Etail giants like Snapdeal, Amazon lose market share in 2015; small etailers emerge as real winners


February 26, 2016

Richa Maheshwari, The Economic Times
Bengaluru, 26 February 2016

Snapdeal and Amazon India lost market share in 2015, according to the research arm of Morgan Stanley, as online shopping options grew rapidly in India and established etailers cut back on discounts. But Flipkart managed to marginally increase its share and the Big Three, despite a fall in combined market share, accounted for more than 80% of the total market.
A Morgan Stanley research report released earlier this month pegged Snapdeal’s and Amazon India’s market share in terms of gross merchandise value at 26% and 12%, respectively, in 2015. A similar report published by the same firm last year had estimated the shares of these two companies at 32% and 15%, respectively, for 2014.
While Flipkart maintained its number one slot and increased its share from 44% to 45%, the combined market share of India’s top three ecommerce companies fell from 91% to 83%. Paytm remained steady with 7% market share. The real gainers were small and more-focussed online retailers who saw a jump from 2% to 10%.

Industry watchers said unlike China that is dominated by a handful of ecommerce giants, India’s online shopping market will grow in a ‘more democratic’ manner, like it has in Europe. “Our market will not be like China where you have a few big players like Alibaba, Tmall and India will go more the Europe way with many vertical players,” said Nitin Chhabra, CEO of Bengaluru-based ecommerce consultancy firm Ace Turtle.

“Verticals players such as Urban Ladder and Zivame have started nibbling at market shares. India will be far more democratic than China where it is just few big players,” said Chhabra. “This is a healthy sign for the ecommerce industry in India,” said Arvind Singhal, managing director at Technopak, adding, “As the ecommerce space is seeing multiple startups coming in along with several brickand-mortar players, it will be unrealistic to expect them (Flipkart, Snapdeal and Amazon India) to increase market share.”

Experts also believe that leading players might be losing share because of the gradual reduction in discounts. “In 2015, companies started looking at improving margins. As a result customers have started exploring other portals in search of discounts,” said Devangshu Dutta, CEO at Third Eyesight.

Snapdeal said it has one million daily transacting users on its ecosystem, which is more than both Amazon and Flipkart put together.

“This robust and growing user base and frequency of usage are the key metrics to evaluate long-term growth trajectory of businesses like ours. We are working towards our stated goal of having 20 million daily transacting users by 2020,” said a Snapdeal spokesperson in an emailed response.

Amazon challenged the findings of the report. “The report does not reflect what we are actually seeing on the ground as we are growing significantly faster than the growth rates of the ecommerce industry in India and other mentions in the report. We have previously announced that Diwali 2015 was four times bigger than Diwali 2014 and we sold more in Q4 2015 than we did in the entire previous year (2014),” said the company spokesperson.

Flipkart said it would continue to invest in technology and supply chain, and will focus on consolidating its position in the coming years, “We believe that keeping customers at the core of our business and our relentless focus on customer experience has enabled us to earn the trust and faith of millions of customers across the country,” said a Flipkart spokesperson.

(Published in The Economic Times)

Will the Union Budget bring an end to the e-commerce conundrum?


February 25, 2016

Athira A. Nair and Vishal Krishna, Your Story
Bengaluru, 25 February 2016

Online retail constitutes just one percent of India’s total retail. Yet, out of the country’s nine startup Unicorns, three are major online commerce players: Flipkart (valued at $15.5 billion), Snapdeal ($6.5 billion), and ShopClues ($1.1 billion). Estimated to touch $38 billion in 2016, Indian e-commerce industry has grown impressively. However, hurdles for its potential growth are many – most of which related to government norms.

The tug-of-war between the physical retailers and online marketplaces mainly surrounds foreign direct investment (FDI). While the Centre in November 2015 permitted singe-brand retailers with FDI to sell online, the e-commerce sector can witness no major transformation unless FDI is allowed in multi-brand retail. It was immediately after that 21 e-commerce websites were listed by the Delhi High Court for investigation on violation of FDI laws. Although the order led to no serious investigation or shut-downs, and even had listed companies with no FDI, the lack of clarity regarding the sector continues.

While ‘Stand up, India Startup India’ campaign brought relief to startups, the e-commerce sector is hoping for the same from the Union Budget 2016, to be announced on February 29. E-commerce Coalition recently expressed hope that the Budget will allow 100 percent FDI for online (multi-brand) retail, as it does in single-brand retail. At the Budget, the government may define the nature of an e-commerce marketplace business and possibly put an end to the confusion about what constitutes retailing.

What should e-commerce be?

In simple words, e-commerce is any commercial transaction done over the Internet. But in a simpler world, e-commerce would not need to be defined at all. According to Arvind of Technopak, the definition of commerce should be based on whether it is a physical channel or a distribution channel. “In the latter, it is just a channel for distribution of goods and services from a producer to a customer. To that extent, there should be no differentiation between e-commerce and physical retail,” he says. But as far as investments are concerned, every industry has investors from all over the world, Arvind says. “E-commerce is not an area to be bothered about. It is not national security, why worry about where the money comes from?”

E-commerce currently falls in services category as marketplaces claim that they are just mediators so are not liable to pay VAT or CST (Central Sales Tax). Sellers end up paying not only VAT but service taxes as well, along with 2 percent to 50 to 55-percent commissions. In traditional business, commission was a fixed percentage. Even if it varies, there was no such drastic change.

Also, the commission agent was charged taxes based on goods and not services.

What led to the confusion?

The hullabaloo over e-commerce is far from minimal. The Department of Industrial Policy and Promotion (DIPP) stated in January 2016 that it does not recognise marketplaces under FDI laws; within six weeks, it declared that it is considering allowing 100 percent FDI in marketplaces.

The ambiguity goes back to the law itself. The DIPP does not define what a marketplace is other than that FDI is allowed in wholesale retailing. It allowed all small merchants to sell on e-commerce websites like Flipkart, Snapdeal and Amazon. But these marketplaces had their preferred sellers like Prione, Cloudtail and WS Retail. These constitute 60 percent (according to sources) of the sales of the platform by value and so small retailers who use the marketplaces have taken their objections to the Delhi High Court saying that these marketplaces are direct sellers and not commission agents.

“By law, these marketplaces are not flouting any rules. They are at an arms-length with their distribution companies. But yes, there is confusion over the nature of transactions on a market place,” says Ganesh Prasad, partner at Khaitan and Company. However if the Central government chooses to ignore the definition then it is clear that the platforms’ major sales come from its preferred distribution companies and it is not a platform for small retailers like it was intended to be in the first place.

The lack of definition has hurt the sellers in more than one way. The All India Online Vendors Association (AIOVA) hopes that by defining online marketplaces, e-commerce sellers can be recognised as a legal industry that can open up avenues to them. For instance, up until a few years ago, mutual funds were not recognised. Once it got defined, many regulations came up and helped reducing fraud and one-sided policies by fund managers. The AIOVA spokesperson told YourStory that e-commerce marketplace definition should specify that they should not indulge in buying or selling, or create entities like Cloudtail and WS Retail that they own, and must keep same policies for all stakeholders.

State & FDI: A complicated relationship

Karnataka was the first State to clamp down on marketplaces by sending them notices. The State, in its notice, said that marketplaces were generating invoices and were storing products in their warehouses and therefore needed to pay VAT. The marketplaces said that they could not pay tax because it was in violation of FDI rules if it collected and paid tax on behalf of sellers.

“The States are yet to understand the DIPP rules and the nature of a marketplace. In principle, there is no violation of the law, but since the Delhi High Court has asked for a probe into these marketplaces it allows States to send notices to the marketplaces,” says Prashant Kathore, partner and Head of Corporate Taxes, Ernst & Young.

The ideal future

Divisions more often than not bring about more confusion. Bringing all retail activity under one umbrella will make the business easier for all stakeholders, and policies can be made more consistent. Devangshu Dutta, Chief Executive at Third Eyesight, a consulting firm, says, “Today there are various artificial segregations, some driven by policy hangovers and some due to the evolution of the business itself. Having multiple brands versus having one single brand should be a decision that is driven by business strategy, rather than by government policy.”

There is a general consensus among experts that the government should not differentiate between categories of business in a sector that is growing increasingly integrated.

Any change in rules in the retail sector should come from the ruling party. But in the last 15 years it has become a political issue more than an economic issue. Arvind of Technopak says, “Former Prime Minister Manmohan Singh brought the question of FDI in retail to the Parliament unnecessarily while it should have been a mere executive decision. It is now time to call a final shot in the issue. Finance Minister Arun Jaitley or PM Modi or Amit Shah as head of the ruling party should make a decision on whether FDI is needed or not; then DIPP can come up with a simple policy statement.”

While disruptions in business models are always welcome, whether or not the money is sourced internationally, it is essential to have clearly defined policies regarding the sector. E-commerce is the buzzword, but it has the potential to go light years. Defining the term is only the first step in that direction.

(Published in Your Story)

Big bang later, hyperlocal companies losing steam


February 21, 2016

Shinmin Bali, Financial Express

Mumbai, 21 February 2016

Having created quite a stir at the time of their launch, hyperlocal companies are now witnessing a dampened mood. While several have folded up operations in some cities, others have downsized staff, tweaked the services they offer and even made alterations to their business models. A recent example is Grofers shutting down operations in Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot and Visakhapatnam.

TinyOwl last year was in the news for a poorly-handled downsizing operation in Pune, with a dramatic hostage situation involving its co-founder Gaurav Choudhary. PepperTap also recently shut down operations in six cities.

Ironically, giants like Amazon have not only aggressively entered the hyperlocal space, they are building on it. Amazon is currently offering the service in Bengaluru, Amazon Now, after running a pilot project, Kirana Now, in 2015.

The investor sentiment in India is also on a decline, as was reported earlier this year. Investments by venture capitalists have dropped from $2.12 billion (October-December 2014) to $1.15 billion (October-December 2015), according to a report by CB Insights and KPMG International. This leaves an even shorter window of opportunity for players to retain investor interest.

Albinder Dhindsa, co-founder, Grofers, states that differing levels of technology literacy among the majority of merchants and consumer adaptation to the online platform are concern areas for the company. In 2016, the company is looking to bring over one lakh merchants aboard and ensure that turnaround time stays under an hour. Grofers delivers more than 35,000 orders per day on average. In Q4 2015, the firm acquired teams of SpoonJoy and Townrush to bring dynamic learning to the table.

For Swiggy’s co-founder Nandan Reddy, the focus is currently to grow the market, while catering to a wide demographic of consumers. He admits that in the early stages, the brand had trouble educating even its partners. Furthermore, operating a delivery fleet in an on-demand service offering sub-40 minute deliveries is a challenging task, given that there are at least 15 points of failure in an average order. Swiggy currently owns a delivery fleet of 3,800 delivery executives. The brand’s repeat consumers contribute to over 80% of orders.

Debadutta Upadhyaya, co-founder, Timesaverz, says some of the major challenges in a hyperlocal market are optimum resource utilisation and matching locations, price points, and other specific requirements to customer needs. Timesaverz currently has a service range spread across 40 categories, aided by a network of over 2,500 service partners across five metros. Its revenue model is commission based, where 80% of earnings from consumers are shared with service partners.

Vinod Murali, MD, Innoven Capital, points out that as the hyperlocal industry is in its nascent stages, it needs a fair amount of time to grow. “One aspect to keep in mind is that a large sized equity cheque does not imply that a company has achieved operational maturity or robust business metrics, especially in this segment,” he notes.

Given the recent consolidation in this category, the survivors have the opportunity and time to focus on improving unit economics and demonstrate that their businesses are viable and valuable.

Devangshu Dutta, CEO, Third Eyesight, is of the opinion that hyperlocals make the mistake of borrowing business models and terminologies from Silicon Valley, without adequately understanding the real context of the Indian market. “Is there an existing or even potential demand for the service claimed to be provided? Or are you just going to introduce an intermediary and an additional link in the chain, with additional costs and unnecessary administration involved?” he asks.

(Published in Financial Express)

Patanjali, Baba’s billion-dollar baby


February 18, 2016

Anushree Bhattacharya, VCCircle

New Delhi, 18 February 2016

Naina Singh no longer buys her skincare products from the upscale showrooms of Greater Kailash in Delhi. This home-maker now prefers to pick them up from a small store sporting the red banner of Patanjali Ayurved, from which the picture of patron and de facto owner Baba Ramdev smiles down benignly.

It was her tryst with Patanjali Kesh Kanti Natural shampoo that made her a convert last summer. “I now buy almost everything that Patanjali makes, from atta to ghee to the creams as well as pulses and the spices,” says Singh.

Patanjali Ayurved Ltd today is not just about amla juice and chyawanprash. It sells around 500 consumer goods, from ayurveda-based products to staples such as clarified butter (ghee), pulses and edible oils to personal products such as toothpaste, hair care and skin cleansers and processed food products such as noodles, biscuits and juices.

Acharya Balkrishna, managing director, Patanjali Ayurved, and Baba Ramdev’s most loyal disciple, gives credit to the yoga guru for all this. “The vision has been very simple. Whether medicines or food products, people of this country should have the best at the lowest possible price,” he says. He claims the company will hit the Rs 5000 crore turnover mark in FY16 – almost at par with the domestic revenue of consumer goods makers Dabur India, Marico or Godrej Consumer Products.

In FY15, the company registered a turnover of Rs 2000 crore. The firm now expects to enter the billion dollar league in terms of revenues in the coming financial year. Its estimated profit for the twelve months ending March 31, 2016, benchmarked against large industry peers should already make it a $2-3 billion company by market value, purely by price to earnings ratio, as per VCCircle estimates.

To be sure, even as it gives a scare to the biggies of India’s FMCG industry strong competition, it is doubtful whether Patanjali, which swears by its ayurveda-inspired products, will be able to maintain the scorching pace it has set.

As it gears up to become possibly the biggest homegrown seller of consumer goods it will face new challenges.

Indeed, Patanjali’s projected growth defies the slowdown in the FMCG industry at large. To be sure, it has grown almost five times between FY12 and FY15 when top FMCG firms in India such as Hindustan Unilever, Godrej Consumer, Marico, Dabur and Emami grew 30-70 per cent in the same period. Nestle’s sales have actually declined in the same period.

This may look ambitious but add the slew of product launches this fiscal, and key distribution pacts in place, and it may not be too far from its target at the end of next month.

Overflowing aisles

Patanjali’s top selling product is ghee, accounting for 30-35 per cent of the company’s revenue, according to a report by HSBC Research. Then comes toothpaste Dant Kanti (8 per cent), hair cleansers (5 per cent), wheat flour (5 per cent), and honey (4-5 per cent), says the report. Health care products, its mainstay for many years and on which it has built the Patanjali platform, accounts for 20 per cent of the revenue.

“Pricing itself cheaper than the market leader in each product area is the reason for its popularity,” says Devangshu Dutta, chief executive, Third Eyesight, a retail and consumer management consultancy.

As per the HSBC report, Patanjali had 20 per cent share in the Rs 1240 crore ayurveda-based toothpaste market in FY15, while Dabur had 65 per cent share. By FY20 Patanjali’s Dant Kanti toothpaste will have 50 per cent share, while Dabur’s market share will drop to 40 per cent in the ayurveda toothpaste category, it says.

Dabur, which has Babool, one of the oldest ayurveda-based toothpaste brands in the country, however, scoffs at the idea. “While a lot of companies today offer herbal or ayurvedic products, Dabur enjoys the consumer’s trust because of its ayurvedic heritage,” says Lalit Malik, chief financial officer, Dabur India. The company says it is close to introducing a range of products in the value-added and premium category, which will help improve its market share.

A report by IIFL Institutional Equities projects Patanjali’s annual turnover at Rs 20,000 crore by FY20. The report says it can expect to have a big share of the market in categories including honey, ayurveda-based medicines and ghee. In fact, by FY20, eight categories are expected to have a turnover of Rs 1000 crore each.

Balkrishna, however, says Patanjali has a much loftier goal than toppling any rival brand. “Unlike other companies, which have commercial interest at the heart of everything, our aim is to make products for the welfare of people,” he says.

For the people

That purportedly is the reason why Patanjali is launching an orange juice brand in the next one to two months, which it claims will be “real” orange juice.

“One of the reasons why companies do not sell real orange juice is because it is tangier in taste and not thick in density,” says Balkrishna.

Dabur sells its juices under the ‘Real Active’ brand.

Patanjali also plans to enter the baby care segment with cream, lotion, soap and shampoo apart from introducing Power Vita, a malt-based health drink brand. All this, the company plans to roll out in the market by early next month.

The aim is to enter categories where consumers are unhappy with quality or price, says Balkrishna. “The decision to enter a new category is triggered by a controversy or when Baba Ramdev is approached by people,” he says, alluding to the launch of its instant noodles brand.

That, however, hasn’t stopped it from downplaying the fact that Patanjali Atta Noodles is actually a 50:50 blend of atta (wheat flour) and maida (refined flour made from wheat flour).

Patanjali launched its Atta Noodles last November, almost at the same time when Nestle India Ltd’s Maggi returned to stores, five months after the multinational’s noodles brand was pulled out over safety concerns.

Nestle, its biggest competitor in the instant noodle category, remains unperturbed. “Every brand seeks to define its competitiveness given its intrinsic strengths, its appeal and the price-value relationship it seeks to define,” says the Nestle India spokesperson.

Dabur and Nestle aren’t the only two companies watching Patanjali’s every move. Hindustan Unilever Ltd (HUL), India’s largest FMCG company, is also building its arsenal. It recently revived its herbal brand Ayush, introducing a range of new products across haircare, skin care and pain balms. The acquisition of Kerala-based hair oil brand Indulekha Bringha hair oil late last year also needs to be seen in the same light.

Speed test

Market analysts say the back-to-back product launches by Patanjali is an area of concern. A major food products company such as ITC Ltd or HUL takes one to one-and-a-half year to launch a new product. Even then, the product is first launched in select markets. Another three-four months later, depending on the consumer feedback, it is gradually rolled out across the country. Similarly, skin care products need to go through a battery of tests before these can be launched.

“Launching a regular cream may take only six months to one year, but for an anti-wrinkle cream, or age-specific cream, it is a much longer journey,” says Rajat Wahi, partner and head, consumer markets, KPMG in India, an audit firm.

But this doesn’t bother Balkrishna, who says the firm maintains high standards of quality. Last month there was much discussion on social media on the quality of its ghee, he says. “But the Food Safety and Standards Authority of India (FSSAI) cleared our product.”

Rather, according to him, inability to meet the spiraling demand for its products is the biggest concern. Atta, juices, rice, and other food products are processed at its Haridwar plant, Patanjali Food and Herbal Park. This factory also makes skin and hair care products. Its other factory in West Bengal rolls out 400-500 tonnes of biscuits every day.

Hence, expansion is the next big task. Patanjali plans to spend close to Rs 1000 crore in FY17 to ramp up its manufacturing capacity. The money will come as loans from public sector banks. It is looking at starting three new plants. “We are looking at different states including Andhra Pradesh, Maharashtra, West Bengal and Madhya Pradesh. We plan to acquire 400-500 acres of land in each state, to build state-of-the-art facilities,” says Balkrishna.

Patanjali created its own shelves

It’s a tiny shop with no fancy lights or glass panels. Iron shelves lined against the walls hold cartons, bottles and plastic canisters. In a corner, sits a man with a long register, the wooden table in front of him laden with small packages. The cash goes into the little drawer under the desk.

You may feel you have stepped back into the eighties but that’s the ideal Patanjali Chikitsalay store. Tucked away in a corner of a busy marketplace or in the bylanes of a residential colony, such stores are the lifeline of Baba Ramdev’s brainchild, Patanjali Ayurved Ltd.

These stores, spread across the country, numbering nearly 10,000 accounted for the bulk of Patanjali’s Rs 2000 crore turnover in FY15.

“They were the best medium when it came to spreading awareness about our products through word-of-mouth,” says Acharya Balkrishna, managing director, Patanjali Ayurved.

Run by franchisees, the Patanjali stores can be classified into three formats. Typically 100-150 sq feet in size, the first two sell processed foods and ayurvedic medicines, respectively. The third format, a tad big at 200-250 sq feet, sells medicines, pulses, rice, detergents, hair care and skin care products.

Not the first choice

These stores weren’t exactly the first choice for Patanjali.

Around 2010, when it started its big push into consumer goods, Patanjali found retail outlets unwilling to keep its products because of the low margin it gave to retailers.

Unlike other FMCG companies, which apart from giving a standard discount to retailers allow further discounting to be able to sell their products, Patanjali could not afford to sell at discounted rates, nor give any special discount to retailers. It also did not give goods on credit.

“Moreover, we want our products to be placed at the front aisle, so that people get to see them,” says Balkrishna.

While large FMCG companies including Hindustan Unilever Ltd (HUL), ITC Ltd and others pay 19-20 per cent margin to modern retailers and 12-15 per cent to mom-and-pop/kirana shops, Patanjali pays 12.5 per cent margin to modern retailers and 8-9 per cent margin to kirana shops.

It was the same story when Patanjali tried to place its products in modern retail stores.

Aditya Pittie, CEO, Pittie Group, Patanjali’s sole distributor for modern retail and e-commerce, says a pilot programme it ran for the firm’s oral care brand Dant Kanti, helped the homegrown company crack modern retail.

Though Patanjali paid 10 per cent margin against a rival brand’s 20 per cent, the modern retailer was able to sell Rs 3 lakh worth of Dant Kanti toothpastes against Rs 1 lakh worth of toothpastes of the latter, says Pittie. That clinched the deal and Patanjali got a foothold in modern retail.

“With retailers realising that despite getting lower margin they get to earn more on Patanjali products, they are eager to give shelves to the company,” adds Pittie.

It was only last October that Future Group opened the doors of Big Bazaar for Patanjali. Before this, in January the company piloted its products in five Reliance Retail stores in Mumbai, following which Patanjali took its products to 45 stores in the city.

Balkrishna points out that its decision to go for its own stores played a big role in establishing its credentials. “The no-frills store with the store owner actually advising customers on products built a level of trust and popularity which helped in our modern retail foray,” he says.

Today, Patanjali products are available across key Future Group retail chains- Big Bazaar, KB’s Fairprice, Aadhaar and Nilgiri’s. Patanjali claims it has recently increased the margin for modern retailers to 16 per cent, though it declined to reveal the share of sales contributed by modern retail versus kirana shops and its own stores.

Kishore Biyani, founder and chief executive, Future Group says he is satisfied with the margin offered by Patanjali.
“Margin is a combination of various factors such as sourcing of goods, supply chain, etc. Moreover, the aim was to allow a homegrown company, a ‘swadeshi brand’ to flourish,” says Biyani.

Making a statement

500-3000 sq ft in size and will house all products under one big roof. It plans to have 100-150 such stores by end of this year. “Two such stores have been launched in Lucknow and Nagpur. Delhi, Mumbai and Pune are next on our list,” says Balkrishna.

Pittie, too, is joining hands with Patanjali to start four mega-stores. Two will be in Mumbai, and one each in Delhi and Bangalore. “Baba Ramdev himself is screening all the applications received,” says Pittie.

Going online

The opportunities in e-commerce haven’t escaped the notice of Patanjali. According to a person close to the company, Baba Ramdev, along with top executives from Patanjali, is busy devising an e-commerce plan.

At present, Patanjali sells its products on Moreover, its products are sold by vendors on online marketplaces such as Flipkart, Amazon, Snapdeal and Grofers besides inventory-based grocery e-tailer Big Basket. It has also tied up with Pluss, an on-demand medicine and healthcare products delivery service to deliver its products in Delhi.

“One of the reasons as to why we haven’t been able to make a mark online is that we are not able to give very high margin to e-commerce companies,” says Balkrishna.

According to industry estimates, an e-commerce company’s target is to earn a margin of 15-20 per cent on each transaction. However, with almost everyone offering steep discounts, the actual margin earned is 8-10 per cent and at times, even as less as five per cent.

To be sure, grocery e-commerce is not all about margins. “Grocery e-commerce is more of a local play than national. While one can still parcel a large packet, grocery is all about fulfilling daily needs for which a relevant local network is essential,” says Rajat Wahi, partner and head, consumer markets, KPMG in India, an audit firm.

For Balkrishna, the first step towards making Patanjali a national brand has been taken. “With more and more people joining the swadeshi movement, it’s just a matter of time before almost all the small as well as large stores sell our products,” he says.

Decoding Patanjali’s popularity

A premium product but an economical price tag. That is what yoga guru Baba Ramdev-backed brand Patanjali Ayurved promises customers. That strategy has worked, with Patanjali Ayurved Ltd, which flaunts its ‘Make in India’ roots, set to touch the Rs 5000 turnover mark in FY16.

Keeping prices low has been the cornerstone of Patanjali’s marketing strategy. For instance, a 250 gm bottle of honey from Patanjali Ayurved Ltd comes for Rs 70. In contrast, market leader Dabur India sells the same pack size at Rs 120. Similarly, chyawanprash, one of the first products from the Haridwar-based company, is priced at Rs 250 for a 1000 gm jar. A 900 gm jar of chyawanprash from Dabur comes with a Rs 300 price tag.

“We arrive at the price by calculating the cost of raw material, administration, processing cost and a bit of margin for sustenance,” says Acharya Balkrishna, managing director, Patanjali Ayurved, and Baba Ramdev’s close confidant.

While its pricing strategy isn’t anything new, it has helped in attracting eyeballs, especially in a price-sensitive market like India. “Any newcomer who enters the market tries to make a dent by crashing the price. Patanjali has also followed the same strategy,” explains Rajat Wahi, partner and head, consumer markets, KPMG in India, an audit firm.

However, Wahi says the big question is how long the company will be able to sustain its low pricing strategy.

Price platform

Going by the latest IIFL Institutional Equities report, it seems Patanajali is already revising its strategy. The report states that there has been an increase in prices of popular products such as toothpastes and shampoos over the past few years. A 100 gm tube of Dant Kanti toothpaste, one of its top-selling products now sells for Rs 40 against Rs 28 earlier. Similarly, shampoo, a category which it entered much later has also witnessed price revisions. The price of a 200 ml bottle of Kesh Kanti Natural shampoo has gone up from Rs 68 to Rs 75. The company has also increased the price of its anti-dandruff shampoo from Rs 85 to Rs 95 (200 ml).

Ghee is one product where Patanjali has followed a different strategy. Marketed as a premium product, a 1000 gm jar of Patanjali Ghee comes for Rs 450 compared to a 1000 gm jar of Amul Ghee which sells for Rs 390.

The IIFL Institutional Equities states that by FY20, Patanjali is expected to have double-digit market share in 10 of the 25 categories including ghee (33 per cent), and chyawanprash (30 per cent). It projects a revenue of Rs 3,100 crore from the sale of its ghee by FY20.

Balkrishna says that as a company Patanjali is not competing against anyone. “Each one of us is trying to do a good job, so that eventually people benefit from it,” he explains.

Yet, even as the firm has increased the price for some of its products, the low price points have helped in sampling of its products, ultimately resulting in in high sales. “In India, people do not mind testing a new product if it does not pinch their pockets,” says N Chandramouli, CEO, Trust Research Advisory (TRA), a brand intelligence and data insights company.

To be sure, the low pricing strategy does not impress everyone. “Low price points always raise questions about product quality. If other companies have been charging a certain rate for the same kind of products, how is Patanjali able to sell it at a much lower price,” asks Anil Verma, a resident of upscale Defence Colony in Delhi.

Patanjali has also been adopting the marketing tactics of its competitors, which could alienate customers who trust the brand’s promise of purity. Its instant noodles brand, launched just before one-time market leader Maggi returned to store shelves, was named Atta Noodles, thus downplaying the fact that it was actually a 50:50 blend of atta and maida.

Last December, a quality test was done on Patanjali’s Ghee by the Food Safety and Standards Authority of India (FSSAI) after much debate on social media on its perceived quality.

Brand building

That is where Baba Ramdev’s charisma comes in. With a cult following, a television channel, and his yoga shows round the country, Patanjali’s brand campaign is already at the halfway mark before it has even started.

This has also helped the brand keep a tight leash on its advertising spend.

Contrary to media reports that the company spent a whopping Rs 200-300 crore in advertising in FY15, Patanjali claims to have spent only 1-1.5 per cent of its total turnover. Hence in FY15, the company spent Rs 20-30 crore in advertising and marketing. Similarly, the company is expected to spend Rs 50-60 crore on advertising in FY16.

As Balkrishna unabashedly admits, Patajali has bought media inventory at a discounted rate, which has helped the company in controlling the ad spend.

The company wants simple ads just to disseminate information about its brands, says Balkrishna. “We don’t make any false promises in our ads. The ads are more like infomercials,” he adds.

For DDB Mudra Group which handles the creative duties for Patanjali Ghee, Atta and Dant Kanti, the creative brief was to inject the communication with a brand proposition.

“The ads for Patanjali talk about the product and its promise to consumers. The idea was to make interesting ads but not boring ones,” says Vandana Das, president, North, DDB Mudra Group.

Infomercial or not, brand evangelists say that the simple ads by Patanjali have helped in winning consumers’ confidence. “While the whole world is creating theme based ads, here is one company which has stayed away from all the razzle dazzle. Straight talk, with no fluff, has helped in creating the trust factor,” says Harish Bijoor, brand strategy expert and CEO, Harish Bijoor Consults Inc, a consulting firm which specialises in brand and business strategy.

According to Bijoor, 32 per cent of the ads released by brands are tagged by consumers as ‘false’.

Even as the company is riding on its charitable trust tag, Bijoor says it cannot continue doing so forever. “It will be forced to behave like any other FMCG company soon, even in case of its communication,” he explains.

The meteoric rise of the company, parallel to the ascendancy of the Bharatiya Janata Party (BJP) to power, has also raised many eyebrows. Baba Ramdev is seen to be close to the BJP and its affiliates, sharing similar views on several subjects.

Balkrishna, however, dismisses talk of any such linkages and says all the talk about Patanjali has actually helped it grow. “We have never had the government’s backing. In fact, we have openly protested against some of the ideas of the BJP-led government. As for the quality of our products, the FSSAI test results on Patanjali Ghee say it all,” he says.

(Published in VCCircle)

Why these entrepreneurs chose to start in Varanasi and Panipat over Delhi


February 12, 2016

Tarush Bhalla, Your Story
New Delhi, 12 February 2016

Aditya Agarwal, 25, lived in a nuclear family in Varanasi. When it was time for him to leave for his higher studies in Allahabad, he had one concern: "Once I went for my higher education, I was always concerned, what if someone in my family got sick, who would take care of their health needs? Back then I didn’t have a solution."

His anxiety grew when he moved further away to Delhi in July 2012 to study for his MBA. But, it was there that he was hit by the e-commerce bug, prompting him to find a solution to deliver medicines to people’s homes.

While the idea of starting up was successfully seeded, he roped in his school friend Arpit Sarin, 25, who was already working on a few social entrepreneurship ideas, to work with him. Aditya says, “Back then we were job seekers. We didn’t know we could build a company. So it was a very big opportunity for us.”

But real inspiration struck in December, that same year, when Aditya and Arpit went on Jagriti Yatra, a train ride across India to shape the entrepreneurs of tomorrow. "We came across all those people who had their own startups and were just like us. They were young with no money and experience, but they did start working on their idea and they ‘did it’. This gave us the confidence. We just knew one thing; there exists a problem that needs to be solved."

From knocking on doors…

The duo launched their product in 2013; today, their platform, Dawailelo, aims to be a complete healthcare solution where medicines are delivered to the doorstep of needy customers. The platform also lists doctors’ details and connects customers to pathology labs to get samples collected and reports delivered conveniently to their homes.

Aditya still remembers the hot summer afternoons when he and Arpit wandered the streets of Varanasi to survey 2,000 households and understand the real problems surrounding the regular supply of medicines.

Today, the platform has served 1,100 unique customers in Varanasi alone, while catering to 500 orders every month from the city, 60 per cent of whom are repeat customers.

Last month, they expanded their operations to Panipat in Haryana. In their first week of operations, they already had 35 unique customers; completing more than 40 deliveries at stretch.

In the next six to eight months, the startup aims to set up shop across six cities in Haryana including Kurukshetra, Karnal, Sonipat, and Haryana.

According to the founders, their main focus is on patients with chronic diseases (diabetes and arthritis), who comprise 85 per cent of their consumer base. These clients have regular prescriptions and require medicines throughout the month.

When asked, the founders say that customers with acute medical conditions (like common cold or diarrhea) don’t form a big chunk of their consumers since their requirement is limited, and they avail Dawailelo’s services only once or twice. Moreover, it is easy for them to source these medicines at a local pharmacy; for chronic patients in Tier II cities, medication isn’t always available in local pharmacies.

Aditya believes that stickiness and loyalty are big factors in their venture’s success in Tier II cities.

…to avenues opening

The firm states that they strictly work on physical prescriptions where the delivery-in-charge will pick up the prescription from the customer and deliver the medicines by the next morning or the same day.

There is also an automated feature built in to the app, which allows customers to get medicines delivered without having to go through the whole process again.

As of now, all transactions are made in cash as it is easier in Tier II cities. Moreover, the firm is also working on the ‘digitalisation of healthcare’ and a ‘cashless’ programme where the requests would either be taken directly from doctors or verified by doctors before delivery, reducing delivery time and giving the option to make payments online.

Although the firm claims that bookings can be made through their app, website or through calling their helpline, the website is not yet functional and is undergoing some final checks before being rolled out.

Further, the firm has a partner pharmacy in every successive 10 km radius, to facilitate better deliveries. When asked why they don’t want to make the platform a marketplace, the co-founders tell us that it would be difficult for them to monitor each and every pharmacy leading to a compromise on trust and quality of the products.

On the revenue front, since Dawailelo follows the bulk model, they are allowed some margin from their partner pharmacies, of which 10 per cent is given to customers in the form of discounts, while the other 10-12 per cent goes to the firm. The average ticket size of each order received is Rs 1,000.

In the future, one can also expect the platform to have details and information on doctors, helping customers make appointments. In the coming few months, the firm also plans to roll out their app on iOs along with their website.
The firm has also already raised capital from angel investors and is actively looking for their next round of funding.

Of learnings and impact

Talking about the journey, the co-founders feel it has been a roller coaster ride, fraught with perils. They say,

There were times when things were not smooth, but the feeling of working on our own startup has given us the strength to fight every obstacle. We have taken coaching classes, raised funds from our close ones to realise our dreams and have started believing that everything happens for good as they take shape.

The duo tells us that it is overwhelming to see the change solutions bring to the lives of customers.“It is so touching to see how a simple solution changes someone’s world. One of our customers’ husbands is a paralytic, whom she cannot leave behind to buy medicines. Today, she saves herself the embarrassment of asking everyone to get her the medicines. Our starting up seems to find meaning through her story.”

YourStory take

There is no doubt that the startup’s decision to function in Tier II cities is an incredible one. The healthcare services market in these cities is still unorganised, with people going by what their neighbours and relatives say, rather than a doctor’s qualification.

Moreover, according to a report from IBEF, Tier II cities are the next demand source of the future, as 70 per cent of the population lives there. This can also be proved by the fact that for bigger healthcare startups like Practo, 30 per cent of the traffic last year was from Tier II and Tier III cities. While raising $37.5 million in Series B in September 2015, Portea is also making its presence felt in Tier II cities. Companies like Gurgaon-based Pluss are also operating in the similar space of on-demand healthcare and wellness deliveries.

The investor interest is also flaring up, (with $276.5 million invested in startups last year) and bigger players pushing to get into these markets

However, a matter of concern for the company should be scale, considering how bigger players with fuller pockets are ramping up their presence in Tier II cities. Moreover, as Dawailelo is in the hyperlocal delivery space, another trouble brewing on Tier II startups is the lack of sufficient funding.

Shan M Hanif, Co-founder of online grocery store Kada, say that despite being the only player in Kerala with Tier II and III focus, raising Series A has been tough. In another story, Devangshu Dutta, Chief Executive at Third Eyesight management consultancy said that over the last year, investors have become skittish about pouring funds into businesses that have no demonstrable path-to-profit.

This explains why Tier I cities are a top-favorite for most healthcare or hyperlocal startups to show traction and profitability in order to attract investments. With such dynamics brewing, we will have to see whether Dawailelo’s expansion to other Tier II cities will really project a scale to attract investments.

(Published in Your Story )