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June 24, 2022
Written By Mukherjee, ET Bureau
Source: economictimes
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June 10, 2022
Devika Singh, Moneycontrol
June 10, 2022
As the threat of a plastic straw ban looms, dairy products giant Amul has written to the Prime Minister’s Office, urging a delay of its implementation by up to one year.
Amul makes products such as flavoured milk, lassi and spiced butter milk that come in small cartons packed with plastic straws for on-the-go consumption.
The letter to the PMO, sent ahead of the proposed July 1 start of the ban on single-use plastic products, said the move may have a “negative impact” on farmers and milk consumption.
“We agree it is a positive step to reduce plastic usage,” R.S. Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the Amul brand, told Moneycontrol.
“However, we have requested the government to delay the implementation by six months to a year so that we utilize this time to gradually shift from plastic straws to paper straws,” Sodhi said.
The government earlier this year issued a notification banning several single-use plastic products. The ban has the potential to affect the sales of beverages sold in small tetra packs.
Here’s a rundown on all the products that are proposed to be banned, why beverage makers are pushing for a delay in its implementation and how it will affect them.
What does the government notification say?
The Ministry of Environment, Forest and Climate Change released a notification in March banning single-use plastic items.
Such products include plastic plates, cups, glasses, forks, spoons, knives, straws, trays, swizzle sticks, wrapping or packing film, invitation cards, and cigarette packets and plastic or PVC banners of less than 100 microns from July 1.
Other products such as earbuds with plastic sticks, plastic sticks for balloons, plastic flags, wrappers for candy sticks and ice-cream sticks, and polystyrene (thermocol) for decoration also come under the ambit of the ban.
In February, the government had notified guidelines on the extended producer responsibility for plastic packaging under the Plastic Waste Management Amendment Rules, 2022.
“Directions have been issued to e-commerce companies, leading single-use plastic sellers/users, and plastic raw material manufacturers with respect to phasing out of identified single-use plastic items,” the notification said.
Why are beverage makers worried?
Non-alcoholic beverage makers like Amul; Parle Agro, maker of Frooti; and Dabur, which sells a range of fruit-based drinks under the Real brand, have a significant share of their revenue coming from low-unit packs priced at Rs 10.
These packs, which come with a plastic straw for consumers to drink the beverages, are meant for on-the-consumption and are mainly sold in rural areas. According to industry estimates, packaged consumer goods makers derive 25-40 percent of sales from low-unit packs priced at Rs 2-Rs 15.
The only replacement to the plastic straws available in the market are paper straws that are produced in a very limited quantity in India.
Plastic vs. paper
Sample this. According to the industry, about 6 billion packs of paper-based beverage cartons with integrated plastic straws are sold annually in the country.
The capacity to produce paper straws is only 1.3 million straws per day against a requirement of 6 million/day.
Paper straws are also an expensive alternative to plastic straws given their limited availability.
According to Schauna Chauhan, CEO of Parle Agro, although the company started importing paper straws to adhere to the new rules by the given deadline, it is not a sustainable solution.
“The percentage increase in the cost for importing PLA straws and paper straws goes up by 259 percent and 278 percent respectively. The economics just does not match up for a Rs.10 product,” she said.
While a plastic straw costs 10 paise and accounts for 1 percent of a Rs 10 beverage carton, a paper straw costs 40-45 paise and would account for 4-4.5 percent of the cost.
Besides paper straws, beverage makers have found another alternative in PLA straws that are made of corn starch and biodegradable.
In-house production of paper straws
Beverage companies are urging the government to delay the ban so that they can build adequate capacity for producing paper straws in the country.
Amul plans to import paper straw-making machines and start production in-house. Parle Agro, too, has similar plans.
“We have already begun work on developing many local MSMEs {micro, small and medium enterprises} to be able to cater to our volume of biodegradable straws,” said Chauhan of Parle Agro.
“A six-month extension will help straw manufacturers in India build adequate capacity to manufacture and supply biodegradable straws to beverage companies in India,” she said.
These companies source plastic straws from third-party manufacturers.
Potential impact of the ban
The ban, if it comes into effect on July 1, will disrupt the supply chain of beverages sold in small tetra packs such as Frooti, Appy Fizz, Real Fruit Juice, Amul Lassi and similar products.
The companies are also expected to incur heavy import and logistics costs as they import paper straws to replace plastic straws.
“The companies have to look at alternative solutions, which may increase the costs. It will be challenging for the companies to pass on the increase in cost to the consumer as it may dampen demand, especially given the fact that these products are priced at low price points to target a certain consumer cohort,” said Devangshu Dutta, CEO of retail consulting firm Third Eyesight.
To tackle the challenge, Amul plans to sell its products without straws until the company builds the capacity to produce paper straws in India.
“However, this impacts the on-the-go consumption of our products,” said Sodhi.
Sales in the hinterland
A majority of the sales of these low-unit packs come from rural India, and could hurt the earnings of packaged consumer goods makers. Parle Agro, for instance, derives about 50 percent of its sales from rural India.
“The increase in the product cost will lead to a fall in demand and affect sales significantly. The hasty ban will negatively impact the industry and overall businesses of numerous players in the FMCG and beverage segment.,” said Chauhan.
Experts say growth in the non-alcoholic beverages segment has been driven by tetra packs, and while plastic packaging and straws do have an adverse impact on the environment, the switchover is set to disrupt the industry in the short and medium terms.
(Published in Moneycontrol)
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April 27, 2022
By Manu Balachandran, Forbes India
Apr 27, 2022
Sometime in 2002, in his mid-20s, Ravi Modi wanted to buy a Mercedes. Not because he was a petrol head or because he wanted to flaunt his newfound success in his hometown, Kolkata.
“My belief was that if you can afford it, buy it,” says Modi, who’s dressed in a blue kurta pyjama at his house in Newtown, Kolkata. His then-four-year-old business, Vedant Fashions, which made popular ethnic wear, Manyavar, was doing reasonably well and money was flowing smoothly. However, as he firmed up his plans to buy a Mercedes, his father, who had earlier inadvertently brought out the entrepreneur in Modi, asked his son a few questions. And then doled out some sound advice.
“He asked me whether I can afford it. I said I can,” the soft-spoken Marwari tells Forbes India. “He asked me if my business was sustainable. I said yes. He said you will require capital. I said yes. He asked me if my business has the potential to grow. And I said yes.” Modi adds: “Then he told me, ‘Thode din ke taklif zindagi bharka aaram, ya thode din ka aaram, zindagi bharki taklif (Pain for a few days, and you can have a lifetime of relaxation, or relax for a few days, and you could have pain for the rest of your life)’.”
That stuck with him forever. Modi skipped his plan to buy a Mercedes, and instead decided to plough back all the profits into the business to avoid falling into a debt trap as he expanded. He stuck with his Honda City for the next 15 years, until his son asked him to change it after a family friend met with an accident. “That’s when I bought my Mercedes in 2017,” Modi says. “All these things don’t matter to me. I am a simple man with no materialistic needs. I like the simple life.”
Modi indeed leads a simple life on the outskirts of Kolkata. Unlike many of his peers who relish the hustle and bustle of city life, he has moved out of his home of 36 years to a calm and greener township where he even grows vegetables. “Whatever vegetables we eat, they come from within the house,” Modi says. He prefers to meet people on the verandah of his house, which overlooks a neatly manicured lawn. The scorching Kolkata heat doesn’t bother him.
“Here, the trees talk to me,” says Modi, who tried 12 houses before shifting to the new one immediately after the first lockdown. He has built a clay tennis court there and is now learning to play the game. Modi has also renounced wearing western clothes, claiming not to have worn one in five years. “We must realise that clothes such as suits aren’t meant for the Indian climate,” he says.
He’s even reduced the time he spends in office, and now goes there only once a week. It hasn’t made any difference to his business. Modi makes his debut on the 2022 Forbes World’s Billionaires List—he’s ranked 1,238 with a net worth of $2.5 billion. As of April 15, Modi’s wealth stood at $3 billion and he is among the youngest billionaires in India.
His 23-year-old company, Vedant Fashions Limited, of which he is chairman and managing director, is worth ₹26,000 crore after it listed on the bourses in February. It has over 600 stores across India and 11 international stores, where it sells everything from men’s kurtas, sherwanis and jackets to women’s lehengas, sarees and gowns. They are sold under brands such as Manyavar, Mohey and Mebaz.
Last year, amid the pandemic, Vedant Fashions closed the year with a revenue of ₹564.81 crore, while net profit stood at ₹132.9 crore. A year before that, revenue was ₹915.54 crore and net profit ₹236.6 crore. Modi’s wife Shilpi has a board seat, while his only child, Vedant, after whom the company is named, is chief marketing officer.
“I am a firm believer in destiny,” says Modi. If it wasn’t for his destiny, the 45-year-old believes he would have perhaps been sitting at his nearly-50-year-old family-run shop in Kolkata’s AC Market, selling menswear, and at best opened one more store to expand the business.
Destined for Success
As a child, Modi, the only son of his parents, was good at mathematics. His father then ran a 140-sq-ft retail store inside AC Market in Kolkata—one of India’s first air-conditioned markets set up some 50 years ago.
“In Class 2, I got 100 in mathematics, and my mother threw a party,” says Modi. “In Class 3, when I got 100, my mother didn’t give a party. That’s when I realised that nobody celebrates the same achievement twice. I needed some kick and I started solving the paper faster.” By the time he appeared for his Class 12 exam, he finished his mathematics papers in 45 minutes, scoring a near cent. “Anybody who remembers me from school days would remember me for mathematics,” says the soft-spoken billionaire.
The untold story of how Ravi Modi built Vedant Fashions—the makers of Manyavar—into a .5 billion behemothThat meant, by the time he was 13, Modi joined his father at their retail store, which sold everything from shirts and pants to jeans, after school. “I found a lot of interest,” says Modi. “Somehow, I didn’t realise that my entire childhood from 13 years went in my store.” While he did contemplate doing an MBA after graduating in commerce from St Xavier’s college, Kolkata, his father suggested otherwise. “The real MBA happened in those nine years between 13 and 22,” says Modi.
At the store, Modi played salesman, often catering to buyers his staff didn’t want to deal with. “I would see that the salesmen would deal with some customers with a lot of attention, and some without,” says Modi. “When I probed them, they said the customers wouldn’t buy. I would ask them if they were astrologers, and used to take it on me to sell stuff to them. That was my kick.” Soon, Modi would end up selling over 20 clothes to a customer who would have come to buy one shirt. “It was the best time of my life,” Modi says. By the time he was 21, he was married, and by 22, Modi became a father.
As the business grew, Modi began to run the show and took decisions that would be a contrast to his father’s. He also introduced Indian wear, manufactured by them, in the store after realising a massive vacuum in the Indian wear category. It was Modi’s first tryst with manufacturing. “But one day, my father said something, and I got hurt,” Modi says. His father had questioned a decision that Modi had taken for ₹20,000. “He said ‘Humko barbad kardoge (Will you ruin us)? I might commit suicide one day.’ I said this is enough, I won’t come from tomorrow.”
He took ₹10,000 from his mother and turned to manufacturing Indian wear, selling the finished products in Uttar Pradesh, Odisha, Bihar, Madhya Pradesh and West Bengal, among others. “I started selling to multi-brand outlets (MBOs),” he says. The inability to hire a creative agency meant Modi had to come up with a name. “I thought what was the purpose of life… it was to earn some respect for oneself,” says Modi. “That’s how we came up with the name Manyavar.” He denies that the choice of the name had anything to with his father’s chiding. “He was someone who would never say something like that,” says Modi. “It’s all destiny. Because there was no plan, and I was happy at the store. We would, at best, have opened one more store.”
With Manyavar, Modi started by selling 20 percent of his stock to Kolkata-based Vishal Mega Mart, to raise enough working capital to sustain his business. He sold the rest of the stock to other outlets. “Vishal Maga Mart was the only place that used to buy on cash,” says Modi. “So initially, for about eight months, the working capital came from them.”
Modi sold kurtas which cost ₹200 at a loss of ₹10 to ensure he was paid in cash. “Just because I was strong in math, I thought I will sell 20 percent of my production to him to get working capital, and from the remaining 80 percent production, I will get revenue. That is how we generated revenue in the first year,” Modi says.
Among others, Manyavar’s clothes were sold at outlets such as the Kashmir Vastralaya collection and Kala Mandir in the early days.
Turning point
By 2005-06, Modi had begun selling his products to large format stores (LFS)—from Future Group to Shoppers Stop and Westside—building a pan-India presence. Heeding his father’s advice, he ensured he did not take on debt, and instead channelled most of the money into the business.
In 2006, to take care of his ailing father, Modi stepped away from work for some six months. “I used to work like a typical entrepreneur, managing everything. Life was very busy. Then I realised we were unnecessarily involving ourselves in operations. The business was running well without me for six months. From that day I understood, that instead of ROI (return on investment), it should be return on time invested (ROTI). I realised I should not waste time on things where I don’t add any value,” he says.
That took him back to the drawing board—to focus on strategy for the next phase of growth. By 2008, Manyavar set up its first exclusive brand outlet (EBO). “That’s when the real journey began,” says Modi. “Until then, we used to sell for ₹20-25 crore every year.” The company’s first store opened in Bhubaneswar, and over the next year, opened 12 stores. The early ones were opened by the company before it moved to a franchise-led model. “By that time, I was clear that the way forward for any fashion apparel business in India is EBO,” says Modi.
Modi believed multi-brand outlets were becoming more of a hindrance than being facilitators. “They never used to work on data,” he says. “It was difficult to make them understand anything. And because I had spent nine years with consumers, we used to always think of the customers first.”
That means an obsession with data, and efficiency, something Modi spends a considerable amount of time on. “Anything and everything we do, we want to bring efficiency,” he says. “We have one of the highest productivities in retail. We haven’t sold a single garment at discount. Even then, the dead stock in Manyavar is less than 3 percent. We make 30 percent PAT (profit after tax). We don’t make that by charging more to the consumer. That’s an outcome of efficiency. We keep pricing reasonable and despite that, we have the highest margin. Efficiency is a key pillar in our entire organisation.”
Today, the company operates mostly on a franchise-owned-franchise-operated model. “When we started, we had a COCO (company-owned-company-operated), COFO (company-owned-franchise operated), FOFO (franchise-owned-franchise-operated), and all kinds of models. By 2016-17, we converted all our stores into the FOFO model. People were doing backward integration, and we felt doing forward integration was the way to go. We will do the marketing, designing and supply chain, and not do anything else.” Over the past few years, Modi claims several young customers have become franchise owners, including doctors and consultants, who see massive potential in the brand.
In 2016, the company pulled a coup of sorts by landing then Indian cricket captain Virat Kohli as brand ambassador. “He had just become captain It was the best time of his life,” says Modi. Over the next few years, Kohli led the brand campaign and Modi even roped in his girlfriend Anushka Sharma for a commercial prior to their marriage. Today, the brand has actors Amitabh Bachchan, Alia Bhatt, Ranveer Singh and Kartik Aaryan as brand ambassadors.
The success
Today, Manyavar operates some 1.3 million sq ft of retail stores in the country, choosing not to chase the number of stores. Every year, Modi wants to add between 1.5 lakh sq ft and 2 lakh sq ft of retail space. “The whole business is on a variable, asset-light model,” he says. “There is no capex, there is no fixed expense other than corporate head office salary. Every rupee of working capital can generate an equal rupee of PAT, with 90-95 percent free cash flow. Only Unilever will have a ROCE (return on capital employed) of 100 percent, and we might be the second, and within a year or two, we will be at more than 100 percent.”
The untold story of how Ravi Modi built Vedant Fashions—the makers of Manyavar—into a .5 billion behemothThe company operates in 230 cities, and is busy firming up plans to open stores in 150 new cities. A significant portion of its customers are spread across Southern India, with Bengaluru and Hyderabad emerging as the two big centres. “We have a cluster approach where we believe in 50 or 60 markets, where we have numerous stores,” Modi says. “This is just the beginning of a multi-decade growth opportunity for the category.”
Along the way, in 2017, as business expanded rapidly, Modi decided to turn to private equity, not because he needed money for expanding the business. “We always thought that there is a limit for wisdom and knowledge,” says Modi. “We had been meeting private equity players since 2008 and we thought why not get a good partner. We liked Kedaara Capital and its approach. Money was not the intent, but to have a wise board and to understand whether we were missing on anything.” Kedaara Capital acquired 7.5 percent stake in the company.
“They’ve ridden well on the sector’s growth and consolidation into modern trade, as the desire for brands has grown among buyers of Indian traditional clothing,” says Devangshu Dutta, chief executive of Third Eyesight, a management consulting firm, and managing partner of PVC Partners, an early-stage investment & advisory firm. “Also, the wedding market is more recession-proof than many other segments, which has been a favourable factor during the pandemic.”
Last year, despite the pandemic, Modi says Vedant Fashions closed the year with better profit margins, despite most states putting a ban on weddings and other social gatherings. “The beauty of our business is that while business had reduced, our margins were 30 percent PAT,” Modi says. “The entire business is on the variable model and even franchises didn’t lose money.”
In India, the men’s wedding and celebration wear market was estimated to be worth approximately ₹13,300 crore as of FY20, according to brokerage firm HDFC Securities. It is projected to increase to between ₹17,000 crore and ₹18,000 crore by 2025. In comparison, the women’s wedding and celebration wear market is significantly larger, estimated to be worth approximately ₹7,500 crore as of 2020. It is expected to grow to ₹95,000 crore and ₹100,000 crore by 2025.
“Seventy-three percent of Vedant Fashions Limited’s (VFL) franchisees have operated its stores for three or more years and 65 percent of the sales of its customers from its franchisee-owned EBOs are derived from franchisees having two or more stores is testament to the success of EBO distribution model,” HDFC Securities said in a report in February. “Through a network of over 300 franchisees as of September 2021, VFL has demonstrated a track record of commanding a high initial capital commitment and, in return, providing all necessary support in connection with identifying potential locations for new stores, managing multi-channel advertising on a national and regional basis, assisting in-store development and inventory management, directly managing the supply chain and providing detailed training programmes for store staff and franchisees.”
Today, 90 percent of the company’s business comes from EBO with about 8 percent from online models, a segment that Modi’s son, Vedant, and his team are extensively looking to build. “We might be the only brand with such a high percentage from EBOs,” Modi says. “The segment is unorganised, fragmented, and understanding this is a journey. Because we were data-focussed, we could work it out.” Along the way, Modi says his biggest advantage has been in reducing the inconvenience of wedding purchases.
“Pre-Manyavar, the wedding shopping experience was a problem,” Modi says. “You had to go a few times to the store for measurements or alterations. Now people don’t have the time. We are a one-stop solution where work can be done in one hour.”
Now, as the company looks at avenues for its next phase of growth, Modi has forayed into categories within the wedding market that can drive sales. The company recently launched Twamev, a premium collection of men’s wedding wear, and Manthan, a cheaper option to its popular Manyavar wear. “When you look at the Indian pyramid, there are five consumer layers. Manyavar and Mohey are in the third layer which is the sweet spot, comprising the typical aspirational middle class,” Modi says. “In India, one crore weddings take place, and 30 lakh to 35 lakh marriages happen in that category, which is about 50 percent in terms of value. We believe that is the largest segment, but now we have a strategy where we are going one level up and down.”
While Manyavar caters to the ₹5 lakh to ₹50 lakh wedding market, the ₹50 lakh to ₹5 crore market is being catered to by Twamev, while the less than ₹5 lakh is being addressed by the Manthan range. “We believe once the category grows, we should be there in all these three layers. So, there is clear demarcation and no overlap,” Modi says.
All that means that the reclusive billionaire, who started out two decades ago after his tryst with destiny, is getting ready for a long period of growth. It also helps that he has more time to plot his strategy for it. “People talk about wealth, I believe the real wealth I have earned is time for myself,” Modi says. “The mission is to be a dominant player in the celebration space. We have cracked an unorganised market and we’ve been able to organise it and scale it. Now, the vision is to instill pride in Indian wear.”
Modi seems determined to do that. And he is certain to walk that talk, if the two decades are anything to go by.
(This article was published in Forbes India.)
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April 24, 2022
Written By Christina Moniz
Brand and marketing experts, while expressing surprise at the development, as the two labels enjoy significant brand equity, also noted that if true, it highlights the challenges faced by legacy brands, with international brands growing their footprint in the country.
Apparel and textile major Raymond may be in the midst of talks to sell its prized apparel brands Park Avenue and ColorPlus, amid rising speculation about the future of the company’s apparel business. As per media reports, the company is in talks with Danish retail group Bestseller — which houses labels such as Jack & Jones, Vero Moda and Only — for the sale, seeking a valuation of around Rs 500 crore for ColorPlus, and even more for Park Avenue.
Brand and marketing experts, while expressing surprise at the development, as the two labels enjoy significant brand equity, also noted that if true, it highlights the challenges faced by legacy brands, with international brands growing their footprint in the country. Also, legacy brands, especially in the formal wear category, have been facing headwinds ever since the pandemic led to a work-from-home culture.
However, Sunil Kataria, the newly-appointed CEO of lifestyle business for Raymond, told FE these reports are “speculative”, stating that both Park Avenue and ColorPlus currently account for close to 50% of the company’s apparel business. In September last year, the board had approved the demerger of Raymond’s apparel business, which, at that time, was being managed by a 100% subsidiary of Raymond Ltd, Raymond Apparels, explains Kataria. The demerger covers all of the company’s ‘power brands’ — Park Avenue, Raymond Ready to Wear, ColorPlus and Parx.
“We want to double our apparel business revenues in the next three years. We ended up doing business of over Rs 300 crore in Q3 FY22, even at a time when the Covid-19 impact was still there, and that is the clearest proof that the sale of our brands is not on the cards,” asserts Kataria. The company also claims to have plans to further expand its retail footprint for Park Avenue, ColorPlus and even the newly-launched Ethnix brand. Kataria is betting big on the upcoming wedding season and the resurgence of travel in the next few months to drive growth.
Raymond currently has a retail footprint of close to 1,500 stores across 600 cities, of which 300 or so are exclusive outlets for brands like Park Avenue, Parx and ColorPlus.
For Samit Sinha, founder & MD, Alchemist Brand Consulting, said the reports of the sale of these two labels are surprising since both enjoy significant brand equity. “For a long time, Raymond and Park Avenue have been inextricably linked. Independent of its marketing performance, Raymond as a brand continues to hold great aspirational value and still holds its own despite the presence of big international labels,” he remarked, noting that the reported `500-crore valuation would be much below what the brand could command.
On the flip side, the speculation about the sale of these brands also highlights the new reality facing legacy brands in the retail segment — particularly in the formal wear category, with ‘work from home’ eclipsing professional lives. Offline-heavy Raymond has been no exception, with its business being impacted by the pandemic and the consumer shift to online shopping, observes business strategist Lloyd Mathias. “Apparel retailing is a competitive space, and many international brands have been increasing their retail footprint in India. These global companies with deep pockets will continue to grow in size and scale, and penetrate into smaller towns and cities,” points out Mathias. This means that brands like Park Avenue and ColorPlus will face serious challenges in sustaining their growth.
Interestingly, over the last three years, Raymond has increased its footprint in Tier III and IV markets as a part of its growth strategy. Devangshu Dutta, CEO of retail consultancy Third Eyesight, states that when a brand seeks to widen its presence in smaller markets, it is usually because it is facing headwinds in terms of growth, or because there is saturation in demand from the big markets, on account of the large number of international labels entering the country. “The challenge in smaller cities, though, is that the sales density you can achieve is also much lower as compared to the larger ones. You have to have an operation that is growing in terms of topline while also running efficiently to make this kind of expansion strategy successful,” Dutta explains.
Raymond’s Kataria adds that the company will continue to invest in these smaller markets and leverage its current brand equity.
Source: financialexpress
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April 24, 2022
Written By Devika Singh
The Enforcement Directorate (ED) on April 19 accused Amway India of running a “multi-level marketing (MLM) scam” and attached its assets worth Rs 757.77 crore. This is not the first time that Amway India has been accused of running a ‘pyramid scheme’. Read on to understand how direct selling is different from pyramid schemes and why has the ED attached Amway India’s assets?
The direct selling industry is again under the regulatory scanner in India with the Enforcement Directorate’s (ED) move to attach the assets of the Indian unit of US-based direct selling company, Amway. The ED has accused the company of running a “multi-level marketing (MLM) scam” and attached its assets worth Rs 757.77 crore.
According to an ED statement, the attached property includes Amway India’s land and factory building at Dindigul district in Tamil Nadu, plant and machinery vehicles, bank accounts and fixed deposits.
“Immovable and movable properties worth Rs 411.83 crore and bank balances of Rs 345.94 crore from 36 different accounts belonging to Amway attached,” the ED said. The seizures, the ED said, have been made under the Prevention of Money Laundering Act (PMLA).
This is not the first time that Amway India has been accused of running a ‘pyramid scheme’. The company faced accusations on similar lines in the US in the 1970s and has been under government scrutiny in Karnataka and Kerala in the past. In fact, in 2013, Kerala police arrested then Amway India chief William Scott Pinckney and its directors, accusing them of running a pyramid scheme.
Direct selling has come under scrutiny time and again, as over the years, consumers have been duped by fake sellers hawking defective products and services in the garb of direct selling. To discourage such schemes, the government had proposed a draft policy last year, which aims at regulating the direct selling market segment.
Read on to understand what is direct selling, why the ED attached Amway India’s assets, what is Amway’s stand on the issue, how is direct selling different from pyramid schemes, and what are government regulations around direct selling in India?
What is direct selling?
Direct selling firms deploy agents who buy products from the company and then directly reach out and sell to consumers at their homes or other places instead of through a retail format like a store. The direct selling entity and the agent share the profits made through the sale of products. According to industry estimates, there are about 60 lakh agents in the country, who pursue direct selling as a means of earning additional income.
The direct selling industry, as per estimates, is pegged at Rs 10,000 crore in India, and has been growing at 12-13 percent per annum over the last five years. Experts say multi-vitamins, and home care and personal care products are the top-selling categories through this channel.
Beside Amway, companies such as Avon, Oriflame, Modicare and Tupperware operate in the direct selling segment. Some of these companies have been in India for decades now.
What is pyramid scheme and how is it different from direct selling?
Pyramid schemes are defined as a form of investment in which a paying participant recruits further participants and gets rewarded for it. Over the years, consumers have been duped by fake sellers hawking defective products and services in the garb of direct selling, often bringing the direct selling industry too, under scrutiny.
“Pyramid scheme is a scam to make money for a few people and it is based on selling an empty promise, multiplying it through recruiting people,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight.
However, he added, it has to collapse somewhere because you are selling a product or service that does not exist.
“As opposed to that, in direct selling, the companies are selling products and at the end of it there is a tangible exchange of goods or services. So, even if you have downline distributors, as long as at the end of it the customer is getting something of value, then it’s not really a pyramid scheme,” he added.
Why has ED attached Amway India’s assets?
According to the ED’s press statement, Amway India runs a multi-level-marketing scheme or pyramid scheme, which “induces the common gullible public to join as members of the company and purchase products at exorbitant prices.”
The ED said the prices of most Amway products are “exorbitant as compared to the alternative popular products of reputed manufacturers available in the open market”. The new members, who are asked by the company to join it, are not buying the products to be used by themselves, but to become rich by becoming members as showcased by the upline members, said ED.
“The reality is that the commissions received by the upline members contribute enormously to the hike in prices of the products,” the ED said.
And this, indicated the ED, makes Amway’s operations similar to a pyramid scheme, where new members are recruited by existing members with claims of amassing wealth and becoming rich.
The agency claimed that between FY2003 and FY2022, Amway collected Rs 27,562 crore, of which it paid commissions worth Rs 7,588 crore to affiliate members and distributors in the United States and India.
What is Amway’s stand on the issue?
Amway, however, claims that it does not offer any incentives to new members to join the company and the members are only paid once they make a transaction or sell the product, and hence they are not operating a pyramid scheme.
The company has released a statement saying that the action of the authorities is with regard to the investigation dating back to 2011 and since then Amway has been co-operating with the department and has shared all information as sought from Amway from time to time. Amway said it will continue to cooperate with the government authorities for a fair, legal, and logical conclusion of the outstanding issues.
“As the matter is sub judice, we do not wish to comment further. We request you to exercise caution, considering a misleading impression about our business also affects the livelihood of over 5.5 lakh direct sellers in the country,” it said in a statement to media.
In an conversation last year with Moneycontrol, Amway India CEO Anshu Budhraja had said that Amway India does not charge any registration fee to its agents.
“There are no charges for joining Amway business. Further, to ensure that the customers have a satisfying experience with Amway, our products are backed by a money-back guarantee for 100 percent satisfaction of use,” Budhraja had said.
What are the regulations around direct selling?
The government last year included Direct Selling under the Consumer Protection Act (Direct Selling) Rules, 2021. These new rules prohibit direct selling companies from charging registration fees from their agents, and bars them from charging their agents for the cost of demonstration to prospective buyers.
The rules also forbid direct sellers from engaging in pyramid and money circulation schemes. The rules mandate that the companies operating in the segment would have to appoint a Chief Compliance Officer, a Grievance Redressal Officer, and a Nodal Contact Person. The companies would also need to be registered with the Department for Promotion of Industry and Internal Trade and must have an office in India.
They would also be mandated to maintain a website with all relevant information.
“Every direct selling entity shall establish a mechanism for filing of complaints by consumers through its offices, branches and direct sellers through a person, post, telephone, e-mail, and website,” as per the regulation.
“Every direct selling entity shall establish a mechanism for filing of complaints by consumers through its offices, branches and direct sellers through a person, post, telephone, e-mail, and website,” as per the regulation.
It adds: “Every direct selling entity shall ensure that such registration number is displayed prominently to its users in a clear and accessible manner on its website and each invoice issued for each transaction.”
In addition, such companies would have to maintain a record of direct sellers working with them, including their ID proof, address proof, email ID, and other contact information.
Source: moneycontrol
