“Patanjali Clocks Whopping Rs 10,000 Cr Revenue, Becomes 3rd
Largest FMCG Player; Will Soon Open ‘Nutritious Restaurants’”
“Patanjali eyes 2-fold rise in revenue to Rs 20,000 cr in
FY18; to be biggest swadeshi brand in 2 yrs”
These and similar headlines with unsubtle exuberance were
making its headway about an year back. Interestingly, both the headlines are
picked up from the news in the month of May in 2017. Patanjali had a meteoric rise from when it
started in 1997 as a small pharmacy to an FMCG force to reckon with. With
revenue figures of 10,561 crores Rs in FY 2017, it was rubbing shoulders with
the big boys of FMCG in India.
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| Patanjali's Year on year Revenue in Cr Rs |
While the target to close the FY 2018 at 20,000 cr Rs, set
by the company for itself, at the start of the year was always ambitious, the
result that is going to come out for FY 2018 is expected to be oonly marginal
better than last year. So much so, that the company is expected to close the
year with revenue a little higher than the FY 2017, reflecting a near flat
growth.
Where did the company misfire? What led to the sudden
speed-braking of the supercharged company? Well, the answer lies in what made
it an overnight success. The company got too focused on sales targets and in
the process became myopic.
This was exacerbated by the compulsive expansion, which
strayed the company from serving the consumers with the best. Let’s look at
some more specific reasons that have been attributed to the bad year of the
company.
- Product and Price Issues
- Quality: There has been an increasing clamor around the quality of Patanjali products. It is not uncommon to read negative reviews about some of the Patanjali products on internet. This has significantly affected the loyalty towards the products and repeat purchase.
- Not so much value for money: While Patanjali started with the economic value for money products, there has been a shift towards premiumization. Quite a few Patanjali products have now been moved towards the premium segment and the prices are pretty similar to he other competitors in the market.
- Channel and Supply Issues
- Channel Conflict: As Patanjali, in its mission towards making the product available to customer everywhere, started selling out products to various channel partners, a conflict has risen between them on margin, supply and pricing.
- Supply Issues: With the expanded demand for the product, the logistical push has not happened and the very frugal distribution model has not come under the fire. Issues like intermittent supply, preferential supplies and holding up of orders for having minimum supply volume in the area has led to retail vying for fast running items. This has not only irked the retailers, but also the modern trade set pus which have very high real estate cost.
- CAPEX and Acquisition
- The falling profit margin, as per the company has also been because of the heavy investing that the company claims has been making in the food processing and production capabilities
- Patanjali has emerged as the highest bidder for the Ruchi Soya, which is famous for selling Nutrela soya chunks. This added expense is also going to hit the operational capabilities of the company.
- Macro Issues
- Lingering effects of the demonetization has also been blamed for the flat growth this year, though the issue along with the GST challenges is a generic phenomenon that affected the whole industry and not just Patanjali.
- While touted as a great help in long term to the economy, in the short terms this has been a major issue in the country owing to lack of awareness to handle the new systems and dependency on each supplier for the filing to right GST.
- Related and Unrelated Diversification
- A very critical reason for the flat growth of the company has been its overly enthusiastic demeanor towards expansion in the new categories. It currently sells 1,000 products spanning home care, personal care and packaged foods, and will soon launch apparel. Some of the other recently launched as well as planned diversifications that the company has are as below –
- Media and broadcasting through three broadcasting channels for southern part of India
- Solar power by acquiring Advance Navigation and Solar Technologies
- Patanjali has already launched a Sim with BSNL as a co-branded product
- Patanjali launched a communication app akin to WhatsApp, Kimho
- Besides, the company is also planning to foray into dairy products
- The company has already chalked about plans to enter into apparel, clothing and garments segment this year
- Changing Competitive Scenario
- Unlike the initial years when Patanjali caught the other FMCG giants off-guard with no herbal or Ayurvedic offerings in their stable, situation has changed a lot now. All the FMCG companies are having brands in this space and hence it is not any more Patanjali’s exclusive territory. For example, HUL, the country’s largest FMCG firms bought Indulekha, the Ayurveda hair-care brand in 2015 and relaunched Ayush in 2016.
Patanjali hit the nail right when it built its USP on
ayurvedic offerings at a time when people had started looking for natural and
herbal options for the personal care products. Unpreparedness of the other
companies in his space and a strong brand ambassador in Baba Ramdev catapulted
the company to top-5 FMCG companies in the country in terms of revenue.
However, they cannot rest on their past laurels and as
Marshall Goldsmith said in his book “What Got You Here Won’t Get You There”,
the first step to change is wanting to change. Patanjali need to take a deep
hard look at their business model and ensure that they adopt strategies that
are apt for a company their size. In the timeless book on Marketing by Al Ries
and Jack Trout, Marketing Warfare, authors suggest that a company needs to
adopt strategies based on what they are – leader, challenger, flanker or
Guerrilla, depending upon the size, market share and available resources.
Patanjali has to accept the fact they are no more a Guerrilla in the market but
a credible Challenger, and hence their marketing strategies need an overhaul
before they get trapped in their own web.
