing FMCG companies in India. What has worked to its advantage in a market that has been ruled by multinational giants like HUL and ITC?

Surbhi Goyal (SG): Patanjali has connected well with consumers’ emotions. This has worked to its advantage. What has also been in favour of Patanjali is our traditional thinking where we consider home-made recipes to be better than the chemical-laden ones that the other FMCGs are promoting. The taste and inclination of consumers have also changed from chemical-laden products to natural products. Pricing surely is yet another factor that has contributed to the company’s success.

TDB: There are reports that have highlighted Patanjali’s weak supply chain management system. Would this be a disadvantage when they expand into exports as the scale-up?

SG: If I am not wrong, Patanjali already has a decent supply chain management system in place. One cannot achieve the kind of revenues that Patanjali has if the company didn’t have a proper system in place. Of course, there will be certain pockets in India where they currently might not be able to supply to. But, from what I see, the places where they are already supplying they can supply more. If Patanjali enters an arena that is competition for say retail stores like Easy Fresh, Easy Day, Reliance Fresh or perhaps is something like apparels, then that could be a potential problem for the company. From where I see it, since they have already managed to do good business, the supply chain model that they have has worked well for them. On the other hand, outside India it may be a problem. In that case, the supply chain management needs to be strengthened.

TDB: Patanjali Ayurved is currently on an expansion spree. Does the company has the financial capability to handle its big investment plans?

SG: I will not be able to comment on this as I don’t have numbers with me, but I am aware that Patanjali is more ‘revenue targeted’ than ‘profit targeted’. Since the company has not disclosed its financials to anybody, it’s difficult to estimate its capabilities. Patanjali has also not been open about the funding that it has received or the sales that it has acheived. Hence, what we work with are all estimates. The only thing that we know for sure is that the company entered the market with gusto and has been eating into the market share of leading FMCG players. In a short span of time, Patanjali has been successful in garnering profits and capturing some parts of a market that used to be the fiefdom of MNCs.

TDB: Hindustan Unilever Limited (HUL) is now reviving its Ayush brand and increasing its focus on ayurveda market that to date has been Patanjali’s strength. How is this expected to change the current scenario?

SG: Considering it’s Hindustan Unilever, the costs are going to be equal or more than that of Patanjali’s offerings. The reason is simple – HUL has high overheads. Secondly, HUL does not have a Baba Ramdev to do the marketing. When it comes to Baba Ramdev, people are emotionally associated with him. It’s going to be a tough battle for HUL to re-enter the market, considering that the space has already been captured by Patanjali apart from some other well-established home-grown players like Dabur, Himalaya, etc.

TDB: Can Patanjali Ayurved leverage Baba Ramdev’s popularity and image when it comes to tapping into potential markets outside India?

SG: Baba Ramdev may not be hugely popular outside India, but yoga definitely is. Having said that, a lot of people who are aware of yoga and are inclined towards natural living, can always search (online) about Baba Ramdev and read about him. Though creating awareness about its products in overseas markets will be a tough task for Patanjali, there is a substantial Indian expat population across the globe that is already familiar with Patanjali brand. In fact, there are many non-resident Indians who regularly carry Patanjali products from India to shores abroad.

TDB: Patanjali is planning to expand its overseas footprints across 12 countries including US and UK, markets which have very strict sanitary and phytosanitary requirements. If Patanjali wants to successfully penetrate these markets, critics believe that it needs to further improve the quality of its products. Your take?

SG: I feel that the growth will slow down a bit as Patanjali makes a foray into international markets. For, Patanjali is still not US Food and Drug Administration (USFDA) approved and it does not have the required certifications to export to many of these developed countries. So, yes, international expansion may prove to be a big challenge for Patanjali.

TDB: What, according to you, could be the biggest threat that Patanjali may face in the near future?

SG: I would say the absence of an effective supply chain and logistic network may prove to be a big challenge for Patanjali going forward. The company needs to address the issue. Secondly, Patanjali needs to stay clear of controversies and manufacture quality products rather than just marketing them as quality products.

 

“Patanjali is expected to grow faster than the overall FMCG"

Jubil Jain, Assistant Vice President – Research, PhillipCapital (India)

TDB: How do you rate Patanjali’s performance this year?

Jubil Jain (JJ): Patanjali does not report its quarterly numbers and its latest performance can only be understood after it reports its annual numbers for FY2017 to Registrar of Companies (ROC). However, between FY2012 and FY2016, Patanjali grew at a CAGR of 82% and clocked Rs.50 billion in revenues in FY2016. In FY2017, we expect Patanjali to grow at a faster rate than the industry as a whole. The rate of growth however will be slower than its own previous growth rate as it will now be limited by its own large size. We still expect Patanjali to clock double-digit growth in medium-term, as we expect higher rural penetration and market share gains in various categories. In urban areas, the trial-led growth era is at its end and Patanjali will have to focus on customer retention in these geographies.

TDB: Do you think the company will be able to handle the challenges and pressures of such rapid growth in the future?

JJ: Despite a high growth trajectory, not only in terms of revenue but also in terms of horizontal expansion, it is commendable that Patanjali has been able to maintain the quality of its products in its ever-expanding portfolio. The company has invested significantly in human resources by recruiting experienced professionals from top FMCG firms in major areas like marketing, sales, research, product development and supply chain. This, we believe, will help Patanjali to set in place the systems and processes required to succeed, as its size increases. However, to generate sustainable growth in future the company will need to invest more in its distribution and network infrastructure in both urban and rural areas, as it lags considerably compared to its peers in these areas.  

TDB: Patanjali has been trying to tap middle and upper-middle class consumers in urban areas. Do you think this class of consumers will buy Patanjali’s products?

JJ: There sure is a significant trend in India of customers shifting from essential to premium products. But alongside there is also a trend of shifting from synthetic to natural products. Many companies have tried to capitalise on the ‘natural and organic’ bandwagon, but Patanjali has been the most successful among the lot. The ‘synthetic to natural’ trend is premiumisation-agnostic and class-agnostic. As a result, Patanjali has been able to target both low and high income group customers on the proposition that their products are natural and that they offer quality products at attractive prices.

TDB: Patanjali plans to export its products. Can it adhere to the stringent quality norms prevalent in US and EU?

JJ: Patanjali is known for superior quality products and going further we expect its focus on quality to increase. It should achieve the quality standards required to export to US and EU.

TDB: We understand that demonetisation has hurt FMCG sales. When do you expect the sector to bounce back?

JJ: We believe that the impact of demonetisation on FMCG sector, which we observed in the December 2016 quarter, is temporary and the FMCG industry will bounce back in the next few quarters. While the sales growth for Patanjali and other firms may have been hit by a few hundred basis points, we do not expect it to have a significant impact on the medium to long term FMCG growth trajectory in India.

TDB: The success of Patanjali, some say, is largely due to its association with Baba Ramdev. Your take?

JJ: The association with Baba Ramdev is certainly one of the key reasons for the tremendous success enjoyed by Patanjali. However, we believe that customers’ preference for ayurvedic and natural products, and Patanjali’s ability to deliver good quality products at attractive price-points are some other factors that have also significantly contributed towards its success. Within a relatively short period, Patanjali has been able to scale up its business and is now ranked among the largest FMCG companies in India. It continues to enjoy significant brand loyalty and is perceived highly by consumers. It is also highly regarded by competitors, having become a topic of boardroom discussions. We expect the company to report strong growth as long as it continues to focus on quality and value, and invest in supply chain, human resources and distribution.

TDB: Patanjali apparently wants to double its revenues every year. Do you think its supply chain and distribution network can handle the growth pressure?

JJ: Patanjali will need to invest more in its supply chain to handle the growth pressure. Large firms like HUL, ITC and Parle directly distribute their products to millions of retail outlets. Patanjali’s direct distribution reach is currently just a fraction of that of the larger players. Patanjali has tremendous scope for improvement when it comes to supply chain capabilities.

TDB: In 2015, Dabur, Patanjali and Emami dominated India's ayurvedic market with a cumulative share of over 70%. How do you see the market shaping up in the future?

JJ: These three companies continue to dominate the market even now. However, other players like HUL have rejuvenated their ‘naturals’ portfolio. This will increase focus on the ‘naturals’ category and we expect that this will result in the category expanding faster than the regular FMCG in medium term.




“We expect more than Rs.5,000 crore in export revenues starting next year”

Patanjali Ayurveda has been the most disruptive force in Indian fast-moving consumer goods (FMCG) market in the last few years. In an exclusive interaction with The Dollar Business, Acharya Balkrishna, Managing Director, Patanjali Ayurved Ltd., shares the untold story behind the company’s spectacular rise in the Indian FMCG space apart from discussing his plans for overseas markets.

TDB: Patanjali Ayurved Limited is one of the biggest and fastest growing FMCG companies in India today. Where did it all begin?
 
Acharya Balkrishna (AB): We had never thought of getting into the world of business or dealing with worldly concepts like profit and growth. And we don’t think of business or profits even today, though we are now into manufacturing and sales of various products. We just wanted to combine yoga and ayurveda to serve people across the globe.

The journey of Patanjali started about two decades ago when we registered Divya Yog Mandir as a trust in January 1995. Interestingly, at that point in time we had neither the means nor the money to get the trust registered. In fact, we had to borrow Rs.10,000, the amount required to register the trust and take care of all formalities. We started with teaching yoga and curing patients using Ayurveda, and we did all this for free. We then set up a small pharmacy and named it Divya Pharmacy. As our means increased, we expanded the boundaries of our service. We slowly started growing and continued our work with ayurvedic medicine through Divya Pharmacy.

The turnaround came in 2005, when Brinda Karat, a CPI(M) leader, made accusations against our work. That is when we realised that even if we work with the goal of helping the society at large we will still have to face difficulties and accusations, and that we need to be prepared to deal with such things. We decided to set up a separate company that is not linked to the trust, to deal with such problems. One day, as luck would have it, we saw some farmers cutting gooseberry (amla) trees. When we asked them why they were cutting the trees, they replied that there is no market for the fruit. It struck us that we could produce juice out of the berries and make it a part of our product portfolio as it offered huge health benefits. Further, it was a nascent market then and nobody had even thought of producing juice from gooseberries, leave aside selling it. We started packaging and selling it. Today, gooseberry juice is a big market.

Hence, our company started with an aim to help solve the problems that farmers were facing and not with a motive to earn money. It's important to understand the fundamentals of an organisation, because its them that defines the direction it takes. As far as Patanjali is concerned, it's driven by the desire to find innovative, healthy solutions and not profits.

After we launched amla juice, people asked us to come up with healthy shampoos and soaps – and we did that without using any chemicals. We never thought we would move out of the sphere of medicines, but here we were making shampoos because we saw there existed a gap in the market. Since we had a huge collection of herbs, we established a R&D facility to find out how many of these herbs could be used to make organic and healthy body care products. Soon we were able to launch a wide range of products that the market lapped up in no time. In fact, it became an example for everyone – how one could make such products ‘chemical free’. As we progressed, we expanded our product portfolio. Meanwhile we also continued to focus on quality and deliver world-class products at low price. Serving the people of our country has always been our primary objective. And we are happy with what we have achieved so far.

TDB: What challenges and problems did you face? Did you receive any assistance from the government?

AB: Whenever the government doesn’t trouble us, we considered it to be an assistance! That is enough aid for us. Having said that, the revised Mega Food Parks Scheme, by the present Central government, has been of great help. In fact, out of 60 organisations that were allotted land for mega food park, only Patanjali’s food park has been successful.

When it comes to previous governments, they created a lot of problems for us. Till date, more than 400 cases have been registered against us. In fact, even today, the state government of Uttarakhand continues to create problems for us. There are some people in politics who just don’t care about the growth and development of the state and the country, the livelihood of our people or the pride of the state. The government at the Centre though, I must say, understands and respects our objective.

"We will show the world that it is possible to make world-class medicines in India"
TDB: Patanjali achieved an annual turnover of Rs.5,000 crore in a short time span. What factors have contributed to the company’s rapid growth?

AB: Whatever we have done so far, we have done with an objective to serve humanity and with complete dedication to the people and to the nation. And, not to say, we will continue to do business the way we have been doing. This has helped us win the trust of our customers. In fact, it’s the customer’s trust that has helped us emerge unscathed from all conspiracies hatched against us. Our customers have been our biggest strength and we consider them to be a part of our family. We do not manufacture products for the sake of sales, we manufacture them to secure the safety and health of our big family. This has been the thought with which we have been working since day one.

Last fiscal, we had a revenue target of Rs.5,000 crore, which we achieved. For FY2017, we have doubled our target to Rs.10,000 crore. Of course, the demonetisation initiative has hit our sales in the last couple of months, but we have time till March to achieve our target. We strongly believe we will reach the Rs.10,000-crore mark this fiscal. I must say here that though demonetisation has impacted our sales, the initiative will be beneficial for the country in the long run and help India progress.
TDB: 430 acre of land has been allocated to Patanjali along Yamuna Expressway. How do you plan to use it? Also, what is the status on university and research centre that were planned there?

AB: We have big plans and will come up with a huge set up on the allotted land. We have already started exploring the possibility of setting up several food processing units across the 350-acre area. As far as university and research centres are concerned, we will possibly not be establishing them there. We are currently considering other locations across the country for setting up the university and will finalise on one soon.

TDB: A fast growth rate also implies that Patanjali would require substantial investment in manufacturing units. Do you plan to outsource some of your processes or will you continue relying on in-house production?

AB: Most of our products are manufactured in-house and we plan to continue doing so in the foreseeable future. If and when we outsource, we would base our own quality control team at the outsourcing unit. This will ensure our consumers continue to get the same high-quality products that they expect from us. Having said that, as of now, we would like to do all the manufacturing by ourselves.

TDB: What about your project at Multi-modal International Cargo Hub and Airport at Nagpur (MIHAN)?

AB: We plan to export ayurvedic products, in big volumes, from this special economic zone in Nagpur. There is a misconception that the quality of Indian products is not at par with global quality standards. We want to set up a large manufacturing unit at MIHAN which can stand as an example of high-quality Indian manufacturing, particularly when it comes to ayurvedic products. We will show the world that it is possible to make world-class medicines in India.

TDB: What percentage of your revenue comes from exports? Are there any acquisitions or tie-ups that you are looking at in overseas markets?

AB: Our exports numbers, so far, have been negligible as we haven’t made any serious effort to tap overseas markets. But we know that outside India there is a huge population, comprising both Indians and foreign nationals, that like our products. In fact, we have already started exporting to countries like Russia, Canada, UK, US and some countries in the Middle East. The primary reason that exports have not taken off till date is that we have had no export-oriented strategy in place. Once our unit in MIHAN commences operations, we will see tremendous growth in export revenues. As far as acquisitions and tie-ups are concerned, we are not thinking about them as of now. Having said that, we have bought a couple of rice mills in India and plan to acquire some oil mills going forward. We will manufacture our own products in these units and sell them under our own brand. When we have a successful brand, why do we need any other brand?

TDB: We understand that you would be exporting packaged orange juice from your SEZ unit in Nagpur. How soon will we see that happen?

AB: As far as I know, there are very few units in and around Nagpur that are currently producing packaged orange juice for exports. There used to be one in Katol, which has shut down. I have come to know that the one in Nashik is also not doing well. I believe this is because they do not, or did not, use the right technology. We, on the other hand, will be using the latest technology. The unit that we are going to put up in Nagpur is going to be a specialised one with a production capacity of 800 metric tonne per day. We are still in the planning stage – the unit may not be ready to catch the monsoon harvest, but we will surely be ready for the winter harvest. And that is when exports will also start.

TDB: What countries would you be exporting to? And what is your revenue target from exports?

AB: We will continue to export to the same markets – US, UK, Middle East, Canada, Russia, etc. – that we have been exporting to so far, but at a much bigger scale. The unit we are setting up in Nagpur is a large one and we expect it to generate more than Rs.5,000 crore in export revenues every year.

TDB: You have also started exporting rice. When it comes to rice exports, there are many competitors. What will differentiate your rice from others?

AB: We are exporting a limited quantity of rice. There are consumers abroad who have experienced our ayurvedic products and have requested us to supply them rice produced by us. This is the limited demand that we are catering to.

TDB: When it comes to yoga, Patanjali is a well-known name across the globe. Any business plans around yoga?

AB: We currently conduct over one lakh free yoga classes every day. And we have almost 10 lakh yoga instructors registered with us. In fact, in most districts across the country, we have more than one yoga instructor. These instructors used to volunteer for us earlier. We now have most of them on our payrolls.

Further, thousands of students are enrolled in various yoga courses offered by Patanjali University and its affiliates. We offer a wide spectrum of yoga courses, from short-term training to doctoral programmes. In fact, we already have many volunteers helping us provide free yoga training in US and UK. Yoga, for us, is not a business.

TDB: Baba Ramdev is a big name in India. Do you think that his name and face can offer Patanjali the same brand recognition outside India as well?

AB: The face is for familiarity, but the demand is because of the quality we offer. People may buy a product once seeing Baba Ramdev’s face, but repeat purchases happen only because we offer good quality products. We will gain the trust of overseas customers on the basis of the quality of our products.

TDB: Can you throw some light on the operations of your manufacturing facility in Nepal? Are you planning more such units in other countries?

AB: We have a manufacturing unit at Birgunj in Nepal. The products manufactured there are meant for local consumption and not for exports. We presently do not have any plan for setting up such manufacturing unit at any other overseas location. Our focus is India.

TDB: If one looks at US and UK markets, traditional Chinese medicines have found a growing market in these countries. However, Ayurveda has still a long way to cover when it comes to penetrating these markets. Do you see the scenario changing soon?

AB: The reason behind this is that wherever the Chinese go, they carry along their tradition and culture. Indians, on the other hand, carry all religious customs but adapt to the culture of their adopting country. Hence, our ayurvedic products have not seen as much acceptance as Chinese medicine in the western world. Now, because of Patanjali, ayurvedic products are gaining acceptance and soon the popularity of ayurvedic medicines from India will grow across the globe. We are certain about this. And as far as USFDA and similar regulatory approvals are concerned, they should not be a problem as we will follow approved procedures and adhere to the guidelines as stipulated by various food safety authorities across the globe.  

TDB: Where do you see Patanjali five years from now?

AB: We would like to continue doing what we have been doing and will further improve the quality of our products and services. We also hope to continue to double our revenues, year-after-year.

 

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