The Patanjali Paradox
The rise of Patanjali as the leader of the FMCG industry in India is inevitable, but is it good for the Indian economy? More importantly, is it good for many small manufacturers within India. In this article I am going to implore the implications of Patanjali’s growth, and its impact on Make in India.
The rise of Patanjali
In order to understand the impacts of Patanjali’s rapid expansion, we must look at the reasons for a fast-paced growth from a 450 crore worth firm, to a 5000 crore worth industry in just 4 years.
- Distribution — Patanjali has a created a strong alternative system of distribution, which when combined with media attention and word-of-mouth marketing, has the potential to spur sales drastically.
- Swadeshi factor — Patanjali has made maximum use of the Make in India initiative. This has helped it to cut manufacturing, transportation and storage costs drastically. Also, Patanjali functions with a two fold objective — (1) Combat the rise of MNCs within India, and (2) To serve people with healthy products.
- Smart pricing — The massive amount of tax cuts and subsidies provided by the government enable them to sell to the consumer at a lower price while earning the same profits.
- Advertising and Media attention — Effective use of certified stores and quick growth within a short span of time, combined with simple advertisements that appeal to people on the basis of ayurveda, have enabled it to gain the attention of the media and subsequently the public.
How is this carried out? Patanjali trains and certifies ayurvedic medical practitioners, who are responsible for maintaining and managing Patanjali stores across the country. This creates a trust in the minds of the people and creates an air of authenticity around the brand. There are also various types of shops namely Arogya Kendra, Chikitsalaya and Swadeshi Kendras, which are differentiated on the basis of the support they secure from Patanjali. These stores provide (1) free medical consultations by certified practitioners, which assures high footfalls and likelihood of building a large scale of early adopters, and (2) innovative product introductions, beginning from the grassroot levels.
“The presence of Ayurvedic medical practitioners at the outlet is a major determinant of sales. On the days when the medical practitioner is absent, sales fall 30–40 per cent! The average FMCG throughput per dedicated store is typically at ₹6–7 lakh per month in a metro.”
Once a sizeable consumer base is built through these dedicated stores, these consumers would expect Patanjali’s products to be available at general stores, grocers and chemists in the vicinity of the dedicated store. These retailers are then forced to stock up on Patanjali’s products for fear of losing out on a customer’s goodwill. This builds a platform for the next stage of growth.
Problems with this massive growth
My argument against the rise of Patanjali will show you how supporting this venture, (1) can lead to the creation of a monopoly in the Indian FMCG market and (2) why this is a problem.
Firstly, we must understand why people chose Patanjali over Unilever and other MNCs which have created powerful brand images over time. This is solely due to the “Make in India” tag attached to Patanjali. They feel that greater production in india leads to faster growth of our economy. Yes, this is true when there is (1) more tax money paid to the government and (2) employment is created. The fact that people fail to realise is that Patanjali and other companies that embrace the Make in India initiative have to pay less or no taxes to the government. So the expected economic growth does not occur.
“Colgate will be below Patanjali by this year, and in three years, we will overtake Unilever,” said Ramdev. Unilever has also succumbed to this competition and is trying to regain lost ground by launching a chain of ayurvedic products last December.
Secondly, why does this create a monopoly? Looking towards the future, when Unilever withdraws from India due to the rise of Patanjali, we will live in a world where all our daily products carry the label of Patanjali. The consumer trust that will be built in the subsequent years is more than enough to supplement its venture in becoming a monopoly. People won’t turn towards other Indian brands, as there is not much of a choice i.e. price difference, or ‘ant-MNC’ bias that differentiates the brands. Patanjali will emerge the winner in this battle as it is said to provide healthy and natural products, which would obviously be preferred by the people.
So the only manner in which smaller brands can appeal is by reducing costs drastically. As we can see Patanjali, as of now is selling products at a minimum price, post-profits that has allowed them to sustain. Logically viewing this scenario, we can infer that reducing the prices, will lead to losses that will crush smaller firms. If they do not slash prices, they cannot compete with Patanjali and must again suffer losses in the end. Once this occurs, companies do not have an incentive and fear to enter into the FMCG market. They have also lost the resources to re-engage in this business. This is when Patanjali can literally control your daily life economically.
Patanjali has placed ahead of smaller listed FMCG players such as Jyothy Labs (₹1,644 crore) and Emami (₹2,600 crore), and neck-and-neck with GSK Consumer (₹4,500 crore) and Colgate Palmolive (₹4,100 crore) in the last fiscal year. But it is yet to break into the big league of Hindustan Unilever (₹31,000 crore), Godrej Consumer (₹9,000 crore), Dabur India (₹8,450 crore), Nestle India (₹8,200 crore) and Marico Industries (₹6,100 crore).
Finally what are the problems it can pose?
- Predatory pricing — Patanjali can gradually rise the prices as it controls the market and other companies will not intervene to use this as an opportunity to grow as they have already seen the power of Patanjali’s brand image.
- People may secure employment, but their salary cannot keep up with the rise in prices. Even if it did we must understand that the number of consumers are greater than employees. So the benefits are narrowly concentrated.
- People who work in other FMCG companies are thrown out of employment. This not only affects smaller Indian players but also cottage industries which are the string of sustenance for many. The millions of retailers spread out throughout India are also affected due to loss of sales and have to shut down their shops.
- Finally, not many people are employed directly in the distribution sector of the service line, due to Patanjali's unique business model as mentioned earlier.
In this article I have shown you the reasons for Patanjali’s growth and its implications. I also showed you in brief as to why people must not support Make in India initiative without exploring it completely.