A challenger’s dilemma
How Patanjali tripped and what it must do to stay the course
Hailed as a disruptor at the time of its entry into the fast moving consumer goods (FMCG) market in 2009, Patanjali Ayurved, today, appears to be a prisoner of its own ambition. Earlier this month, the company’s managing director, Acharya Balkrishna, said that lingering effects of demonetisation and the implementation of the goods and service tax (GST) had stunted its growth; so much so that the firm will close financial year 2018 with revenues at the same level as the previous year — that is, at ~100 billion. Compare this with his confidence around this time last year: he had said the company would double revenue every year and cross ~200 billion in the year ended March 2018.
So what happened in these 12 months? Does this mean the expectation that it would be the proverbial giant killer in the FMCG segment was misplaced?
Patanjali’s spokesperson S K Tijarawala is quick to dismiss any such concerns.
He says, “We have in the past posted 100 to 250 per cent growth. We faced hiccups like demonetisation and GST implementation which stretched the company’s operations, systems and processes for a month or two. And remember we are yet to announce our full results. We are confident of growing sales and revenue.”
The problem is this: Patanjali’s admission that it will not be able to continue its growth momentum comes at a time when competitors seem to have done much better. Kolkata-based ITC Ltd, for instance, reported 11.3 per cent growth in its revenue from non-cigarette packaged goods for the year ended March 31, 2018, while Nestle has reported a 10.5 per cent growth in sales in 2017.
Tijarawala refuses to get into comparisons. He also plays down the recovery made by competitors like Hindustan Unilever (HUL) or Nestle. These firms have posted improved numbers signalling that they are out of the shadow of demonetisation and GST rollout — the two disruptors that uniformly impacted the industry. Patanjali’s spokesperson says a closer look at the rivals’ numbers will show that their recovery has not been spectacular.
It might not be a good idea to underestimate competition at this stage. Anil V. Pillai, director, Terragni Consulting, says when Patanjali launched with its products on a swadeshi pitch urging consumers to patronise a homegrown company, many MNCs were caught flat-footed. Some did not take Patanjali seriously assuming that the herbal products market is a minuscule segment of an otherwise large pie. Now the game has changed. Herbal is no longer a virgin or a niche market. The likes of HUL, Dabur are pushing back with their superior products, more responsive distribution system and tactical marketing capabilities.
So how can Patanjali get back on track? It has to work on all the four Ps of marketing, say experts.
According to Abneesh Roy, senior vicepresident, institutional equities, Edelweiss, “The company has four or five strong marquee brands in segments like honey, tootpaste, ghee and hair oil. With increasing competition, it is critical for Patanjali to create more strong sub-brands across categories.” Indeed, to stay in the race for the long term, the company has to innovate continuously — something that multinational companies (MNCs) and some of the home-grown Indian firms have been doing successfully. Roy says, Patanjali’s, 1,000-odd portfolio of products notwithstanding, there are categories where it needs to offer a wider choice to capture different consumer aspirations. For example, HUL has a whole range of soap brands at various price points against a limited range offered by Patanjali. That said, Patanjali must avoid spreading itself too thin. It has to identify, prioritise and focus on categories where it has a strong base already.
Price will be a key factor here. When it launched operations in 2009, Patanjali created a new market by establishing a “micro segment” in FMCG offering natural products at affordable prices. “Initially Patanjali had a price advantage. It disrupted the market with natural products, which at that time were available at a premium. But price cannot be a real and sustainable advantage as it can be replicated easily by competitors. Also, with GST kicking in, the company is not able to provide products at the earlier stated price,” says Ashita Aggarwal, professor and head of marketing at SPJIMR.
Patanjali's admission that it will not be able to continue its growth momentum comes at a time when competitors in the segment have posted smart recovery
Initial euphoria notwithstanding, Patanjali has also suffered with questions raised about the quality of its products. In personal care and foods, consumers are wary of using products that are deemed suspect. They would rather pay a little more and buy a product from a trusted brand. Extending that logic, there perhaps aren’t many repeat buyers.
Next distribution. There are two contrasting views on Patanjali’s distribution capabilities. One view holds that the ayurveda company took a larger hit from demonetisation and GST because of the lack of a direct retail network despite having a strong wholesale distribution set-up. In comparison, MNCs were able to absorb the impact of these disruptive moves as they enjoy a wider direct retailer reach.
Samit Sinha, managing partner, Alchemist Brand Consulting contests this view. “Patanjali has a formidable distribution network which many FMCG companies can only dream of. With the kind of reach that the firm commands with general merchants, grocers and pharmacists, it’s well-positioned to push wide-ranging products in natural personal care segment.” But, Sinha adds, “As your base increases, it’s difficult to double revenue year after year. It is easy to get to ~100 billion from ~10 billion but tough to jump from ~100 billion to ~200 billion. One can only expect incremental growth, which Patanjali will deliver.”