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Patanjali Ayurved targeting US$15bn in sales by March 2020, Balkrishna says |
Fast-growing Indian consumer goods company Patanjali Ayurved was described this week as "the most disruptive force" in the country's FMCG market. Set up in 2006, Patanjali Ayurved's mix of food and personal care products, combined with its strategy of promoting the Ayurveda system of medicine, has enjoyed rapid growth - and the business has ambitious plans. Raghavendra Verma met Patanjali Ayurved managing director Acharya Balkrishna to find out more.
In a decade, Indian FMCG business Patanjali Ayurved has become a stiff competitor to many of the country's largest consumer goods groups.
Set up in 2006 by yoga guru Baba Ramdev and managing director and major shareholder Acharya Balkrishna, Patanjali Ayurved has, in the words of Indian pan-industry business association ASSOCHAM and market researchers TechSci, "turned out to be the most disruptive force in India's fast moving consumer goods market".
According to a research report published last week (1 January) by ASSOCHAM and TechSci, Patanjali Ayurved has "impacted [the] share of other FMCG companies", pointing to products including [toothpaste brand] Dant Kranti, Atta noodles and [shampoo brand] Kesh Kranti that have "wrested the market share of its competitors".
Patanjali Ayurved's products (its range numbers around 500 products) are available in 15,000 exclusive retail outlets, as well as retail chains including Big Bazaar and Reliance Fresh, the research report said.
Speaking to just-food last month at Patanjali Ayurved's headquarters in Haridwar in the northern state of Uttarakhand, Balkrishna says the company's sales crossed US$750m in the financial year ending March 2016 and the company has a goal for further growth in mind. "Our target is to keep doubling [the sales] and reach $15bn by 2020," Balkrishna says.
The company has been doubling sales in past few years by expanding production, competing on prices, and employing aggressive marketing – this strategy will continue.
Packaged food products are a significant part of Patanjali Ayurved's turnover, and while officials would not say exactly what proportion, Patanjali shop managers speaking to just-food estimated food makes up about 50% of the company's sales.
Patanjali Ayurved's food products are mostly packaged ingredients for domestic cooks but the company also offers convenience products, including noodles, breakfast cereals, biscuits, jams and juices. The group employs 15,000 people at its 50 production facilities around India and plans to build more having been offered industrial land by various state governments.
Patanjali products have also become popular in Nepal and the company last autumn started building a new $23m production facility in Bara, south of the capital Kathmandu. Other than in Nepal, Patanjali Ayurved has not been actively exporting its products but plans more overseas sales once a new exclusively export-oriented production unit is open in the central city of Nagpur, Balkrishna says. It is possible the site will be open by March, Balkrishna says.
The company's emphasis on natural ingredients and the backing of Baba Ramdev has played a major role in the success of the company, Balkrishna says. Despite having set up Patanjali Ayurved, Baba Ramdev from the beginning chose not to have any formal or legal attachment to the company. However, he is closely linked to the brand. In effect, Patanjali means Baba Ramdev to most Indian consumers and he actively endorses and promotes its products on television and during his yoga sessions. "Other companies don't have any face to identify and inform about the products" and are therefore disadvantaged, Balkrishna says. Balkrishna does not have a computer on his desk but a golden picture of the Baba.
According to Balkrishna, in its earlier days, Patanjali had to overcome the public perception in India that domestically-made products were inferior to those made by foreign multinationals, which still dominate the market. "We offered high-quality products at lower prices and people's confidence fuelled our success," Balkrishna says.
To compete in the cost-sensitive Indian market, Patanjali's products are kept at least 25% cheaper than its competitors, Balkrishna notes. A 500g pack of pineapple jam from Patanjali costs INR70, compared to Hindustan Unilever's Kissan pineapple jam, of the same size, at INR130. Price control is achieved by shrinking processing and administration costs, Balkrishna says. "We don't spend on exuberant salaries," he remarks.
Moreover, he adds: "It does not matter if we sell some of our products at a loss when we can recover the cost from other profitable items." Balkrishna cites Patanjali's ghee, for which costs exceed its selling price of INR510 per litre. "The cost of butter [ingredients] has gone up recently so we increased the price of our ghee by INR60 and this provoked lot of complaints," Balkrishna says, "but it is still sold at less than the cost price."
Ghee and milk powder are the only dairy products sold by Patanjali Ayurved. Balkrishna says ghee has encouraged the company to boost its cold chain network and it is acquiring a new dairy in Maharashtra.
The company makes the products exclusively from cow's milk, while India's dairy sector usually relies on fattier milk from water buffalo.
While Balkrishna did not say that dairy was a major growth target for Patanjali Ayurved, he expresses pride in making cow's milk more popular than that of buffalo milk, which ties in with the religious nature of the company's marketing. Using milk from Hindu Indians' sacred animal reflects Patanjali Ayurved's emphasis on Hindu philosophy: "We are happy about it," Balkrishna says proudly as he glances through his long visitors' list, which includes many pilgrims to Haridwar, a sacred site for Hindus.
Patanjali Ayurved sources most of its cow's milk butter from a cooperative dairy in the southern state of Karnataka. "We have verified their quality and milk collection network to confirm that they have separate channels for cow and buffalo milk," Balkrishna says. The dairy Patanjali Ayurved has is in Ahmednagar, 600km west of Nagpur, which will source cow's milk collected house-to-house from nearby farmers rather than buying an in-house herd. "It is very difficult task to purchase so many cows and manage them in a personal dairy," Balkrishna says. To make this work, the company has developed a cold chain network. "For milk collection, we have to put chilling systems in every village," Balkrishna says. "We have our own vehicles [to transport fresh dairy products] but also get them on rent."
In recent weeks, India's consumer goods companies have been adapting to a surprise move from the country's central government to pull from circulation INR500 and INR1,000 banknotes. The so-called demonetisation effort, launched in November, was a bid, the Indian government said, to clamp down on counterfeiting, corruption, drug use and smuggling. However, demonetisation has proved controversial and has affected consumer spending, with smaller traders facing pressure and prompting a mixed response from the largest food companies operating in India, although many believe it will benefit the country's economy.
Balkrishna insists demonetisation has not had a serious impact on Patanjali Ayurved's sales, pointing to the fact the company mainly produces essential items.
The Patanjali Ayurved managing director is also relaxed about India's plans to introduce a national Goods and Services Tax (GST), a move likely to happen in April. "It will boost the whole processed food manufacturing industry by streaming trading channels and revoking tax benefits that are currently granted to remotely located regions," by scrapping local taxes, Balkrishna says.
In any case, looking ahead, Balkrishna outlines a bold aim for Patanjali Ayurved. "We are dedicated to bringing the Ayurveda revolution to each and every person," he says, words that underline the company's ambitions to being a force to be reckoned with in India's FMCG sector.
