What ails Baba Ramdev's Patanjali Ayurved?

According to a recent IIFL report, sales of Patanjali products have halved from two year earlier levels.

After clocking in sales of Rs 120 billion in financial year 2017 – 18 (FY18), Baba Ramdev – led Patanjali Group could now enter the slow lane. According to a recent IIFL report co-authored by Percy Panthaki, Avi Mehta and Sameer Gupta, sales of Patanjali products have halved from two year earlier levels. 

The report, based on on-ground channel checks in Mumbai, suggests the development, could prove to be a boon for listed players like Dabur and Colgate Palmolive (India).

“Dabur is expected to benefit in categories such as oral care and hair care. We have already witnessed market share in honey rebound to earlier levels for the company. In other personal care categories, Patanjali sales were never material, but in these categories, Patanjali may have witnessed a decline and hence positive for the FMCG space in general,” the report says.

From humble beginning as a pharmacy in 1997, Patanjali has forayed into core FMCG products like toothpaste, shampoos, cornflakes and instant noodles over the past 20 years. Recently, it announced a foray into the dairy segment by launching milk and milk-based products, including curd and cheese, targeting sales worth Rs 10 billion from the segment.

Here are five key issues that Patanjali is grappling with, according to IIFL:

Distribution system

Splitting distribution by product vertical has created an unwieldy system with poor servicing levels, says the IIFL report. That apart, the ordering process has become more complicated now. Gaps in timely servicing have resulted in an increase in the frequency of stock outs in certain categories, which has eventually led to the retailer not keeping that product at all. Servicing problems, according to the IIFL report, are higher for staple foods such as rice, pulses and biscuits, among others. Categories like toothpaste, hair care and ghee have fewer issues.

General trade versus exclusive stores

While Patanjali wants to expand its distribution reach, it is unintentionally alienating its old, loyal retail partners. That apart, broad-basing of distribution is not happening fast enough. Most exclusive retailers have seen average monthly turnover drop 50 per cent as compared to two years ago, the report says.

Lack of advertising

IIFL believes that Patanjali may be facing a fund crunch and hence is going slow on advertising. Marketing strategies for new launches have been suboptimal, the IIFL report says, with certain products having been advertised even when availability was an issue.

"Also, choice of television channels to be used may be driven by various factors other than commercial considerations. Patanjali has been investing heavily in new capacities – Nagpur, Guwahati, Greater Noida – even as capacity utilisation levels at existing facilities are low," IIFL says.

Trade margins

Though the end-consumer demand for Patanjali products remains strong with brand affinity still intact among the loyal consumer base, IIFL's channel checks in Mumbai reveal lower trade margins and lack of schemes in Patanjali products versus others has meant that retailers in general trade do not prefer to push sales of Patanjali products. Categories fronting major servicing issues are staples – wheat flour, rice and pulses, among others.

Poor management of trade channels

Growth slowdown in Patanjali, according to the report, is a direct result of poor management of trade channels and lack of a coherent advertising strategy. "Splitting distributors according to product categories has also complicated retailer servicing. If quick action is not taken to resolve matters, the company could face permanent market share losses," the report says.