INDIA’S PATANJALI AYURVED PLOTS EXPANSION OF SALES OVERSEAS, AS DOMESTIC REVENUES BOOMJanuary 4th, 2016
BY RAGHAVENDRA VERMA, in Haridwar, Uttarakhand, India INDIA'S Patanjali Ayurved Ltd has rejected a December (2016) ruling against the booming packaged food company in a misbranding case as politically motivated and will appeal, the company’s managing director Acharya Balkrishna told just-food in an exclusive interview.
Mr Balkrishna, who also owns 94% of the company shares, criticised the judgement from the additional district magistrate in Patanjali Ayurved’s home city of Haridwar, Uttarakhand, who fined the company Indian Rupees INR1.1 million Rupees (USD16,100) for selling certain food products, including mustard oil, in 2012 with its own labels, as Patanjali products, even though they had been manufactured by another company. The magistrate ruled that this broke the central government’s Food Safety and Standards (Packaging and Labelling) Regulations, 2011.
While 10-years-old Patanjali Ayurved can easily afford this penalty – accepting the judgement would be tricky, given the company – which focuses on India’s Ayurvedic health traditions in its ingredients – has been doubling its sales annually: it needs third party manufacturing suppliers to help it challenge established Indian packaged food companies. In the financial year ending March 2016, company sales crossed USD750 million and according to Mr Balkrishna, “our target is to keep doubling [the sales] and reach USD15 billion by 2020.” Packaged food products are a significant part of the company’s turnover, and while officials would not say exactly what proportion, Patanjali shop managers speaking to just-food estimated that food makes up about 50% of the company’s sales.
The managing director claimed that the magistrate had been influenced unduly by Uttarakhand state government, which is run by the opposition Indian National Congress party. Patanjali Ayurved has the backing of the popular yoga guru Baba Ramdev, whose nationalistic sermons have won Patanjali support within the right-wing Hindu Bharatiya Janata Party (BJP) that controls India’s central government. Mr Balkrishna said: “The Congress party government [in the state of Uttarakhand] has played mischief as the [state] elections are approaching” – they are scheduled for February. He did not, however, reveal the company’s formal grounds for appeal in the case.
Patanjali’s food products are mostly packaged ingredients for domestic cooks but the company also offers convenience products, including ready-to-make noodles, breakfast cereals, biscuits, jams, sauces, juices and an energy bar. Including its cosmetics and herbal medicines, the company sells more than 500 products.
The company employs 15,000 people at its 50 production facilities around the country, and plans to build more having been offered industrial land by various state governments.
Patanjali products has also become popular in Nepal and the company thus past autumn started building a new USD23 million production facility in Bara, south of the capital Kathmandu.
Other than in Nepal, Patanjali has not been actively exporting its products but plans more overseas sales once a new exclusively export-oriented production unit is open in Nagpur, Maharashtra, said Mr Balkrishna, (it may be open by March (2017) . He told just-food that he has just concluded a deal with an Italian company to purchase a citrus fruit processing machine for the plant, at half the quoted price of USD15 million.
The company’s emphasis on natural ingredients and the backing of Baba Ramdev has played a major role in the success of the company, said Mr Balkrishna. While the guru has no formal relationship with the company, he is closely linked to the brand. Patanjali means Baba Ramdev to most Indian consumers (see http://www.swamibabaramdevmedicines.com/) and he actively endorses and promotes its products on television and during his yoga sessions. “Other companies don’t have any face to identify and inform about the products” and are therefore disadvantaged, said Mr Balkrishna, who does not have a computer on his desk but a golden picture of the Baba.
According to Mr Balkrishna, in its earlier days, Patanjali had to overcome a public perception that the products by foreign multinationals, that still dominate the market, are superior to those made by Indian companies. “We offered high quality products at lower prices and people’s confidence fuelled our success,” he said.
Patanjali also adopted an unorthodox branding approach by using the company name as a brand for every product and avoiding brand segmentation. This however may change in future, said Mr Balkrishna, as it expands its product lines.
To compete in cost sensitive Indian market, Patanjali’s products are kept at least 25% cheaper than its competitors, said Mr Balkrishna.
Indeed, a 500 grams pack of pineapple jam from Patanjali costs INR70 (USD 1.03), while Hindustan Unilever’s ‘Kissan’ branded pineapple jam, of the same size, costs INR130 (USD1.91).
Price control is achieved by shrinking processing and administration costs, said Mr Balkrishna. “We don’t spend on exuberant salaries,” he said.
Furthermore, “It does not matter if we sell some of our products in loss when we can recover the cost from other profitable items,” he added.
Mr Balkrishna cited Patanjali’s ghee, whose cost exceeds its selling price of INR510 (USD7.50) per litre. “The cost of [input] butter has gone up recently so we increased the price of our ghee by 60 Rupees [USD0.90] and this provoked lot of complaints,” he said, “but it is still sold at less than the cost price.”
Ghee and milk powder are the only dairy products sold by Patanjali. The company makes them exclusively from cow milk, while India’s dairy sector usually relies on fattier milk from water buffalo.
Using milk from Hindu Indians’ sacred animal reflects Patanjali’s emphasis on Hindu philosophy: “We are happy about it,” said Mr Balkrishna proudly as he glanced though his long visitors’ list, which includes many pilgrims to Haridwar, which is a sacred site for Hindus.
Currently, Patanjali sources most of its cow milk butter from a cooperative dairy in the southern state of Karnataka. “We have verified their quality and milk collection network to confirm that they have separate channels for cow and buffalo milk,” said Mr Balkrishna.
Patanjali has also bought a dairy in Ahmednagar, Maharashtra, which will source cow milk collected house-to-house from nearby farmers rather than buying an in-house herd: “It is very difficult task to purchase so many cows and manage them in a personal dairy,” said Mr Balkrishna.
To make this work, the company has developed a cold chain network: “For milk collection, we have to put chilling systems in every village,” said Mr Balkrishna, “We have our own vehicles [to transport fresh dairy products] but also get them on rent.”
Patanjali pays similar attention to detail in procuring other raw materials such as wheat, to ensure consistent taste and texture. “We do many tests and check every batch before purchasing wheat,” said Mr Balkrishna. “Many of the varieties from Madhya Pradesh are good but not from Punjab due to their excessive use of insecticides and pesticides.”
Patanjali is also looking forward to India’s adoption of a national Goods and Services Tax (GST), which is likely to happen in April. “It will boost the whole processed food manufacturing industry by streaming trading channels and revoking tax benefits that are currently granted to remotely located regions,” by scrapping local taxes, said Mr Balkrishna.
Meanwhile, the recent demonetisation of 500 and 1,000 Rupee notes, that affected every consumer business in India, did not have a serious impact on Patanjali sales, claimed Mr Balkrishna, because the company mainly produces essential items.
Patanjali’s ‘Energy Bar’ chocolate could be one exception, but Mr Balkrishna says consumers are loyal given this confectionery is formulated with a healthy mix of ingredients including cereals and Ayurvedic herbs. “We are dedicated to bring Ayurveda revolution to each and every person,” said Mr Balkrishna.