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Patanjali scaled up distribution in an intensely competitive retail FMCG environment in India

despite low retail and A&P spends.

Distribution strategy

Patanjali has followed a two-stage distribution strategy in general trade (GT):

Stage 1: Create a strong alternative distribution system for demand creation and building word-of-
mouth advocates

Stage 2: Pivot to GT once a sizeable consumer base is generated from Stage 1

Another distribution system

In a new market, Patanjali first drives trials and consumption using dedicated stores. These stores
are essentially Ayurveda clinics, run by entrepreneurs entirely with their own investment. They are of
three types Arogya Kendra, Chikitsalaya and Swadeshi Kendras.

Patanjali extends support in two ways: It trains and certifies medical practitioners nominated by
these stores in Ayurveda, and provides usage of the Patanjali brand name. This automatically
bestows trust and credibility due to the rub-off effect of Baba Ramdevs credentials on Yoga and
Ayurveda.

In return, these stores provide various services. One is free consultation by certified medical
practitioners. This assures high footfalls and likelihood of building a large scale of early adopters. It
serves as a retail store. The entire range of around 200-260 SKUs is stocked across both OTC,
pharmaceutical and FMCG products and there is typically a weekly replenishment cycle. There is
skillful cross-selling across pharmaceutical and FMCG products. The presence of Ayurvedic medical
practitioners at the outlet is a major determinant of sales. On the days when the medical practitioner
is absent, sales fall 30-40 per cent! The average FMCG throughput per dedicated store is typically at
6-7 lakh per month in a metro.

A powerful network effect is seen at these stores. Early adopters bring in additional footfalls through
strong word of mouth. The fact that a trustworthy consultation is free in an important area such as
healthcare provides a strong hook for passing on recommendations to friends and relatives.

These stores also serve another function product introductions are done extremely efficiently and
decisions to continue tweaking or scaling up the product and communication mix can happen in a
short time frame.

Currently, 10,000 dedicated stores (Chikitsalaya, Arogya Kendra, and Swadeshi Kendras) contribute
to 60 per cent of the companys revenues. In Delhi NCR, one of the older markets for Patanjali, there
are over 400 of these stores whereas in a newer market such as Mumbai, there are approximately
270 stores.

The pivot to GT

Once a sizeable consumer base is built through these dedicated stores, these consumers would expect
Patanjalis products to be available at general stores, grocers and chemists in the vicinity of the
dedicated store. These retailers are then forced to stock up on Patanjalis products for fear of losing
out on a customers goodwill. This builds a platform for the next stage of growth.

Various towns are at different stages of evolution. For instance, the companys biggest market, Delhi
NCR, is in Stage 2 and is responsible for revenue of 1,500 crore.

In 2013, dedicated stores contributed to 80 per cent of total FMCG sales across GT and the dedicated
store network. As consumer awareness and pull were created, GT started stocking Patanjalis top
products (oral care and honey) despite uncompetitive margins. This pivot to GT continued resulting
in dedicated stores contribution falling to around 45 per cent today.

Mumbai is still a Stage 1 market; dedicated stores contribute to around 70 per cent of FMCG sales
across the GT and dedicated store network. As consumer trials and consumer pull is created, it is
increasingly evident that availability in general trade would increase. Higher incidences of placards
outside several outlets stating Patanjali products are available here bear testimony to the same.

Alternative channels

While Patanjalis scorching pace of growth has stupefied most FMCG players, the concept of winning
in alternative distribution channels is not new. Select players have adopted a flanker strategy to
bypass competition, entrench their position, encircle and then launch a frontal attack in mainstream
channels.

Notable examples include Starbucks consumer packaged goods (CPG) business. Starbucks leveraged
its retail store footprint to build a flourishing CPG business. The intent was to capture a larger share
of coffee consumption reaching consumers whenever they want great coffee.

The stores provided a perfect platform to drive effective sampling and build partnerships with retail
consumers. Starbucks then enhanced availability through a tie-up with the CPG giant Kraft. Today,
with its own network, these at-home consumption products are now available in grocery stores,
airports, hotels, and convenience stores as well.

In the case of Yellow Diamond Wafers, the company targeted a relatively lesser contested space
smaller mom-and-pop retailers within the intensely competitive wafers market. Yellow Diamond
also provided higher margins than competition to ensure a very high shop share with those retailers.
In six years, Yellow Diamond grew to 700 crore. Yellow Diamond is now planning to enter the more
mainstream bigger retailers.

Developing an alternative channel strategy can help a company create white-space opportunities and
dominate them. This approach is valid both for incumbents as well as new entrants into the FMCG
market. The question is will a company take risks in a blue ocean and enjoy the associated upsides
or will it try to compete in a red ocean with a classical sales and distribution approach? Time and
risk appetite will separate the winners from the rest of the pack.

products are sold through three types of medical centres. These include
Patanjali Chikitsalayas which are basically clinics. Then there are Patanjali
Arogya Kendras which are health and wellness centres. They also have non-
medicine outlets called Swadeshi Kendras. The group has 15,000 exclusive
outlets across India. They also distribute through general retail stores. As
mentioned above, they have also tied up with well-known retail chains also.
They plan to grow to 1,00,000 outlets in the next few years.

1. Patanjali products are sold through three types of medical centres. These include Patanjali
Chikitsalaya which are clinics along with doctors, Patanjali Arogya Kendra which are health and
wellness centres and Swadeshi Kendra, non-medicine outlets.
2. The group has 15,000 exclusive outlets across India. They plan to grow to 1,00,000 outlets
in next few years. They also distribute through general retail stores. Patanjali distributorship has been
in great demand across the country.
3. The brand has also recently launched 12 mega stores, which are opened in metro cities
mainly. They have a plan to open 100 more mega stores in the near future. It entails an investment of
around Rs 50-70 lakh and about 2,000 sq.ft area is required. The mega stores are big, modern,
convenient and cater to the need of the metro consumers. These centres are going to generate
franchise opportunities for interested franchisees.
4. Patanjali has 5,000 franchisee stores. Retailers told CLSA that their average gross turnover
is Rs 25,000 every day. Profit margins for retailers are 10-20% across product categories.
5. Patanjali has followed a unique word of mouth publicity model and the entire revenue is
without any advertising. Patanjali Dealership is also sought after by entrepreneurs for the sales
potential it promises.
6. The company is privately held and profitable. The revenue for 2014-15 of Patanjali Ayurved is
bigger than Jyothi Laboratories, the maker of Ujaala and Emami. These brands have been in
business for decades.