Patanjali chose to fight MNC products on price front alone. However, its product quality and packaging was not at par with those of MNCs with whom Patanjali had waged a war. Rajat K Baisya examins various factors why Patanjali did not perform as well as they have expected.
Even a few years ago also Baba Ramdev used to appear in television advertisements as well as in public functions talking about his grand plan of getting into all categories of food products and that too on a grand scale to outperform multinational food companies like Nestle and HUL. He used to give the business forecast for the targeted revenue and often used to compare with Unilever’s sales of food -non-food together for the reason that Patanjali also has its Ayurvedic household and personal care products and therefore, the portfolio was matching with that of HUL. Baba Ramdev used to make claims like catching up or even surpass the sales revenue of HUL in five years time frame. This he used to claim even in recent years. His challenge was taken with all seriousness by MNCs. HUL started a range of Ayurvedic products under the brand Ayush which has been positioned on a natural platform but better and higher performing products to fight the challenges thrown by Patanjali.
There are various reasons why Patanjali did not perform as well as they have expected. One reason, of course, that Patanjali was nurturing unrealistic ambitions and underestimated the inherent intrinsic strengths of the MNCs. Baba Ramdev only was raising swadeshi versus videshi slogans and trying to encash on the people’s sentiment without really realizing that much of the processed food products market in India was in fact created by the sustained efforts of the MNCs. Patanjali even introduced its Sawdeshi Samridhi card and sought membership to contribute to the economic and cultural independence of the country by joining Patajali’s Swadeshi Movement. Baba Ramdev like Swadeshi Manch traders tried to fish in the troubled water on the conflict between swadeshi and videshi and we all know that Swadeshi Manch has not yet been able to make any significant impact in terms of polarizing the trade on swadeshi-videshi line. They expected that much of the support will come from the government which also did not come causing much disappointment to the trading community of this group. But there are other reasons for Patanjali’s non-performance. Let us examine those here.
Patanjali products are designed and priced for mass-market covering the middle and lower-income group population. The product quality, as well as packaging, were not comparable with those of MNCs. Patanjali has chosen to fight MNC products on price front alone. That segment did not grow at the same rate as the premium segment. Besides, the premium segment was more profitable than the low margin low priced segment. Patanjali foods, therefore, suffered from both ends. Low growth as well as low margin. The result is also very apparent in the sense that initial high pitch advertisement in television medium where Baba Ramdev himself was the brand ambassador advocating his products gradually declined. The visibility once was very high and a number of television spots dedicated to Patanjali foods were much higher than that of MNCs and Patajali, in fact, was dominating the media. The only reason that Patanjali gave through its sustained high pitch advertisement for a long time is low price and better quality. Consumers, however, did not find the quality of Patanjali foods better. But in spite of that, MNC took that challenge very seriously and tried to make counter moves in trade channels and promotional schemes. The first limitation and constraint that Patanjali suffered were that its product quality and packaging were not at par with those of MNCs with whom Patanjali had waged a war.
The second reason why Patanjali foods did not perform as expected is due to the fact that Patanjali decided to get into high volume low margin products in the grocery segment instead of formulated and processed foods where margins and growth were better. When Patajali is busy building brand and volume on spices and edible oils fighting also with Swadeshi companies like MDH and Everest in spices and Adani’s on edible oil, HUL and Nestle were focusing on global brands. Because Patanjali was always harping on the price and quality it has fallen into its own trap. For example, Patanjali used to sell honey at half the price of Dabur honey and used to advertise that their price is low and quality is better. While the price at which the honey was offered was really low when compared to the price of Dabur honey. But Patanjali possibly was not making money on the product. No business can sustain such pressures if the margins are not healthy and sustainable.
The third reason why Patanjali did not perform as expected is for the reason that the distribution reach and efficiency of Patanjali is not comparable to that of MNCs like HUL which has very well developed highly penetrated and widespread national distribution infrastructure. In comparison to that, Patanjali was having its own outlets and dedicated distribution agencies. The trade margins were low and trade practices were not very favorable for the trade partners in terms of policies related to market returns and consumer complaints. Patanjali distributors were not very happy as they were not making that much money selling Patanjali products when they compare the profitability of MNC distributors.
To accelerate the growth process Patanjali has resorted to contract manufacturing and in many cases was not disclosing the name of the contract manufacturers giving an impression that Patanjali manufactures those products for which they have even been punished by FSSAI. The Advertisement Council of India also filed cases against Patanjali for making misleading claims. This gave negative publicity to Patanjali products and the credibility of Patanjali became a suspect. Patanjali was seen to get products manufactured by third parties and selling the same products at a lower price than the products sold by the same third parties. For example, Patanjali ghee was manufactured at Paras but was selling at a price lower than Paras ghee. The fourth reason, therefore, is an unrealistic business proposition to capture the market faster by offering only lower price.
The result is evident now. Baba Ramdev now keeps the much lower profile in terms of making such claims of wiping out MNCs totally. His theory that MNCs are looting and profiteering by charging consumers a higher price than reasonable possibly was not holding much water and thus did not work in the longer run as expected. But we should give the credit to Baba Ramdev for developing a market for mass consumable food products particularly in the grocery segment and for creating a serious perception of threat to other established branded food products. Patanjali, therefore have to revisit their strategy and redesign the whole business proposition in order to make a long-term sustainable proposition. While Ramdev wanted to fight MNCs in the home ground but most of the products that Patanjali is producing are in fact threatening the domestic producers. Therefore, there is a conflict between what Baba Ramdev is preaching and what he is doing which itself is a self-contradiction.
This article was first published in the print version of the October 2018 issue of “Processed Food Industry” (monthly) magazine.