Group 13 Patanjali
A case study on
Disrupting the Indian FMCG
and Divya Pharmacy
Culture, Structure & Strategies
Submitted to: Neetu Yadav Assistant Professor Department of Management BITS Pilani, Pilani Campus Prepared by: Nilesh Lahoty (2014B3A4656P) Nitish Kundala(2014B3A4761P) Rajas Pandey (2014B3A7582P) Anjul Mishra (2014B3A8660P) Krishna Zanwar(2014B3A4497P)
Introduction Many articles are regularly being written about Patanjali Ayurved’s disruption into India’s traditionally stable FMCG space. A lot of research has thus gone into the working of this organisation, whose emergence was almost a shock to many. The case of Patanjali is also a good study into the psyche of the Indian consumer. It addresses the effects of spiritual branding and the rise of nationalistic feeling among Indian consumers when it comes to FMCG products. Comparative low costs, effective advertising, and exploiting economies of scale are integral to Patanjali’s functioning. And now, with Patanjali planning to jump from a Rs. 2000 crore turnover to Rs. 5000 crore turnover by the end of 2016, it promises to disrupt conventional management ideas too. There are two companies registered under the title Patanjali Ayurved Patanjali Ayurved Limited with CIN U24237DL2006PLC144789 and Registration no 144789 which has an authorized capital of Rs 500 million. This company is registered in New Delhi and is the consumer facing part of the Patanjali Group. The second is Patanjali Ayurved Private Limited which is registered as a Indian nongovernment company with CIN U52311KL1995PTC009012 and Registration no 9012 with an authorized capital of Rs 1 million. This company is registered in Ernakulam, and is the Ayurvedic B2B arm of the Patanjali Group. The brand Patanjali is set up through aggressive preaching and promotion by the widely popular yoga Guru Baba Ramdev. Baba Ramdev has been synonymous with yoga and health care. Him being the face of the brand has resulted in its penetration into the heart of the Indian consumer in a very small time. It’s an ever expanding empire of consumer goods, making cleansers, creams and health supplements from traditional Ayurvedic recipes. They claim to be different from MNCs by using wholly Indian and organic raw materials to satisfy the needs of the Indian consumer. By inducing the feeling of Bharat Swabhiman in their ads, Patanjali has managed to align itself with the nationalist sentiments and with movements like Make in India. Started in 1997 as a small ayurvedic pharmacy, Patanjali was incorporated in 2006 and it began selling herbal food items and beverages. Today, it has close to 500 products ranging from hair care to washing powders, from sharbats to instant noodles. It used the infrastructure of the Patanjali Arogya kendra to act as its outlet initially, and now has over 5000 franchises selling its products all across the country. In October 2015, it tied up with Future Group to sell over 300 of its products through outlets like Big Bazaar. In the present context, thus, a study of Patanjali’s culture and strategies will present an interesting picture of the management and marketing strategies that work in the consumer goods sector in India.
Organization Culture The culture of any organization reflects a shared set of practices and values that ultimately determine how an organization reacts to the changing environment within and outside the organization. In the case of a fairly new company like Patanjali, it mainly comes from the vision of its founders and the top management. Acharya Balakrishna, a scholar of Sanskrit, Vedas and ayurveda is the managing director of Patanjali Ayurved at the moment. He had founded Divya Pharmacy, which later merged with Ramdev’s Patanjali yogpeeth. Thus, Baba Ramdev and Acharya Balkrishna act as guiding figures for the organizational philosophy and its operations. There is a strong current of the theme of Bharat Swabhiman1 in the whole vision of Patanjali as a organization. Baba Ramdev has repeatedly said that this organization is to break the dominance of the foreign MNCs in the Indian goods and promote swadeshi. This is reflected in their operations too. They source their produce directly from the farmers, which they believe will empower them. They use all the organic materials, because of the health benefits they believe to be associated with them. To quote Acharya Balakrishna, “ profits from the project will be used to empower rural economy and health. Patanjali is in the process of building model villages throughout India.” Its main management comes from the Patanjali University, where the people are trained in this ideology. Thus, the culture is fairly rigid when it comes to the ideology being implemented at all aspects of operations. Their focus on details when it comes to the processing of farm items is unparalleled. It gives attention that all aspects of its production process are natural and organic. Their culture promotes outcome orientation by taking a radical approach against other foreign MNCs. Their top management sets high targets and they strive to achieve that. According to the founders, Baba Ramdev and Acharya Balkrishna, their focus from the beginning has been the people of India. They should get the best quality products at the lowest price. Their work culture is professional, yet spiritually inclined. They hire people who want to give back to the society, and wish to work in an environment which values ethics and family as much as it values deadlines and targets. They ensure that their applicant does not indulge in smoking or drinking, but are not very stringent in their recruitment process. They do not look for top level management graduates, but for people with a conscience. Even though their pay packages are not in crores, many of the people working in
The philosophy of Bharat Swabhiman believes in five principles to empower and improve life in India at the grassroots. These principles are hundred percent voting, nationalist thought, boycott of foreign companies and adoption of Indian companies, unification of the people of the nation, and create a yoga oriented nation.
middle and top level management have had experience of working at the MNCs; most of which are now Patanjali’s competitors. It has a high focus on innovation in its production; either in the process or in the products that they come up with. It is through this that they have been able to maintain their organic brand image, even when producing products like detergents and instant noodles. Baba Ramdev’s vision and his managerial and marketing acumen guides most of Patanjali’s operations today.
Organizational Structure The organisational structure of a firm describes the degree to which the activities such as task allocation, supervision and coordination are directed towards fulfillment of the organisational goals. The working and performance of the company depends on the organisational structure chosen. There are many types of structures for the companies to choose from. An analysis of the organisational structure of Patanjali Ayurved Limited is given below. Work specialization The major work of Patanjali Ayurved takes place in the enormous food park they developed in Haridwar. The work force in these food park have been divided into three major groups based on their specialization. The three parties are supply, processing and packaging and transport. The supply group takes care of getting clean and quality raw material to the food park and manages the storage facility at the food park. The processing group handles all of the production line where the raw materials are turned into high grade FMCG products. They handle the automated production line and make sure the quality of the product is upheld. So every department consists of employees who are highly skilled in their particular field and thus there is high work specialization. Departmentalization(Functional and product) Functional departmentalization is evident in Patanjali Ayurved Limited. Jobs in the company are specified based on different functions such as exports, research and development, marketing etc. Each of these departments has a Vice President who is responsible for the decision making and implementation of goals. This has contributed a lot to the success of the company in the recent years. People with similar specialties work together. This improves coordination and also the performance of each department. PAL also follows Product Departmentalization. The products of the company are divided broadly under three categories: food, toiletries, and ayurveda. Grouping of jobs is done based on these categories of products and each category has a vertical head or representative responsible for the proper achievement of targets for the product category. Acharya Balkrishna, the Chairman of Patanjali Ayurved Limited claims that the products of their company are one of their biggest strengths. The high quality products manufactured by the company are good enough to sell without much support from advertising techniques. This
high quality has been achieved because of the proper grouping of jobs for various product categories. Chain of Command The company is headed by Acharya Balkrishna who is the chairman cum Managing Director followed by the Directors, Swami Muktanandji and Sri Ajay Kumar Arya. There is a vertical head for each of the three product categories mentioned above and under them are the Vice Presidents for various functional departments. The middle and lower level managers are responsible for managing day to day activities at the company and they work under the top management.
Span of control The top level management consists of about 200 employees. Under them, about 10,000 employees work in the middle and lower level management. The total number of employees are around 2 lakhs. Centralization The organisational structure of Patanjali is highly distributed. Every product category has a different department and each department has its own leader who is responsible for the decision making. The decision making power of the low level managers and the employees is limited to activities related to day to day working of the staff. The decisions regarding targets for the company and other major decisions are taken by the top management. The the degree of centralization is moderate with the top management making the major decisions of the company.
Formalization The degree of formalization in Patanjali Ayurved Ltd is high. There are certain set of guidelines which the employees need to follow while working for the organization. The jobs are specified and employees need to work as they are instructed to. There are many constraints on how the employees work. High formalization doesn’t encourage innovation but this does not pose as a negative quality for Patanjali as the company uses highly specialized individuals who work to make the best product quality. From the above properties, it can be concluded that Patanjali Ayurved Ltd follows a mechanistic culture as it shows a high degree of specialization in the organization with highly skilled employees. Also, they have rigid departmentalization based on different functions as well as products. The chain of command is clear and the span of control is also narrow. The decision making is done mainly by the top managers and thus it has a high degree of formalization and centralization.
Contingency Factors Strategy frameworks The company is planning to increase their growth in the coming years. The advantage that Patanjali has over its competitors is that they can efficiently minimize their cost as the top managers do not take very high salaries. So the organizational structure that they are following can help in the growth strategy.Patanjali follows mass production techniques and they produce large batches of outputs. Since the environment of Patanjali is not stable, the mechanistic culture of the company could have posed as a problem. But their unique approach of covering new product markets by improving product quality and providing these products at prices which are 1040% less than those offered by other companies in the FMCG market has helped in the growth of the company and standing amongst the top companies in their sector. The company has a research facility where around 50 scientists continuously work on finding products which can be inculcated into ayurved. So they follow a strategy of expansion into new markets because of which they have been maintaining the growth rate over the years.
Traditional Organizational Design Functional Structure Patanjali follows a functional structure because it has a high degree of departmentalization based on the function performed by different departments. They hire professionals who have high experience in their respective fields. So, the departmentalization helps in strengthening the performance of various departments. The functional structure also helps in cost minimization because of hiring specialized individuals. Also, the employees work with people of similar interests which increases the motivation for working and also improves the working culture.
Strategies Patanjali Ayurveda, having a vision of Bharat Swabhimaan, has an aggressive business model but with an aim to grow and cater to more than earning profits. Their longrun strategies aim at capturing the Indian FMCG market which is currently dominated by foreign corporations (mainly Hindustan Unilever Limited and Nestle) and providing a better quality product at the least price possible. Their business model focuses on providing best quality goods that the customer will value and make money out of it, and then reinvest that money to grow. To fulfill their mission of “Bharat Swabhimaan” & providing goods at a sustainable price, patanjali is set on a path of capturing the market. The recent goal set by the organisation is to achieve a Rs. 5000 Cr turnover (a growth of 150% from last year’s 2000 Cr), and this goal is not unrealistic. With a previous track record of 50% growth each year since 2009 and a recent change in marketing strategy, financial pundits predict that patanjali will not only achieve their target for this fiscal year, but has the potential to reach a turnover of Rs. 20,000 Cr by 2020. [Economic Times Article] Mission Statement: ● Customers: The primary target customers were the ones already coming for the Patanjali yoga camps and were using Patanjali Consultation for Ayurvedic Medication. Now, the target is every Indian household. ● Markets: Geographical target market is India. With over 200 outlets and 5000 franchise store, Patanjali is set to increase their penetration. They are soon planning to launch 500600 mobile (auto) stores to reach deep rural India. They also sell online on www.patanjaliayurved.net . ● Concern for survival, growth, and profitability: They have a profit margin of 24% on each good. They are committed to growth by capturing more market then by eacrning more profit through same quantity. ● Philosophy: Patanjali believes in “Bharat Swabhimaan”. They want to take the higher ethical stand than the other organisations and are committed to provide their goods at the least price possible. They want to remove the “loot” in the name of good quality. ● Products: Patanjali Ayurved sells nearly 500 products ranging from ayurvedic medicines to widely consumed FMCG. ● Technology: The production units are technologically current with proper optimisation at whichever level possible. ● Selfconcept: The competitive advantages are brand loyality, premium quality and extreme competitive pricing. ● Concern for employees: With over 1 lakh employees in total (All branches associated with Patanjali), Patanjali have an HR department to take care of the employees.
SWOT Analysis: ● Brief Intro ○ Turnover of Rs. 2300 Crore in FY 201415, Rs. 5000 Crore in FY 201516 and a target of Rs. 7000 Crore ($1 billion GMV) for FY 201617, keeping EBIDTA around 1520% ○ Potential to leave behind old established FMCG firms in FY17 ● Strengths ○ Natural, herbal and organic products ○ Brand “Ramdev” ○ Competitive pricing (2030% lower) ○ Marketing “spirituality” ○ Established distribution channels ○ Social Responsibility of “Bharat Swabhimaan” and make in India. ● Weaknesses ○ Already established competitors with large market share ○ Prejudices for “religion” association ○ Less rural penetration ○ Low exports ● Opportunities ○ Large domestic market ○ Untapped rural market ○ Competitive pricing implies rise in real income of consumers ○ Potential for exports ● Threats ○ Political interference ○ FMCG biggies like HUL and their ayurvedic divisions ○ Adaptive competitors like Dabur ○ Rise in imports if restrictions are loosened ○ Sector slowdown
Corporate Strategies: ● Growth: Patanjali has an aggressive expansion growth strategy. Till 2014, keeping their target market Patanjali Yogpeeth consumers, they were expanding their products and markets and reached a mark of 450+ products including categories like food, cosmetics, ayurvedic goods, ayurvedic medicines. Post 2014, they are now instead expanding to new products are expanding to new target consumers. A shift from product expansion to reach expansion. Concentration: An aggressive concentration strategy till 2014 which led to the current 450+ lines of product. Vertical Integration: Patanjali excel in vertical integration be it backward or forward. Patanjali is already a self supplier for most of its products’ inputs from “ Patanjali Food and Herbal Park ” ( backward vertical integration ). They also have a lot of control on the distribution channel and are also directly connected with the customer services activities under “Patanjali Arogya Kendra” & “patanjali Chikitsalayas” which along with the primary purpose of ayurvedic consultation also serves as a distribution channel for Patanjali goods. They are present in almost every city in India. With the recent deals with Future Group (Big bazaar), reliance retail, HyperCity and other retail chains, they are moving from a strict forward vertical integration to a loosen model to increase their reach. Along with big retail chains, Patanjali goods are also available of small retail shops, but patanjali kendras acting as intermediaries. Horizontal integration: Patanjali had a one and only major horizontal integration with Divya Pharmacy (1997) to provide more diverse and optimum ayurvedic products. Since the beginning of the Bharat Swabhimaan Vision, they are against the competitors which are charging a lot more than they should or are foreign organisation, leaving horizontal integration on a back foot. Related Diversification: Patanjali, just like horizontal integration, is not in much favor of related diversification because it might require them to compromise on their vision. But if they find the perfect “strategic fits”, they might consider this as an option if it help them with their mission. That was the reason Patanjali and Divya Pharmacy are so closely linked but not with other firms. Unrelated Diversification: The major reason to go for unrelated diversification is to enter the market with higher financial returns. Patanjali is not much concerned about financial returns. Therefore, unrelated diversification is irrelevant to them. Stability Strategy: Though Patanjali is on a path of growth, they also have some elements of stability strategy for individual goods. For example, price sensitive commodities like pulses may lead to losses if they keep following the constant averaged out price for expected profit of 34%. But to maintain the status quo, they do not raise the price. Renewal Strategy: Being a new firm in this market and not having many weaknesses for now, Patanjali do not have a renewal strategy, which is justified.
BCG Matrix: Developed by Boston Consulting Group, it classifies firms on the basis of their market share and industry growth rate. Having a very high growth rate and a high growth in the currently low market share, Patanjali is right now a “Question Mark” firm. But it is set on a path to become a “Star” because the other alternative for “Question Mark”(s) (getting sold off) will not happen for Patanjali because of its vision. And later the Start might turn into the different Cash Cow which aims and not being the “Cash” cow. Competitive Strategy: With a competitive strategy largely focused on quality and price, Patanjali has a distinctive competitive edge when it comes to premium quality at low (competitive) price. Ayurvedic products were seen as costly to use, also getting what the customers actually wanted was tough before Patanjali came into the picture. (Infograph courtesy: Brand Equity )
Five Force Model: ● Threat of new entrants : Sri Sri Ravishankar’s Art of Living and Ram Rahim Singh’s MSG international are also entering the segment after the succesful story of Patanjali. ● Threat of substitutes : mobility of consumers can be high because of the already established competitors. ● Bargaining power of buyers : Already lower prices leaves no scope for bargaining. ● Bargaining power of suppliers : Patanjali is the major supplier and retailer of its goods leaving less bargaining power to the suppliers. ● Current rivalry : The key competitors of Patanjali are Dabur and The Himalaya Drug Company. Other rivals include Emami, Zandu, Hindustan Uniliver.
E business strategies: Patanjali plans to expand their customer base further by going online.In a recent statement Ramdev said that the company intends to soon be present in all modern retain chain formats. It recently launched its ecommerce portal .In a statement Ramdev said that they plan to invest 1000 crore in 2016 for expansion projects which will mainly focus on ecommerce and exports.
Conclusion Patanjali provides an interesting case in terms of its culture, structure and strategies. Its culture is guided by the vision of its founders, Baba Ramdev and Acharya Balkrishna. It has an aggressive, target oriented culture in terms of competition. It also focuses on its impact on the people, both its employees and the people of India. Even though they have a mechanistic structure in a dynamic business environment, the organisational strategy chosen by Patanjali has helped it to grow at an exponential rate in a highly competitive market segment. Its strategy has primarily been growth oriented. Prior to 2014, it was mainly focussed on product expansion. After 2014, it has focussed on market share expansion. Its story is one of the most interesting to look at in the present Indian context.
References ● Official YouTube channel of Bharat Swabhiman (18 videos highlighting the structure and functioning of various departments of the organization ) https://www.youtube.com/user/TheBHARATSWABHIMAN ● Das, Subhankar, and Subhra Mondal. "Yours Digitally: Patanjali." Available at SSRN 2737299 (2016). ● Kumar, Vinod, et al. "Marketing through spirituality: A case of Patanjali Yogpeeth." ProcediaSocial and Behavioral Sciences 133 (2014): 481490. ● Patnaik, Satyendra. "Spiritualizing the Commercial WayA Case of Patanjali Ayurved." Available at SSRN 2754890 (2016). ● Khanna, Rupali. "Customer Perception Towards Brand: A Study on ‘Patanjali’." Global Journal of Management And Business Research 15.9 (2015). ● "Baba Ramdev expands empire beyond yoga to FMCG" . The Economic Times . 13 January 2015. ● “The Patanjali Effect”. Business Standard. 8 February 2016. ● “Patanjali and the tycoon in saffron”. Business Standard. 31 October 2015. ● “Rise of Patanjali Ayurveda – A coincidence or a strategy?”. ELive Today. 14 September 2015. ● https://www.linkedin.com/pulse/patanjalidesiversionfmcgsumeetkumarmodi?for ceNoSplash=true ● “Desi bustle v/s MNC muscle: How Ramdev's Patanjali is setting trend for HUL”. Brand Equity The Economic Times. 23 November 2015.