Patanjali has been successful in creating a dent in the closely knit Indian FMCG industry, last seen in the 1980s by ITC. The dent created by a company emanating from Yogic wisdom has been able to capture the
I have provided a basic overview to the rise of Patanjali as sketched in Baba Radev’s biography (Moksha to Market). This piece, however, is intended to provide a more meaningful insight into the basics of business strategy
Let’s bring in some MBA color to the analysis. Strategy 101 teaches us that companies are faced with two basic questions how to compete and where to compete. Before delving into the specifics of Patanjali’s distinctive choices and strategic decisions, let’s do some basic context setting with the industry dynamics:
- Herbal care and Ayurveda has been growing at twice the rate of beauty and personal care segment in India 2016. This is makes them the fastest growing sector in FMCG and an extremely attractive segment to be in.
- Let’s understand the gross revenue clocked for the largest FMCG Indian players in 2016 (Refer to the table)
Patanjali Model : The next natural step is to understand how Patanjali is distinctive over the competitors in different aspects :
Exogenous factors : The popularity of ayurvedic and traditional herbal ingredients in modern consumer products coincides with a resurgence of Hindu nationalism.
Endogenous Factors : A list of distinctive competitive advantages created by Patanjali under each of the verticals.
A. Advertising :
It is a myth to believe that Patanjali does not spend on advertising : In 2016 alone, Patanjali Ayurveda inserted 1.14 MN ads, translating into 19.75 hours of advertising daily, ranking into top 10 advertisers in India
The master stroke has been advertising in Hindi news channel (3% of viewership pie) versus other companies playing in entertainment channels. It worked in favour of Patanjali by creating a brand pull for Baba from the trader class viewers
B. Profit Margins :
Patanjali a 25% margin before tax, compared to 20% for HUL and P&G, because of negligible corporate and advertising spend. Higher margins enables Patanjali to offer premium products like honey, shampoos at 25% discount.
Cost-cutting could be achieved due to two-fold reason :
- Baba Ramdev himself serves celebrity endorser of the company reducing the advertising budget. As explained earlier, advertising in Hindi news channel, has lower costs.
- The CEO, Acharya Ballkrishna, does not draw the salary and top executives do not have extensive travel or multi-location meetings
C. Retail Presence :
Patanjali is planning to expand retail presence to 4000 distributors, 10,000 company owned outlet and 100 Patanjali branded stores and supermarkets
Criticism : The brand has been under media scanner for (a) selling tablets guaranteeing a male progeny (b) quoting freedom fighters in advertisements. A lot of experts agree that Patanjali brand equity is one-man show of Baba Ramdev. So as the individual comes under scanner for controversial political statemnts, Patanjali as an entity is also challenged.
Expansion Plans : As ambitious and meteoric their journey has been so far, there are future plans which appear to be not very well thought of:
- The idea of retaining distribution to only flagship stores would mean renouncing market share coming from mass market retailers. This would harm their urban penetration and expansion of product suite to include starkly different products like organic food and apparel
- Globalisation : Plans of manufacturing units in Nepal, Africa, Pakistan and Azerbaijan, sounds very ambitious, isn’t it?
As of now, Patanjali has managed to take advantage of a niche market and making it mainstream. Will it be able to sustain this transient competitive advantage is the question of decade.