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Strategic Management

Patanjali Ayurved Ltd.


A study on Patanjalis current strategy, how can it
continue to grow at current pace, and how can it achieve
its 2020 revenue target?

Submitted By: 03 Amit Sahay


EPGDIB 16-18, Section A 10 Garima Kashyap 33 Rupesh Agarwal
Group 05 19 Nitin Sachdeva 36 Shobit Razdan
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Executive Summary

The swift rise of Patanjali Ayurved Ltd. driven by large product mix coupled
with unconventional business and marketing strategies has revolutionized
and disrupted the FMCG sector in record time.

Starting in 1997 as a small sized pharmacy in a small religious town of


Haridwar, is today the fastest growing company in the Indian FMCG sector.
A US $50b industry in India, once was dominated by multinational giants
like Unilever, P&G, Nestle, J&J etc., is now facing tough competition at the
hands of a Yogi and his unparalleled business acumen.

Creating an unsustainable momentum for itself, there are several strategic


ingredients that go on to create the magic for Patanjali, its strategic
strengths. And, so are the strategic weaknesses which may sound trouble in
realising its vision.

So what should Patanjali do to maintain the traction and continue to


grow at the unprecedented rate that it has set out for itself?

What should it do to achieve its own publicised target of reaching


Rs. 1,00,000 Cr. in revenue by 2020?

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Table of Content

1. Introduction ................................................................................ 7
2. Critical Analysis .......................................................................... 9
2.1. Vision & Mission ....................................................................... 9
2.2. Scenario Analysis .................................................................... 10
2.4. Value Chain Analysis............................................................... 20
2.5. Competitive Strategy .............................................................. 23
2.6. Collaborative Strategy............................................................. 25
2.7. Tailoring Strategy ................................................................... 26
2.8. Product Strategy ..................................................................... 28
2.9. Diversification Strategy .......................................................... 30
3. From As-Is to To-Be ................................................................... 31
4. Summary ................................................................................... 37
5. References................................................................................. 38

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1. Introduction

Since its inception in 2006, Patanjali Ayurved Ltd. endorsed by Baba


Ramdev has overtaken several older Indian and Multinational FMCG giants.

With reported revenue of Rs. 9,346 Cr. (about $1.5b) from its FMCG
business, Patanjali has placed itself at the No. 3 position, after HUL and
ITC, in the ranks of Indian FMCG companies. Patanjali has surpassed
Godrej, which has been in business since 1918, as well has Nestle India
which has been placed in the country since 1961.

Patanjalis revenue in FY17 nearly doubled since previous financial year,


and climbed nearly 20 times since FY12, i.e., within 5 years.

The company has extensive sales channel of over 5000 distributors, 15000
stores and 100 mega-marts. Patanjali has also partnered with Future Group
and reaches a gross sale of about Rs. 30 Cr every month through this
channel. Patanjali also has exclusive presence in other hypermarkets like
Big Bazaar and Reliance Retail.

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Patanjali manufactures 400+ products, of which nearly 45 are cosmetics
and about 30, are food products. Patanjalis USP is that all the products are
made from Ayurveda and natural components as per the company.

From shampoo, biscuits, ghee and noodles to apparel and footwear, no other
indigenous company has built such a well-diversified product portfolio.

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2. Critical Analysis
2.1. Vision & Mission

Vision
The vision statement of Patanjali is-Keeping Nationalism, Ayurved
and Yog as our pillars, we are committed to create a healthier
society and country. To raise the pride and glory of the world, we
are geared up to serve people by bringing the blessings of nature
into their lives. With sheer dedication, scientific approach, astute
planning and realism, we are poised to write a new success story for
the world.

From the vision statement we understand that the objective of Patanjali is to


make products by amalgamating the ancient wisdom of the Science of
Ayurved with the modern scientific techniques of Industrial Management
and hence create a healthier society.

Mission
The mission statement of Patanjali is-"Making India an ideal place
for the growth and development of Ayurveda and a prototype for the
rest of the world.

From the mission statement we understand that Patanjali wants the rest of
the world to see India as the growth and development centre for Ayurved
and Ayurvedic products. By making India the centralised hub they will also
achieve their vision of being a Swadeshi Company hence keeping the vision
of Nationalism alive in them.

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2.2. Scenario Analysis

PESTLE Analysis

They have support from the Govt. via Ministry of Ayush


They have signed various MoUs with various state govt. such as
Haryana govt. for world herbal forest., Uttarakhand for Ayush
projects etc.
Political The roll-out of GST will reduce supply chain constraints and
improve competitiveness against unorganized player.

Fluctuation in Inflation rate , interest rate, taxes has impact on


the buying behavior of the consumers .
There is a less or no impact of foreign exchange rate fluctuation
Economical as they procure local raw material.

People today have become more health conscious and are more
inclined towards buying of herbal & ayurvedic products,therefore
there can be a rise in the demand of Patanjali products.
Patanjali drives its social responsibility through Patanjali
Yogpeeth trust where it carries out its welfare activities in the
Social spheres of healthcare, education and other socio-economic
activities.

Patanjali has invested a lot in R&D activity and has established


Patanjali Yogpeeth trust in Haridwar.
Its purpose is to practise and research and develop yoga and
ayurveda, as well as manufacture ayurvedic medicines. It is also
Techno the home of the University of Patanjali
logical

Food product in India needs to be certified by FSSAI(Food


Safety & Standards authority of India).
There are other non-statutory certification marks or schemes in
India which are promoted by the Government of India, by
policy, or through governmental or semi-governmental
agencies. But these certifications bear no legal status in the
Legal nation and are purely promotional in nature.The Ayush Mark
or the Ayush Product Certification Scheme for herbal products
by the Department of Ayush

Our country has a rich source of wide variety of herbs which


can be used for manufacturing Ayurvedic products.
Also Ayurvedic products are more eco-friendly when compared
to other chemical based product.
Environ
mental

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Porters Five Forces

Rivarly among the existing competitors


in FMCG sector is very high.
Rivarly among
existing There are many organized players such
Competitors as Dabur, Unilever, ITC etc. in this
sector.
(high) Patanjali's competitors are more
established and have a strong sales &
distribution channels.

As Patanjali is new in FMCG industry


therefore there is less threat from new
entrant whereas the major threat to
Threat of new Patanjali is from existing players.
entrants Govt. rules & policies can act as a
(Medium) barrier.
Heavy investment in R&D, distribution
channel and promoting brand is
required.

It depends on the nature of product.


There are large number of substitutes
Threat of available in the market. For example :
substitutes In toothpaste we have brands like
(High) Pepsodent, Colgate, Sensodyne,
Patanjali competiting with one another.
The switching cost is low.

Business is highly dependant on the


right ingredient, hence suppliers have a
Bargaining power of good bargaining power.
Suppliers
The bargaining power of the suppliers
(Low) can be controlled by backward
integration.

Buyers have large number of choices


available in the market.
Bargaining Power of Nowadays information about the
Buyers products are also freely available to the
consumers.
(High) There are many promotional offers and
discounts offered by various FMCG
brands to attract consumers.

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Threat of
new
entrants
(MEDIUM)

Bargaining Rivarly Bargaining


power of among Power of
Suppliers existing Buyers
Competitors
(LOW) (HIGH)
(HIGH)

Threat of
substitutes
(HIGH)

Industry and Competitive Environment


The FMCG sector has grown at an annual average of about 11.9% over the
last decade. The overall FMCG market is expected to increase at (CAGR) of
14.7 per cent to touch US$ 110.4 billion during 2012-2020, with the rural
FMCG market anticipated to increase at a CAGR of 17.7 per cent to reach
US$ 100 billion during 2012-2025.

Food products is the leading segment, accounting for 43 per cent of the
overall market. Personal care (22 per cent) and fabric care (12 per cent) come
next in terms of market share.

Growing awareness, easier access, and changing lifestyles have been the key
growth drivers for the consumer market. The Government of India's policies
and regulatory frameworks such as relaxation of license rules and approval
of 51 per cent foreign direct investment (FDI) in multi-brand and 100 per
cent in single-brand retail are some of the major growth drivers for the
consumer market.

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The FMCG market has three main segments: Food & Beverages, Health
Care, and Household & Personal Care.

Food and Personal care accounts for 2/3rd of total revenues.

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Hair Care is the leading segment, accounting for 23 percent of the overall
market in terms of revenue. Food Products is the 2nd leading segment of the
sector accounting for 19 per cent followed by health supplements & oral
care which has a market share of 16 per cent & 15 per cent, respectively.

Besides this Urban sector is the largest contributor to the overall revenue
generated in the FMCG sector in India. Also semi-urban and rural segments
are growing at a faster pace when compared to urban sectors.

The FMCG sector in rural & semi-urban India is estimated to cross


USD100 billion by 2025.

Amongst the leading retailers, Dabur generates over 40-45% of its domestic
revenue from rural sales and HUL rural revenue accounts for 45% of its
overall sales while other companies earn 30- 35% of their revenues from
rural areas.

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On studying the sales of FMCG companies we find that ITC has generated
the highest revenue till FY16 followed by HUL.

As per the Patanjalis annual report of 2016-17, Patanjali group has


become the 3rd largest FMCG player in the country with revenue of Rs.
10,561 crore which has increased by nearly 100% YoY. Patanjali is now
aiming at a two-fold increase in sales to Rs 20,000 crore and doubling its
retail network to 12,000 outlets by March 2018.

Patanjali Ayurved Ltd., the FMCG business of Patanjali, generated a


revenue of Rs 9,346 crore, i.e., nearly 90% of Patanjalis revenue comes
from its FMCG business. Few of the most sold products of Patanjali in the
year 2016-17 were:

a. Patanjali cow-ghee(Revenue: Rs. 1,467 crore)


b. Dant Kanti toothpaste(Revenue: Rs. 940 crore)
c. Kesh Kanti shampoo(Revenue: Rs. 825 crore)
d. Herbal bathing soap(Revenue: Rs. 574 crore)
e. Kachhi Ghani mustard oil(Revenue: Rs. 522 crore)

In an attempt to compete with Patanjali Ayurvedic products, HUL has


launched a new range of products called Lever Ayush with Ayurvedic
ingredients in May 2017. The company will initially launch the product
range in five southern states and is expected to face stiff competition from
the fast growing Patanjali.

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Outside-In vs. Inside-Out

The Inside-Out approach is guided by the belief that the inner strengths
and capabilities of the organisation will make the organisation prevail. The
Outside-In approach is instead guided by the belief that customer value
creation, customer orientation and customer experiences are the keys to
success.

Patanjali uses inside-out approach as it only sells Ayurveda based products


in food, cosmetics and FMCG. They have grown at a rapid pace within a
short span of time. The Swadeshi tagline in their products also has played
an important role in their success.

Extensive marketing by Patanjali has pulled people into accepting their


products as a healthier and safer option when compared to their
competitors.

Patanjali products are generally priced at 20-30 % lower than the


competitive brands and thus it becomes impossible for the competitive
brands to compete with Patanjali on price. The company sources the
products directly from farmers and thus cuts on middlemen. Hence, they
are able to produce at lower costs.

Even though it is perceived as conventional Indian company but it has


surprised everyone by bringing in various changes required to be at par
with its contemporary brands, be it advertising using celebrities as Brand
ambassadors, Entering modern retail or using E-commerce as a platform.
Patanjali has also understood the potential of digital media and social
media platforms and is also spending on these channels.

It has a strong distribution channels. They sold through medical centres


such as Patanjali Chikitsalayas and Patanjali Arogya Kendras, non-medical
centres such as Swadeshi Kendras. Patanjali was earlier criticised for its
distribution strategy, but it has now improved it by distributing through
General retail outlets and has recently tied up with the Future group for
distribution through Modern retail.

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Areas of Strength

From the above analysis we have identified the following areas of strength:

100% Localization: Patanjali claims that the products they manufacture


are 100% local; hence there will not be any impact of foreign exchange
fluctuation.
Our country has a huge availability of natural herbs which is an
important ingredient in manufacturing herbal products.
Support from government: Patanjali has recently signed various MoUs
with various State Govt.(Haryana, Uttarakhand) via Ministry of Ayush.
Swadeshi Brand image: Patanjali can bank upon their image of being a
Swadeshi company and attract customers by portraying themselves as
Nationalist Company.
Low pricing strategy can help Patanjali in attracting customers.
The products manufactured by Patanjali are perceived to be good for
health and hence can attract health-conscious individuals.

Areas of Weakness

From the above analysis we have identified the following areas of weakness:

Low switching cost: The switching cost for the customer is very low;
hence it is very easy for the customer to switch between the products.
Therefore Patanjali needs to make a strategy by which they can create
Brand loyal customers.
Distribution Channel: Even though the distribution channel has
improved and they have taken steps for improving it further by tying up
with various retail outlets such as Future Group etc., but still they need
to go a long way as they need to compete with many established players
such as ITC, HUL, Dabur etc.
Supplier Quality issues: Patanjali does business with supplier on
contract basis and hence they have removed the middle men from their
supply chain, however there is no control on the quality standards that
are maintained at their suppliers end. This can result in marring their
brand image.

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2.3. SWOT Analysis

STRENGTHS WEAKNESSES

Strong competitors and


100% natural products;
availability of substitute
perceived as no side effects
products

Low presence in traditional


Brand image of the trust
retail (see Pie chart attached)

Considered socially responsible Less expenditure on marketing


for health of the society and promotional activities

Established distribution No distribution network in


network in urban areas rural areas

Captive Market Low export levels

Huge dependency on Baba


Differentiated Products
Ramdev

Strong presence in Modern A large part, about 40% of


Retail through Reliance Retail revenue, comes from four key
and Future Group. products only.

Completely integrated
organization

Low production cost

THREATS OPPORTUNITIES

Controversies and complaints Changing lifestyle and rising


of sub-standard products income levels

Political interference, with Change in trend of becoming


Baba Ramdevs good relation more health conscious and
with current government. using more organic products

Huge size of Indian domestic


Removal of import restrictions
market
Tussle with FSSAI over Untapped export market with
required permissions and huge Indian diaspora living
licenses. abroad
Backlash from FMCG MNCs. Rural market to be tapped

Indian governments amiable


policies towards the Ayurvedic
sector

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PAL, 2
Lakh

Nestle, 35 Lakh HUL, 60 Lakh

Dabur, 53 Lakh
Colgate, 47 Lakh

SHARE OF TRADITIONAL KIRANA STORE*

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2.4. Value Chain Analysis

Core Competence

Having built a perceived value of indigenous, organic, chemical free and


healthy products, Patanjali has built its core competence around Processing
& Operations with significant focus on converting directly sourced raw
materials to value added organic consumer products of high quality.

Distinctive Competence

Patanjalis distinctive competence on the other hand covers


Inbound/Sourcing, Distribution and Marketing blocks of the value chain.
Patanjali has deep focus in its value chain to drive down the cost, and
thus performs distinctively to its competition. Directly growing required
raw materials and sourcing directly from farmers, PAL has built a strong
inbound supply chain at a significantly lower cost.
To keep distribution cost low, Patanjali also went ahead with exclusive
stores which work under lower margin but scale of operations to drive
profitability.
Patanjali also spends a meagre 1.5 2% in marketing. With Baba
Ramdev as the ambassador of the brand and a big fan following around
him, Patanjali need not spend heftily on roping in superstar
ambassadors.

Areas of Weakness
Patanjalis competitive strengths may also be the incipient source of
trouble for the brand.
Time and again market has complained of Patanjalis choked supply
chain due to dependency on few direct suppliers, and its own produce.
Exclusivity of stores have helped Patanjali keep cost low and display
products at front shelves, however it has also left Patanjali devoid of
Mom-&-Pop store presence which is the heart and soul of Indian retail.
With Baba Ramdev as the biggest and only brand ambassador for
Patanjali, there is significant dependency on him to keep the brand image
high. Political interferences and interests pose serious threat for the
brand image.

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Primary Activities

With over 500 acres of land under cultivation,


Patanjali self cultivates herbs and medicinal
ingredients.

Sources directly from farmers keeping the


Inbound purchasing overheads low.

Zero-waste lean methodologies in all it's plants


and food parks, leading to phenomenally low
overheads.
Invites and takes expert opinions from leading
Processing research labs.

Exclusive distribution through dedicated


outlets. Distribution also through web-portal
and via retail partnerships, e.g., Reliance Retail
& Future outlets.
Distribution

Association with Ayurveda and perceived as


healthy alternative alongside "Swadeshi", i.e.,
indigenous appeal.

Baba Ramdev himself as face of the brand. Not


Marketing & loud marketing budget.
Sales

Thousands of outlets in form of 'chikitsalays',


'arogya kendras', 'swadeshi kendras' etc. spread
across the country
Services

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Supporting Activities

Backward integration with direct


sourcing from farmers.
Procurement
Maintains total quality control over
inbound raw materials.

Most executives are home-grown


sanyasis taking minimal salary.
Human Resources
Trained people. Specialist researchers
and grass-root innovators.

Transfer of technology under the DRDO


FICCI ATAC initiative for
Technology and R&D commercialization of spin-
off technologies

Headquartered at Haridwar, a Tier-II


city.
Firm Infrastructure
3 manufacturing units with ~200,000
retail outlet reach.

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2.5. Competitive Strategy
Michael Porters Generic Strategies Model

Patanjali started of with focussed low-cost strategy targeting specific


consumer segment with a very small subset of FMCG product. However, it
eventually adopted an amalgamation of overall low-cost provider (or, cost
leadership) strategy and broad differentiation strategy.

Patanjali focusses on natural and ayurvedic products, claimed to be


chemical free. Despite the existence of wide range of existing products, only
a few rivals follow a similar differentiation approach.
Patanjali has been able to successfully differentiate its product with
great mix of Ayurved and Technology.
Patanjali focusses on product reliability, quality and its top-of-line
image to define its theme for differentiation.

By controlling the cost drivers as well as revamping the value chain, PAL
usually prices its products at rates which are generally 15% - 30% lower
than its competitors.
Patanjali sources its raw materials directly from farmers, and thus
eliminating costs incurred due to middlemen.
With Baba Ramdev as the brand ambassador, Patanjali also has
significantly low marketing spends.
Patanjali also has very low administrative overhead, standing at 2%
whereas the industry average stands as 10%.

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Areas of Strength

With its focussed low-cost and focussed differentiation strategy,


Patanjali has started out well by capturing an untapped market
specifically targeting health and quality conscious consumer in the
FMCG segment.
Patanjali has maintained that low-cost provider stand and has been
able to gain customer loyalty in lower and middle income households.
With a typical FMCG consumer is characterised to incur low switching
cost and where the consumers are large with significant bargaining
power, low-cost strategy is known to work best and Patanjali has been
right in its approach.

Areas of Weakness

However, moving to overall low-cost provider and broad differentiation


strategy by flooding the market with products in every sub-segments of
FMCG industry, Patanjali seems to have been diluting its focus.
With consumers complaining of inconsistent quality time and again, and
nearly 40% revenue coming from just four of its products, Patanjali is
stepping into weaker strategic paths by trying to capture too many
consumer segments way too fast.
With easy to copy differentiation strategy, the rivals have already
mustered all their resources to hit on PALs market share. For example,
HUL recently entered the segment with Ayush line of ayurvedic products.

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2.6. Collaborative Strategy
Patanjali has done various collaborations to keep its exponential growth
momentum going forward. In year 2015 the company entered into an
exclusive partnership with Future Group to make its entire range of
products available in Big Bazaar outlets across the country. Moreover the
company has also partnered with Reliance, Star Bazaar (Tata Group), More
(Aditya Birla Group), Spencer Retail, D-Mart, and Apollo Pharmacy to
increase its reach in urban India. The company is also looking at forming a
manufacturing partnership in the future. Patanjali has a tie-up with DRDO
for transfer of technology in supplements used at high altitude. Moreover
recently the Defence Research and Development Organisation (DRDO) and
Patanjali Ayurved Limited have decided to sign a memorandum of
understanding (MoU) to market array of herbal products developed by the
DRDOs Life Sciences wing - Defence Institute of High Altitude Research
(DIHAR).

Areas of Strengths:
The Strategic Distribution tie-ups with Future Group and Reliance
Retail has given Patanjali products an instant reach in all the major
cities in India through 2 most prominent brands in modern retail.
Thus having a strong partnership in the product distribution channel
for the end customer has made the PAL to increase its reach &
presence in the urban market.

Areas of Weakness:
With the above strategic collaborations the company has gained its
accessibility mainly to the modern retail format, ecommerce and its
own outlets; however the company lacks its presence in the traditional
retail formats, which serve close to 90% of Indian retail market.
The company has to work to a across its supply chain where the local
retail players in each & every city has an access to Patanjali products.
In the present scenario the competitors of PAL have their product
presence in almost every shop in all corners on the country.

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2.7. Tailoring Strategy

In the present scenario Patanjali is in a position where the competition is


with the international MNCs like Hindustan Unilever (HUL) and established
Indian player like Himalaya, Zhandu, Dabur, Emami, Vicco and Jyothi. It
has a very high ambitious plan to scale up its revenues to 10,000 core in FY
2016 2017 which is just the double as compared to its previous year
revenues. Hence in our opinion the strategy that would best suit after
analyzing its present market position would be a Runner up firms
strategy. The achievement that the company has made is indeed
remarkable, however the continued success momentum would depend on
following key enablers i.e.

Quality
Distribution
Nice focus
Digitization

Quality: The need of superior product strategy indeed requires a superior


quality product. So measurable quality platforms has to be established by
PAL This can be very well achieved if the company sets up -

Top class analytical laboratories,


Takes assiduous care in establishing the product specifications
including shelf life, labelling and advertisement claims.
The products must meet the compliance requirement of testing
laboratories in India as well international accreditation authorities like
FDA.
GMP should be well displayed across its range of products.

Thus the exponential increase in customer assurance & acceptability would


be greatly achieved.

Distribution: Patanjali has to match the level of MNCs first and then also
find avenues to succeed them. So its important that like an MNC its
product should reach every store throughout India directly as the MNC
products reach. This can be done by finding better rooms in enhancing its
supply chain by working on few key drivers

Strategic alliances with logistics providers.

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Having an own distribution company is a matter of deliberate choice
for PAL.
Internet online delivery
Doing more tie up like it did with Future retail group for national
marketing.

Niche: The existence of PAL comes with roots of Baba Ramdev& Yoga. It is
an established fact that Indian customers are hungry for natural products
without harmful chemicals and utilizing the science of Ayurveda. So to focus
on the health conscious customers the company must demonstrate the
scientific aspects of its products. The clinical trial data would certainly help
in establishing its superiority over others with the correlation between the
various Ayurvedic ingredients and development of immunity and wellness in
the users.

Digitization: Scaling up to 10,000 crore with a portfolio of 800 SKUs


requires deeper organization depth on its inventory need and forecasted
demand. The company need dedicated analytics infrastructure for making
efficient & smart decisions. So digitalization would be important for
transforming its online stores with enterprise resource planning system.
This would require investment for integration and training for its
implementation & execution.

Areas of Strength:

PAL niche marketing strategy with focus on health conscious


customers would actually help PAL to have a far more wider
customers base were all customers would actually understand &
adopt healthy food habits and its products.
The Yoga & Ayurveda flavour in PAL products has made the brand
deepen its penetrations in the followers heart.

Area of Weakness:

The company needs more presence in the online platform.


Time has come where PAL must give its customers the clinical trial
data of its product & establish very high quality parameters for its
products.

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2.8. Product Strategy
Patanjali is known for the humongous range of Products it offers to the
customers. And yet it has managed to give emphasis on each and every
product that it has carpet bombed the market with. The Generic tag of
Ayurvedic nature of their products firmly bundles with traditional thought
of No side effects and low cost making the brand a safe yet affordable
option. The development of Ayurvedic products in every segment is what is
giving all other Multi- National FMCG companies a run for their money. PAL
also fits in the new found ideology promoted by the Indian Govt. of Make in
India that drives customers to take pride in the using indigenous products
without compromising on quality and cost.

Patanjali Cow Ghee is their highest selling product with


its lower price than other traditional Ghee products and
moreover declaring on its label the type of Milk that was
the origin of the Ghee created tremendous differentiation
as Ghee from cow milk is healtheir than that of Buffalo
Milk. Hence keeping the healthy front on full attack with
a lower price tag.

Patanjali Dant Kanti introduced the concept of dental


beauty playing the smart way and creating an alternate
mindset for customers to compete with the Dental
hygiene mindset that was prevailing in the customer's
mind through years of pre conditioning from other FMCG
Brands. Following the hierarchy this product also
projects the image of Ayurvedic ingredients with a lower
price tag.

Patanjali has its own range of Indigenous Ayurvedic


medicines for various generic diseases. During the early
monsoon time in Delhi when Chikungunya was at its
peak, the ayurvedic medicines availble at all their stores
was in high demand as it promised instant relief without
any side effects. As we know Allopathic medicines has so
many side effects that one disease takes 4 pills to cure i.e
one pill to kill the disease and other 3 to tackle the side
effects of that pill. Now here was an ayurvedic solution
tho this disease without any side effects or dangers and
most importantly it was effective.

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The sudden shift from Tasty to healthy ideology has helped Patanjali to
dwell into products like Vegetable Atta Maggi that for some time gave other
noodle brands a run for their money.

Patanjali has tried to keep a balance between Herbal and cost effective
aspects of every product and have made full use of circumstantial promotion
and building credibility.

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2.9. Diversification Strategy

The diversification needs to be adopted in the two most important areas that
is Geographical and Product Diversification. Keeping in mind that the
International market has a premium place for the Herbal/Ayurvedic
products, Patanjali can catapult its geographical reach using the trust it has
already gained in the huge Indian Market.

The Political & economic advancements are the factors that mainly effect the
risk & cost associated with entering the International Market. The target
market could be the Developing & under developed countries as these are
the major markets looking for superior quality in a cost effective packing.
The Ansoff matrix suggests the various opportunities that PAL has in its
kitty.

Ansoffs Matrix for Patanjali

As PAL already has 800 SKUs, its hard to find a new product to join its
Portfolio. Even though its speculated that Baba Ramdev is venturing into
the Security Services Industry that is poles apart from his existing brand
Patanjali. Though following the lines of safety either through herbal
Patanjali products or Security guards Baba Ramdev is not leaving any stone
unturned trying to gain as much market as possible.

Going into the new markets is the most rapid way to grow the Patanjali
brand to the desired success. With an innate quality to make the most out
of the political or quality control issues degrading the other brands with
introducing the culturally acceptable product in competition to the suffering
brand/product is the best entrant strategy that any brand could use.

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3. From As-Is to To-Be
From an FMCG company doing revenue of Rs. 849 Cr. in FY13, to the
FMCG company doing an annual revenue of Rs. 9,346 Cr. in FY17,
Patanjali has grown at CAGR of 82% while the FMCG industry grew at
meager CAGR of 2% in the same period. As per FY17 financial and industry
report, Patanjalis market share is about 3.2%.

According to IBEF data, the FMCG market is expected to grow at CAGR of


20.6% to $103.7b market by FY20. Of that, Patanjali has set-out a target to
capture about 15% of the wallet share, i.e., about $15.5b while growing at
CAGR of 120%.

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(I) Focus on the rural and semi-urban market

Opportunity : Growing rural and semi-urban market


Strength : Its brand image and existing relations with farmers
Little or no distribution presence in rural or semi-
Weakness : urban market, incl. product packaging not fit for low
ticket market.
Threat : Low priced unorganized players.

Rural market currently accounts for nearly 40% of the $49b of FMCG sales.
Over the last few years, FMCG market has grown at a faster pace in rural
markets in comparison to the respective urban markets in India. Also, it
must be noted that FMCG products account for nearly 50% of total rural
household spending.

With income levels rising in coming years, the FMCG sector in rural and
semi-urban India is estimated to reach nearly $100b by 2020. Also, there is
a clear uptrend in the share of non-food expenditure in rural India.

Patanjali has successfully established itself as one of the key players in the
FMCG sector in urban India with its wide presence esp. with Modern Trade
partnerships. However, Patanjali is very sparsely present in the rural or
semi-urban market in India.

To achieve the set target of Rs. 1,00,000 Cr of annual revenue by 2020 and
continue to grow at 100% YoY, next level growth for Patanjali can only
come from rural expansion with wide distribution network and availability
of product range in block/tehsil level villages and most importantly the
Mom-&-Pop stores. Rural ride will not be as smooth as it has been in urban
level as many challenges are there which are faced by rural marketers.

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Product Packaging: Irregular income, dependency on the vagaries of
monsoon induces the rural consumer to buy in small quantities. To obtain
the share of wallet of the rural consumer, Patanjali must also consider
introducing its products in smaller packets and sachets which it hasnt done
so far.

Personal Care products: Rural customers have upgraded their lifestyles


and as a result are no longer limited to food products but also consider
spending on personal care products.

Brand building and retaining loyalty of price sensitive consumer: Rural


consumers are much more price-sensitive as compared to their urban
counterparts and have extremely low brand loyalty and hence switching
cost. With products normally 20-30% cheaper than competitors, Patanjali is
well positioned w.r.t. its organized counterparts. However, the real
competition in rural segment would be from unorganized local players.

With increased transparency and government policies, and increasing brand


awareness organized players will capture greater share of market going
further.

Patanjali with its aggressive advertising and Baba Ramdev as the brand
ambassador has built up a brand with large fan following in rural and semi-
urban India. However, Patanjali must focus on retaining that brand loyalty.

Manufacturing & Distribution: Penetrating and establishing oneself in the


rural market, and at a competitive price point is no easy task. Due to
suboptimal transportation systems, unavailability of suitable sized
warehouses and multi-tier distribution channel raises the distribution cost
which makes it extremely difficult to serve the market while keeping the
price point low.

To try get around this problem, Patanjali can explore possible partnerships
with regional manufacturers within certain radial locations and distributing
directly from the partners manufacturing premises to the market. This will
reduce the distribution as well as inventory holding cost for Patanjali.

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(II) Increase presence in traditional mom-&-pop stores

Traditional Mom-&-Pop stores will continue to


Opportunity :
dominate sales
Pull demand and Brand Image with customers asking
Strength :
for PAL products.
Weakness : Meagre presence at 1% traditional stores only.
Low margin to keep prices low is not attractive
Threat :
business opportunity to traditional stores.

Though modern trade is


growing at a faster pace in the
urban market, at 91% market
share traditional retail still
dominate the majority of FMCG
sales across the country. Rural
and semi-urban markets still
have little or no presence on the
modern trade.

Though the share of traditional


stores is expected to shrink over
the years, however, as per
forecasts by IBEF it will still
comprise of 70% of the FMCG
revenue share by 2020.

To keep distribution cost low,


Patanjali also went with
exclusive stores which work
under lower margin but scale of
operations to drive profitability.
However, with a coverage of mere 1% traditional stores, i.e., a meagre 2L
stores of nearly 200L across country, Patanjali has been missing out on
major revenue opportunity in this area.

Extend the credit line instead of eating into the margins: The significant
challenge that Patanjali faces in this direction is the extremely low margin
that it offers to its retail partners. The volume at individual mom-&-pop

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store is not enough for it
to work on low margin and
get ROI on the infused
capital which it could have
used for higher profit
generating products. Also,
giving the retail partners
higher margin is not an
option for Patanjali as it may severely hit on its low price strategy. Patanjali
is trying to play Swadeshi angle with the retailers but that may not work
because businesses look for ROI.

However, one thing to note is that most of the traditional stores work with
rolling cash and hence extending a line of credit could be one way that
Patanjali could penetrate this market. Patanjali could offer schemes where
the shop owners can order new stock and pay once the product has been
sold. Also, Patanjali can offer to back-lift products from the sehlves which
remain unsold for a certain period of time.

Direct to retailer based distribution: However, to be able to achieve this,


Patanjali will have to be working directly with the traditional stores and
cannot go in the direction of standard Hub-&-Spoke model of supply chain
that is dominant in the FMCG industry.

This model is being experimented by the competitors and market leaders in


FMCG segments as well. For example, ITC for its Classmate series of
notebooks is working directly with the retailers to keep the prices low. Also,
Patanjali is very well positioned to work this way as unlike others it does not
have to drastically change its supply chain.

(III) Work on delivering consistent & unquestionable quality

Health conscious customers looking for a reliable


Opportunity :
brand.
Strength : Its image of healthy and natural products.
Questionable quality with many products failing
Weakness :
quality tests time and again.
Threat : Buyers market with low switching cost.

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Time and again Patanjali has been in news for one or other product failing
the governments quality tests.

Back in 2012, FSSAI found samples of mustard oil, salt, pineapple


jam, besan and honey produced by Patanjali had failed quality tests. Out of
the 82 samples collected between 2013 and 2016, 32 failed the quality test.
Patanjalis Divya Amla Juice and Shivlingi Beej were among the products
that failed to meet the quality standards.

Patanjali has also been time and again questioned and fined by the court for
misbranding and putting up misleading advertisements of their products.

Consumers have also complained about inconsistent quality of its highest


selling products, Dant Kanti and Cow Ghee, which made it loose its
customers due to extremely low switching cost in the Red Ocean market
that FMCG industry is.

Ensure quality from its manufacturing partners: With rising consumer


awareness and traction towards healthy and natural products, Patanjali has
a great market which would like to try its products. However, Patanjali
needs to ensure quality in order to retain its customer and create a brand
loyalty.

From the reports of products failing quality tests, majority have been
outsourced and have not been produced in Patanjalis own manufacturing
facility even though Patanjali labelled them so.

Patanjali needs to set out strict Quality Assurance guidelines, initiate vendor
certification and develop its vendor as partners so that it can ensure right
and consistent quality without compromising on the cost.

Media management: Manage media to ensure wrong publicity is answered


proactively and immediately. Also, for products being questioned on quality
and failing lab tests, rather than rebuffing the reports, Patanjali should take
the Nestle way.

It should try to recall those items and may be rebrand them before
launching again. This will help them create a brand image which does not
compromise on quality and is consumer driven.

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4. Summary
The swift rise of Patanjali Ayurved Ltd. driven by large product mix coupled
with unconventional business and marketing strategies has revolutionized
and disrupted the FMCG sector in record time.

Creating an unsustainable momentum for itself, there are several strategic


ingredients that go on to create the magic for Patanjali, its strategic
strengths. And, so are the strategic weaknesses which may sound trouble in
realising its vision.

We presented a critical analysis on Patanjalis current strategy from various


theoretical models and data available on public domain. We also evaluated
Patanjalis areas of strengths and weaknesses based on our understanding
of its current strategy.

Thereafter we defined as the As-Is to To-Be goals of patanjali and explored


possible emergent strategies that Patanjali can adopt to meet those To-Be
targets that it has laid out for itself.

Patanjali will have to focus on its strengths to focus on opportunity and


threat areas wisely. Also, Patanjali needs to focus on quality of its product to
ensure that in the buyers market Patajali is able to create that brand loyalty
to ensure returning customer and hence have a better estimate of its
demand and manage its sourcing accordingly.

Considering the growth in FMCG industry, the environmental factor is play


for the organised sector and rising health awareness, Patanjali is very well
positioned to meet its target goals.

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5. References
1) FMCG Industry Report, IBEF (Industry Brand Equity Foundation),
July 2017.

2) HowPatanjali outsmarted older rivals to become Indias No.2 FMCG


firm, VCCiRCLE report by jyotindra Dubey published on 05th May
2017.

3) The Epic Rise of Patanjali: Game-changer in Indian FMCG Industry,


Yourstory report by Rupesh Maheshwari publishded on 25th January
2017.

4) Demystifying the Brand Patanjali - A Case on growth strategies of


Patanjali Ayurved Ltd.Prof. Singh et. al., PES Business Review,
Volume 11, June 2016.

5) PATANJALI: Discoverer, Differentiator and Disruptor, Prof. S. Raizada,


Business Management and Strategy, Macrothink Institute, Vol 7.,
2016.

6) News and Editorials on Patanjali by Economic Times, Business


Standard, Livemint and Forbes.

7) Ramdevs Patanjali Fails FSSAI Tests, Fined., The Wire report by PTI,
December 2016.

8) Ramdevs Patanjali products fail quality test, RTIinquiry finds,


Hindustan Times report by Anupam Trivedi, May 2017.

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