When the Baba turned a Business Baron

It's high noon. The summer heat is unyielding and unkind; the unpleasantness further compounded by the lack of air-conditioners and the tardy movement of the two ceiling fans. Yet, the small hall with a seating capacity of around 50 is choc a bloc with television cameras; couple of yoga mats lie on the floor, and around 10 journalists are on alert, waiting for their subject to make an  appearance.

The place is Patanjali Yogpeeth in Haridwar in Uttarakhand, one of the largest yoga institutes in India. It's also the prize project of Ramdev, whose name is inevitably prefixed with baba, the honorific term assumed by the ascetics in the country.

Baba Ramdev enters the hall with 20-odd followers. Clad in a saffron cloth and wooden slippers, the Baba takes his position in the centre with the followers sitting behind him in a V-shaped pattern. Seated cross-legged, Ramdev's hands rest firmly on his knees, palms facing upwards.... it's time for Anulom Vilom Pranayama, a breathing exercise. Ramdev blocks his right nostril with his thumb and draws in air from the left nostril. The disciples follow suit. After a few seconds he releases the thumb and closes the left nostril with his ring finger. He then breathes out slowly through the right nostril.

The yoga session lasts for an hour, after which the cameramen pack up, the outdoor broadcasting vans make their exit from the sprawling campus and, the yoga guru quickly dons a new avatar: Baron Ramdev.

There haven’t been that many new, successful entrants in the FMCG world in the recent past at the national level. Barriers to entry are the high cost of awareness required for a national brand (read celebrity endorsements and mainstream TV advertising), managing a sophisticated network and uniform quality control. Ultimately, what works for Patanjali is the fact that the promoter of the brand, Baba Ramdev, is also its brand ambassador, and stands for good health and spirituality.  A big cost saver for the brand is that they don’t need to spend on advertising because of the high brand recall of Baba Ramdev whose popular TV show and public appearances have gained him mass media awareness at a very low cost. In addition, the Company reaps the benefits of a celebrity brand ambassador like Baba Ramdev for free (how he benefits from the brand is not clear, as he is not listed as an owner).

Commenting on the marketing of Patanjali’s personal care products, Ramdev had once said: “We don’t need our mothers and sisters to get half naked to sell our products, like the MNCs do. We don’t have the ideological crisis. We don’t indulge in glamour, obscenity or paid endorsements. I am the fee-less brand ambassador of Patanjali products.”

Baba Ramdev, who is driven around in a white Range Rover Evoque, initially found fame as a yoga evangelist, teaching the benefits of the Indian physical and spiritual discipline through television channel Aastha since 2000. “Business is a by-product,” he once said in an interview. “The Patanjali brand, prosperity and profit—everything is a by-product.” The Baba downplays his own role in building Patanjali into an emerging consumer product giant, saying his only role is that of a brand ambassador who works for free in television commercials representing the brands his company makes. Patanjali, which sells everything from shampoo and toothpaste to biscuits and noodles, and rice and wheat to honey and ghee, more than doubled its sales in the year ended 31 March 2016, from Rs.2,006 crore in the previous year (FY 2015). During the same period, sales of Hindustan Unilever Ltd (HUL), the local unit of Anglo-Dutch consumer products giant Unilever Plc. rose 4%.

A company with a similar product range and positioning of that of Patanjali is the Himalaya Drug Company which is also in the Rs.1500 crore turnover range and targets around 12% growth vis-a-vis Patanjali’s stated 20% target. Himalaya is a much older company than Patanjali, founded in 1937, though it started thinking of itself as an FMCG player only as late as 2009. It has also expanded beyond pharma to wellness and personal care , has its own stores, sells online – a very similar journey in fact. In that context, Patanjali’s growth is indeed commendable. Biotique is a beauty brand also based on the Ayurveda platform but has not expanded its product range.

Patanjali Ayurved Limited was founded as a small pharmacy in Haridwar in 1997 by P.P. Swami Ramdev Ji Maharaj.  Acharya Balkrishna is the Chairman of Patanjali Ayurved Limited and Mr. Rambharat is the Sr. Vice President of Patanjali Ayurved Limited. Patanjali Ayurved, makes nearly 800 products, from face creams to noodles. Priced considerably lower than offerings from multinational firms, Patanjali has started eating into the well-entrenched rivals’ market shares.

While it owns more than 15,000 exclusive outlets that sell healthy and organic consumer products and is into many product categories of personal care and food; hardly any market player took notice, when the company first introduced the products, leave alone imagining it as a potential business threat.

For the last decade, Baba Ramdev did not focus on proclaiming that his brand was the best. Instead, he told the Indians about the evils of MNCs, the virtues of products made in India, the corruption of corporates, the exploitation of farmers, the cancerous effects of fertilisers and chemicals and just about everything that surrounded his products. He just showed the nation the reasons and left the people on their own to explore his products. This was an absolutely brilliant ploy. Here no-one was pushing anything, only an environment was created where the Indian consumer wanted to see if the alternative to above evils was usable. The consumer might have been influenced by the fear of diseases or she might just have been patriotic enough to shun all evil multi-national firms. Whatever the reason, the Indian consumer already had a positive environment to try the Patanjali products.

The reasons for Patanjali’s accelerated growth in a 4P framework are:

•  Product: Differentiated product that appeals to the Indian belief in Ayurveda/natural remedies/‘hand’ medicine
•   Price: Discounted at 20 – 30% compared to competition. Low cost pack sizes – health juice sachets start at Rs 5, making their product accessible to many
•   Place: Distribution through Ayurvedic pharmacies which further strengthens their health proposition. They have a franchisee based distribution strategy. The recently announced tie-up with Future Group tie-up will definitely further enlarge Patanjali’s retail footprint and make it easily available to shoppers. Tie-ups with online retailers such as bigbasket.com not only give them access to a growing middle class base but also reduce their cost of distribution and display.
•   Positioning: Strong positioning on Ayurveda and health consistently reinforced by its ‘brand ambassador'.

One analyst, who has visited Patanjali factories multiple times, says Patanjali products are essentially herbal clones. “The process is simple. Top-selling products across brands are picked up from the market and then similar products are developed based on herbal formulations under Patanjali brands. Mostly, they are replicas of successful products of multinational companies,” the analyst said.  Products of Patanjali include -

• Nutrition and Supplements
• Grocery
• Medicine
• Home Care
• Personal Care
• Books and Media
• Health Care

The Yoga evangelist turned business baron has just set the bar higher for his consumer products business — to Rs.1 trillion (Rs.100,000 crores) in net sales, a target he thinks can be reached in 10 years, if not five. The target is a near 20-fold increase from the Rs.5,000 crore in net sales that Patanjali posted in the business year that ended on 31 March 2016. The breadth of Ramdev’s ambition can be gauged from the fact that HUL, which has been around in India since 1888, hasn’t even touched one-third of Ramdev’s target. In the year to 31 March 2016, HUL posted net sales of Rs.32,482.72 crore. The target also represents nearly a third of the size of India’s entire packaged consumer products market at present, estimated at about Rs.3.2 trillion (Rs.320,000 crores) a year and projected to grow 12-15% annually over the next five years, reaching Rs.6.1 trillion (Rs.610,000 crores) in 2019.

Moreover, the company which manufactures and markets everything from flour, ghee, biscuits, noodles, spices to honey and toothpaste aims to continue growing at 100-125% annually for the next three years. Some of this growth could also come from international expansion, an option that it may explore if the domestic market gets saturated.

In April 2016, Mumbai-based Pittie Group, the nationwide distributor for Patanjali products, sewed up a distribution arrangement with Apollo Pharmacy. It also has a marketing arrangement with Kishore Biyani’s Future Retail Ltd for selling Patanjali products in 243 cities across India. Patanjali Ayurved has also teamed up with billionaire Mukesh Ambani’s retail chain Reliance Retail to sell its products. Over the next year, Patanjali will increase its retail presence through 4,000 distributors, more than 10,000 company-owned outlets, 100 Patanjali-branded stores and supermarkets, the company said in a statement recently.

“The company’s business model is rewriting the rules of consumer marketing in India. We think rapid growth will continue, driven by an ever-increasing consumer demand for its products; the launch of new categories; and a broader retail and distribution network,” Amit Sachdeva, an analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd, wrote in a report about Patanjali dated 5 February 2016.

Contrary to the Baba’s claims, Patanjali does outsource manufacturing of some products like other packaged consumer products companies do. For instance, biscuits are made by Delhi-based Sona Biscuits and juices by a bunch of companies, including GK Dairy and Milk Products Pvt. Ltd . Haridwar-based Aakash Yog Health Products Ltd manufactures noodles for Patanjali. Aakash used to make noodles for HUL’s Knorr brand, till recently.

Over the next few years, Patanjali will focus on six areas: natural medicine, natural cosmetics, natural dairy products and food, natural cattle feed and feed supplements, bio-fertilizers and bio-pesticides, and natural indigenous seeds, said Ramdev. Patanjali is already a Rs.2,000 crore brand, but Baba Ramdev is not finished with it yet. The yoga guru who created the popular Ayurvedic products brand wants to expand capacity and push back multinationals as he fights for what he calls ‘economic independence’. There are plans to add five food parks—one in Madhya Pradesh and another one in Maharashtra have been decided upon. These are of huge capacity. More are underway. Patanjali has plans to open food parks in four or five locations, where investments will be very, very big. The plants will help with value addition of food—the idea is to do away with the middlemen involved in procurement of agriculture produce from the farmers directly. Along with this, it will help the company to increase the supply of raw material for herbal, cosmetic, natural products. The company plans to grow herbs locally.

Ramdev, who first shot to fame as the Aastha TV channel’s tele-healer in the early 2000s, has over the past decade or so expanded his interests to include politics, society, agriculture and moral policing, besides the buisness of fast moving consumer products and wellness. After Patanjali's success, other spiritual and yoga gurus have entered the market with branded products. In Baba Ramdev's words, "We want everyone to win, we don’t want to take over Indian companies—they are not my competition, we all must work together. And whoever is working should work carefully. I don’t consider them competitors—they are most welcome, but they should keep a few things in mind. First, manufacturing unit should be owned by them. Second, whoever wants to enter the category, should have studied about Ayurveda—it helps build trust. Third, these (products) are all an outcome of years of scientific research—they should focus on that."

To prevent getting beaten by an upstart, multinationals are quite likely to include more herbal and natural offerings in their own product portfolios. Colgate, for example, has introduced a new “Made in India” variant of toothpaste with neem tree extracts. India’s largest packaged consumer goods giant HUL in 2015 relaunched Lever Ayush, its ayurvedic range, to be sold exclusively online. HUL also acquired ayurvedic hair oil and shampoo brand Indulekha in December 2015, forking out $48 million, to strengthen its presence in the premium category. Suddenly, companies that sell personal care products made of ayurvedic, herbal or natural ingredients, are in expansion mode and seeking a bigger share of the market.

It is also not clear if Patanjali will be able to profitably scale up its foods operation, or if it will remain largely a niche personal care business. But as global corporates try to fight the yoga guru on his own turf, they also face challenges. For one, their costs will inevitably rise as they’re forced to launch or acquire new brands and advertise them to the hilt. Patanjali, by contrast, has just one brand—and one brand ambassador—to look after. That’s reasonably risky, but so long as Baba Ramdev appears on TV looking healthy and fit, the company won’t need movie stars or cricket players to endorse its products. More importantly, multinationals’ natural instinct has been to wow emerging-market customers by flaunting the clinical research that’s gone into their chemicals, lotions and pastes. An attempt to switch track and go herbal may ultimately be rejected as inauthentic.

While Patanjali has seen unparalleled success in recent times, some of its apparent strengths could turn out to be its limitations. For instance, most of its products are branded under “Patanjali” umbrella and are then linked with generic names such as Patanjali Atta Noodles, Patanjali ghee, Patanjali Cornflakes. Their communication largely focuses around the name “Patanjali” and not around any sub-brand. This could affect sales of their key categories, if inconsistent product categories do not perform well. It can also confuse consumers if Patanjali want to increase “product depth” and launch variants with minute differences. Furthermore, “Patanjali” is largely co-branded/co-promoted with Baba Ramdev and his companion Acharya Balkrishna. Any questions arising on their integrity is likely to affect the brand’s performance.

Baron...errr Baba Ramdev is perceived to be close to India’s ruling coalition, and has appeared with Prime Minister Narendra Modi on several public platforms. But the yoga guru disclaims any interest in politics. “I want to stay the way I am—sanyas, rashtradharma... (renunciation and duty to the nation) I want to do everything without any greed. Directly, I’ll never participate at any political position,” concludes Ramdev. In a recent interview, the Baba spoke about his future plans, "I’m not a brand. The brand is not my ultimate goal, the brand is my by-product. But, yes we have plans to open a university in every state, where students can train in Vedic and modern studies."

Disclaimer / Caveat: Whatever I have stated is publicly available information and does not represent the view of the firm I work for.

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