The rapid growth of Patanjali Ayurved Ltd (PAL), with its range of natural or ayurvedic products, has shaken up the Indian Fast Moving Consumer Goods (FMCG) industry by a silent storm. Established in 1996, and with humble origins as a small pharmacy in Haridwar in 1997, PAL has had a tepid growth until five years ago but has achieved exceptional growth over the last five years, quadrupling the revenue to Rs 2000 crore as a large developer, manufacturer and seller of ayurvedic or natural FMCG products. Now, the company has even more ambitious plans to double the turnover to Rs 5000 crore, and then to Rs 10000 crore over the immediate term. India has not been new to natural products; Himalaya has an eighty year legacy of ayurvedic drugs and nutraceuticals while several companies such as Zandu, Dabur, Emami, Vicco and Jyothi have developed remunerative natural product portfolios. Some of them have, in the past, shaken the MNCs operating in India with their potential; however, no company promises (or threatens!) to jolt the established MNC and Indian players as PAL does.
The case of PAL is an interesting study in competitive strategy. It has valuable lessons on overcoming entry barriers and scaling up. It helps one understand industry definition and industry segmentation from multiple angles. It also offers insights on generic competitive strategies that a firm could pursue, and how aspirant firms can establish their unique selling propositions (USPs). It also helps one appreciate the importance of value chain management in development of competitive strategy. It also rewrites some principles of organizational management. PAL’s success would offer valuable lessons for a breed of new native companies seeking to nibble away shares from established players, more so from the Indian subsidiaries of multi-national companies (MNCs). It also indicates the challenges it would face, and the strategies it could adopt, to keep on the growth path. Finally, it also makes a powerful case of management theory and practice needing to be unique to the Indian context.
As students of competitive strategy are aware, a new entrant needs certain unique propositions to make an entry into the industry (beyond generic strategies). The fundamental uniqueness of PAL stems from the fact that it has been set up a highly popular Yoga guru, Baba Ramdev, who struck a chord with vast sections of Indian population as a highly committed Yoga practitioner cum teacher. The Yoga guru setting up a natural Ayurvedic products company has significant conceptual synergy and emotional appeal. This is quite akin to a reputed doctor setting up a hospital, and thus bringing in an additional level of confidence to patients, doctors and investors. That the establishment and growth of PAL has coincided with a world-wide revival of interest in Yoga and natural products as a natural alternative to western practices is probably more than a coincidence. The market for natural wellness products is not small by any standard; it is estimated to be USD 107 billion by 2017. Given that India, and other Asian countries have an unorganized natural supplements practice, setting up a dedicated venture by a committed Yoga practitioner is certainly a coup of sorts.
There are other unique points as well. The second uniqueness lies in the aggressive promotion of the natural Ayurvedic concept in two different formats. Unlike Himalaya and Dabur who sought to market their products as therapeutic medicines, PAL positioned its products as wellness products capable of enhancing strength and immunity. It has also sought to aggressively promote the wellness characteristics, rather than be cautious and circumspect about it. The third uniqueness lies in the claims of backward integration. PAL claims to be the only company that produces its own rare herbal plants; it has extended the concept to claim its “herbo-minerals” as unique ingredients. As a delayed response to PAL’s integration proposition Dabur began to say that it has its own “nursery” for rare plants (whatever it means). The fourth unique proposition has been, of course, what sells in India – more affordable price. Virtually every Patanjali product is priced lower, typically 20 to 50 percent cheaper than a comparable competitor product. This compares with HUL Ayush products that are sold 2 to 2.t times higher!
Generic home strategy
Micheal Porter proposed cost leadership, differentiation and niche as the three principal generic competitive strategies. PAL strategy involves all the three strategies. With practically no advertisement and promotion expenses, compared to competitors, and also with lower organization and retail costs, PAL has inbuilt cost leadership in its supply chain. The differentiation strategy is built through the authentic Ayurvedic link through the founder Baba Ramdev. While HUL tied up with Arya Vaidya Sala for its Ayush products, it has not been promoted as a strong proposition nor has it been reflected in product claims. The niche strategy of PAL relates to the focus on health conscious middle class customers across mini-metros and major towns. PAL has found its niche in the spiritual and yogic wellbeing that Baba Ramdev brings and the natural, Ayurvedic wellness facet that the products provide.
At the same time, PAL has chosen a strategy that seeks to rebel against Porter’s discipline on business definition. Rather than define its business around only Ayurvedic wellness and personal care products, the company has decided to branch off into groceries such as atta , home care products such as detergent powders and washing bars, and breakfast products such as cereals and noodles. The emphasis seems to be on the good old marketing approach of brand extensions utilizing the umbrella brand goodwill of Patanjali. Rather than generic product or business strategies, PAL is focussed on developing its own ‘generic home strategy’, seeking to convert its consumer homes into Patanjali homes! While in one perspective such a broad strategy would help in scaling up rapidly and also achieve the goal of giving tough competition to MNCs on their home turf, the strategy has its challenges.
Enablers to sustainable scale-up
What Patanjali has achieved so far is indeed remarkable. The ambitious goals are even more formidable. Continued success would depend on three key enablers: quality, distribution and digitization.
While a great entry and growth profile has been achieved by PAL, the ambitious scale-up would require demonstrated quality platform. Customers would be greatly reassured if the company sets up top class analytical laboratories, and takes assiduous care in establishing the product specifications including shelf life, labelling and advertisement claims. Given the multiplicity of testing laboratories in India due to central and State level FDA regulations, each product development and product release must conform to the best of laboratory practice and manufacturing practice. Quality Assurance and Quality Control as well as Regulatory Affairs and Compliance must be established as visible departments.
PAL has chosen to sell its products through franchisee model of Patanjali stores and direct online marketing. It has more recently tied up with Future retail group for national marketing. Successful retailing depends on efficient national supply chain and distribution systems. It would appear that this is the greatest strength the established MNCs have. PAL must have a distribution system that could reach every store throughout India directly as the MNC products reach. Whether this would be through strategic alliances with logistics providers or this would be through its own distribution company is a matter of deliberate choice for PAL. The success of Internet online delivery giants is directly linked to their distribution efficiency. Serving India’s 1.3 billion population would require even more extraordinary distribution reach.
The success of Patanjali organization is attributed to a very hardworking managing director and a two member board (besides Baba Ramdev’s organizational messaging). Scaling up to Rs 10000 crore with a portfolio of 800 SKUs would require an organizational depth not envisaged so far by the company. There could be newer avenues open to PAL to develop a hybrid swadeshi organization structure. Digitization would be a very important organizational tool to ensure repetitive purchases and brand extensions. The current online store needs a major transformation linked to an enterprise resource planning system. PAL should have a digitization strategy and infrastructure at the earliest.
Yoga is all about mindfulness and decluttering. The current business model of PAL is, however, cluttered with every product that may be conceived of for home consumption. One would feel that demonstrating superiority over MNCs, rather than serving customers where really required, is becoming the motto for PAL. Wisdom could lie in focusing on fewer product categories that are directly linked to the principles of Ayurveda and natural organic nature and play in such domains really well. If PAL is able to back its foray into other products based on organic principles they could emerge as a second choice. The cost leadership that currently exists would, doubtless, be eroded as the organization expands and overheads build up. Whether speed of growth should be the primary driver is a matter for deliberation for PAL management.
While most analysts feel that the success of Patanjali Ayurved is due to Baba Ramdev and his dedicated followers, the truth is also that Indian customers are eager to use natural products without harmful chemicals and utilizing the science of Ayurveda. The company now needs to demonstrate the scientific aspects even more vigorously if it aims for an unassailable lead. Modern technology as well as structured management processes would help Patanjali fulfil its mission. It would be a great contribution to society if the company carries out clinical studies to study and establish the correlation between the various Ayurvedic ingredients and development of immunity and wellness in the users. If Patanjali Ayurved has benefitted from the use of Ayurveda as its signature claim it should be gracious and progressive to use its prosperity to further develop and demonstrate Ayurveda as a pristine science, and as India’s gift to humanity.
Posted by Dr CB Rao on May 03, 2016