PATANJALI – WILL THEY BOUNCE BACK????

PATANJALI – WILL THEY BOUNCE BACK????

BACK GROUND Debuting in 2009, Patanjali Ayurved Limited (PAL) disrupted the FMCG Industry with its Ayurveda and Swadeshi (Home grown ) pitch. It flooded the market initially with toothpaste, Hair oils, Ghee (Clarified Butter), Biscuits, Flour, Pulses, Spices and then enter into Home care products. Cashing in on Baba Ramdev’s popularity, PAL hit the INR 10000 Crores ( USD 1.43 Billion) revenue mark by 2017 within the decade of its launch. PAL’s overall turnover in FY 2017 stood at INR 10561 Crores ( USD 1.5 Billion) of which Patanjali Ayurved alone accounted for INR 9346 Crores (USD 1.34 Billion), The Ayurvedic and Herbal Medicines Business, Divya Pharmacy at INR 870 Crores ( USD 125 Million) and a Gramodyog Nyas, a Trust that works in the fields of animal husbandry and economic & social upliftment of villagers generated INR 345 Crores ( USD 50 Million). 

Baba Ramdev vows to double the revenue to INR 20000 Crores (USD 2.86 Billion) by March 2018. In order to reach this Magic figure set by Baba Ramdev, PAL started launching products across all categories from Baby Diapers to Jeans. PAL was expanding in full steam but at the same time, was running the risk of going off track as well. The hype & euphoria created around the brand was not in harmony with the product quality, consistency, supply and Distribution strategy. As a result, the product off take in rural as well as urban market was severely affected. When annual result of FY 2018 announced, it was a big shocker. PAL sales plunged to INR 8135 Crores ( USD 1.15 Billion). The revenue falls by over INR 2000 Crores ( USD 286 Million). In FY 2019, it managed to clock INR 8329 Crores ( USD 1.2 Billion), a single digit growth of 2.4% over previous year which was new to Patanjali’s growth story.

Something has gone wrong drastically in these 2-3 years. PAL started losing market shares across its core categories such as Detergent, hair care, Soaps , noodles between July 2018 and July 2019. The fall was so steep that PAL even started losing market share in its core Ayurveda segment to Herbal Offerings of MNC’s like Colgate and Unilever. Being a fan of Baba Ramdev & PAL’s products, I was following Patanjali’s growth very closely over the last 10 years. This review article attempts to find out , How PAL lost Market share to its competitor in their core category? What is being done at PAL to bounce back? What is the current situation at PAL and future plans/remedies to steer the ship.

The views of the author in this article are strictly personal and does not reflect the opinion of any organisation. The data/figures presented in this article are collected from various media sources, Internet and Journals. If you have any questions / queries, please feel free to write at [email protected]. Happy Reading!!!! 

WHAT WENT WRONG? PAL expanded too fast without consolidation and instead of growing core brands, they entered into “too many” categories which are not their “Core businesses” like (SIM cards, solar panels, bottled water, phones and Jeans etc.). PAL started offering too many products that had no basis of Ayurveda.

Quick expansion led to quality issues which eroded the consumer’s trust in PAL Brand. It has badly damaged the Brand equity. With over 2500 products in its portfolio, PAL sub contracted production to third party suppliers which make them difficult to control quality standards. 

PAL took a big hit with demonetization and GST roll out in 2016-18. The initial glitches related to GST and the realignment work required due to its implementation cost PAL two months of its business in 2017. PAL failed to manage the distribution system effectively following the rollout of GST in 2017. It affected the costing and pricing of inputs and products. Due to strong legacy and decades of experience in FMCG sector, competitors like Dabur and Unilever had knowledge and resources to withstand the disruptions caused by Demonetisation and GST Roll out whereas PAL, the Youngest and Inexperienced player took the maximum hit. Their revenues number in FY 2018 reflected the same story. PAL struggled to reach INR 8135 Crores ( USD 1.15 Billion).

The construction of PAL’s Own factories has been delayed due to starting of multiple projects simultaneously. A food Plant in Maharashtra due by April 2017 and An Ayurvedic & Herbal Products Factory outside Delhi expected by 2016 are now slated for 2020.

Most of the Patanjali’s Franchise stores were closed down due to Non availability of products, inconsistent supply issue and lower profit Margin.

In addition, some of the TV ads were misleading. Per se, False claims about the products were shown in the commercial. Some of the TV commercial were withdrawn. When the consumer don’t get what they promise in the product, they feel cheated and are very quick to switch the brand. As per the experts, PAL were bit casual about approaching the advertising in the long term perspective. Even, PAL slashed the ad spending. In 2016, it was the third biggest Indian Television advertiser after HUL and Reckitt Benckiser but in 2018, it did not make the top 10. It slipped to 11th Place. In 2019, it has further dropped to 40th Rank.

RESURGENT COMPETITOR’S PAL’s sales in volume has shrunk in Cities by 2.7% whereas rural sales grew 15.7% in FY 2018-19 even as the overall market for natural products continues to grow. As per the Market report, the overall natural product market grew 3.5% in Urban India whereas the rural market expanded 5%. In FY 2017-18, PAL grew 21.1% in urban areas whereas 45.2% in the rural areas. The slowdown of PAL comes on the back of competitor’s rolling out herbal products over the last 2 years after witnessing a sharp consumer shift towards natural products. As per reports, 60% of all new launches in 2018 were in the natural space. Significant shift by MNCs like Colgate, Unilever and Home grown companies like Dabur, Himalaya towards herbal products led to downfall of PAL products.

PAL challenged the dominance of multinational companies in oral care segment with its Dant Kanti Toothpaste brand which increased its Market share to 8.6%. Similarly, Dabur’s toothpaste category (Dabur Red, Babool and Miswak) has grown by 9.3% led by continued growth of Dabur Red product portfolio which was grown by 17.5%. Even in Toothbrush category, Colgate has lost market share from 47.3% in FY 2017 to 45.2% in FY 2019. Colgate-Palmolive and Hindustan Unilever have been losing market share to PAL in oral care even though, PAL’s overall sales and revenue growth has come to a screeching halt. As per the Market reports, Colgate’s Toothpaste Market share is constantly falling since 2016 from 55.3% in FY 2016 to 52.2% in FY 2019. Similarly HUL’s Oral care Share dropped to 16.3% owing to continued challenges from Patanjali and Dabur.

To counter Patanjali’s herbal appeal and lower pricing, its MNC rivals have started pushing an improvised toothpaste portfolio. Colgate has launched Cibaca Vedshakti and Swarna Vedshakti Brand at Pan India. Unilever has relaunched Ayush Brand, acquired Indulekha Hair care brand and launched Citra Skin care brand to spruce up its presence in the natural space. Similarly, L’Oreal launched a haircare range under the Garnier Ultra Blends made with natural ingredients.

Home grown Competitor, Dabur is also looking forward to ramp up its sales and growth by shifting back their focus to core business of Ayurveda. Dabur, the 1884 founded company has a strong domain knowledge, extensive sourcing of herbs and the widest collection of ancient manuscripts on traditional medicines. Himalaya as well is launching various variants in Toothpaste and Mouthwash category.

IRRELEVANT DIVERSIFICATION

PAL launched too many brands, stretching the brand beyond its limit and entering into multiple categories, different from its Core portfolio.

PAL introduced its apparel Brand “Paridhan” that provides a range of apparel for all age groups.

PAL is having a Tech Unit "Bharuwa Solutions" which offers cloud services and other IT solutions. This is a low profile initiative of PAL. Bharuwa solutions is a venture with a focus on digital excellence through turn key IT solutions serving various enterprises in the field of agriculture and industry. With four patents in hand, it is involved in designing solutions to digitally manage production planning, sales force and loyalty programmes. The company offers cloud based solutions to connect farmers, distributors, retailers and customers on a common platform that links the entire supply chain. Other offerings include custom built billing software and point of sale (POS) solutions, enterprise resource planning (ERP) and digital sales assistant software.

The company has installed around 10000 solutions mainly across small and medium companies, involved in the supply chain of PAL. With its IT arm, PAL has entered a market dominated by TCS, WIPRO, IBM and HCL. PAL has invested around INR 100 crores ( USD 14.3 Million) in this project and is run by a team of around 100 employees. The lead engineers of the project are hired from top tech companies including US based Intellectus and German IT Major SAP. PAL foray into IT seems to be very ambitious but will help to stream line its supply chain management. I feel PAL should strengthen their core business first and then should venture into new areas.

FUTURE STRATEGY Yoga Guru Baba Ramdev Promoted PAL reported 2.4% growth in revenue at INR 8330 Crores (USD 1.2 Billion) in the FY 2018-19. PAL posted revenue of INR 8135 Crores (USD 1.15 Billion) in 2017-18. Food and Beverages was the largest category with sales of INR 5184 Crore ( USD 740 Million) which accounted for 62.23 percent of its total sales. Chemical based products, Pharamaceuticals, medicinal and botanical products which represents its Personal care range contributed 34.99 percent whereas wood and wood products, furniture, paper and paper products contributed 2.4%. There was a steep fall in revenue from INR 10561 Crores (USD 1.5 Billion) in 2016 -17 to INR 8135 Crores (USD 1.15 Billion) in 2017-18.

If we see PAL company Annual reports for the last five years which are as follows :-

FY 2015 – 2007 Crores ( USD 300 Million); FY 2016 – 4383 Crores ( USD 625 Million); FY 2017 - 10561 Crores ( USD 1.5 Billion); FY 2018 - 8135 Crores ( USD 1.15 Billion); FY 2019 - 8330 Crores ( USD 1.2 Billion).

PAL is eyeing revenues of INR 10000 crores (USD 1.43 Billion) in the FY 2020. As per the Market Reports, PAL has clocked a revenue of INR 1793 Crores ( USD 256 Million) in Q1 2019 and INR 1769 ( USD 253 Million) in Q2 2019. The combined revenue of INR 3562 Crores ( $509 million) is highest ever in the first half of any year in company’s history. If PAL is targeting revenue of INR 10000 Crores( USD 1.43 Billion) at the end of FY 2020, they need to clock around INR 6500 Crores ( USD 930 Million) in the second half of FY 2019-20 which is challenging but not impossible. There is a precedent as well. A similar revenue growth momentum was seen in FY 2018-19. Of the total INR 8329 Crores ( USD 1.2 Billion), PAL reported INR 2513 Crores ( USD 360 Million) in the first half of FY 2019 which means they garnered INR 5816 Crores ( USD 830 Million) in the second half of FY 2018-19.

PAL which has acquired debt ridden Ruchi Soya expects to have a turn over of INR 35000- 40000 crores (USD 5 – 5.7 Billion) in the financial year 2020-2021 and to become the Largest company in the FMCG sector replacing market Leader HUL. HUL, the market leader in FMCG segment has reported the revenue of INR 38224 Crores ( USD 5.5 Billion) in FY 2018-19 and this is expected to go up with the merger with GSK’s Healthcare Business. PAL is expected to register a joint turnover of INR 25000 crores ( USD 3.6 Billion) in the current financial year (2019-2020), in which around INR 12000 crores ( USD 1.7 Billion) is likely to come from Patanjali Group Company whereas INR 13000 Crores ( USD 1.9 Billion) will come from Ruchi Soya.

After the acquisition of Nutrela Maker Ruchi Soya by paying INR 4350 Crores ( USD 0.62 Billion) through insolvency process, PAL expects a three fold growth of a company. They want to become a major player in the edible oil category and to take a lead in the domestic production of soya bean, sunflower and palm oils. PAL would like to reduce India’s dependency on imports in the edible oil segment and save foreign exchange reserve through self reliance on Palm oil. PAL have plan to launch 3 new products under Nutrela Brand targeting the health conscious people and the people suffering from diseases such as heart ailments, Cholesterol and high Blood Pressure.

READY FOR A COMEBACK PAL continues to consolidate its operation and streamline its distribution network. They focus on growing its existing big brand instead of announcing multiple launches. This has help to make gains by having better control over product quality. PAL has worked on its distribution network. The products are now available in mom & pop stores as well. This will help to reach more consumer and increase its base. To strengthen its sales and distribution in general trade, PAL hired 11000 field personnel and set a target of doubling the number within the financial year. PAL which used to see 70% of its sale from Branded Patanjali stores til early 2018 set a target of catering to three million outlet by End 2019.

In 2018, PAL announced the launch of its e commerce platform, www. Patanjaliayurved.net. The Home grown FMCG company also started selling its products online through leading retailers such as Amazon, Flipkart, Big Basket, Grofers and Paytm Mall.

Presently Patanjali have 3500 distributors which supply to over 50000 retail counters across India. Apart from having its online platform for the sale of its FMCG products, PAL also runs 1500 Patanjali Chikitsalayas, 5000 arogya centers and 25000 swadeshi centres.

Earlier PAL was facing difficulties in strengthening the supply chain which has led to the unavailability of its products in the market. Now, PAL has rolled out the software at all retail outlets connected to their headquarters which will reduce the gap between the order received and order dispatched.

PAL has entered into Dairy Category and launched Toned variant of Cow milk at slightly cheaper price compared to Market leader Amul and Mother Dairy. PAL is betting on its processing plants in Maharashtra, Rajasthan and UP besides its network of over 50000 retailers across the country. PAL is trying to lure the consumer with lower pricing. Given the strong brand equity and trust of Amul and Mother Dairy, it would be a herculean task for PAL to dent the market share of leaders in this category.

Facing a huge competition in the FMCG sector, PAL is no more focusing on solar, agriculture and food processing sectors.

After launching twice but failing miserably, PAL has shelved plans to launch Swadeshi Chatting Platform “Kimbho”. Currently the plan has been kept aside with no more new dates for its relaunch.

CONCLUSION The reason for PAL’s facelift in first half of FY 2019 are many. PAL has worked on improving its supply and distribution methods for the last 2 years. The penetration of Patanjali products in rural India increased from 13% in 2015-16 to whopping 43.9% in 2018. They worked on its inventory to remove any expiry products. They boosted the availability of products which are in high demand. The pricing of the products also helped to bring up the revenue of the company .

One thing is very clear, If PAL wants to keep hold on its loyal consumer base, they need to stay focus and avoid repeating past mistakes. PAL needs to stick to its core. Ayurveda is its core strength and they need to stay true to that proposition and come out of businesses which are a drain on its finances. PAL needs to conserve its resources and energy and work towards getting its bottom line on track. They should invest more on expanding its distribution network. Once they closes their distribution gaps, it can scale up quickly.

In addition, PAL needs to develop a strong innovation funnel. They need to identify the product categories where competition is not too strong and will be easier to push new products. PAL should launch brands which are relevant to consumers and it should offer something different than its competitor.

There are various categories in commodities like oils, spices, Pulses etc. where PAL can make a difference and gain acceptance provided it further streamlines its supply chain from sourcing to last mile delivery. PAL is also hoping to win customer base through smart pricing. PAL’s products are always priced 15-20% lower than the competitors. Some of the products like Dant Kanti, Kesh Kanti, Ghee and Honey are really good and popular with the buyers. Once they overcome the quality issues, PAL will have advantage in pushing across its lower prices products. With PAL’s back to its winning ways, the fight for supremacy in India’s FMCG sector is only going to get harder and harder.

Due to Corona Virus Outbreak in Q1 2020, there is a shut down of few factories which will certainly impact the revenue generation of PAL. The ongoing uncertainty will further dent the profit margins of the company. The final impact is difficult to quantify as the crisis is only beginning to unfold. There is a huge shortage of raw materials/goods in the factories. If the lockdown prolongs further, it will impact the economy in a big way. The impact of Corona Virus spread will not affect the annual results (FY 2019-20) of PAL significantly, due in April 2020 but will certainly impact the profitability / revenue generation in Q2 2020. There is a very challenging time ahead and how successfully PAL’s manages its resources to survive the impact of Corona virus will decide the leadership of their Brand in the FMCG category.