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Healthy Competition: The Growing Popularity Of The Health Food Category Dished Out By Desi Ventures Like Patanjali Is Pushing Established FMCG Players To Bulk Up Their Portfolios With New Offerings

Fast Moving Consumer Goods (FMCG) companies are focusing on health food category as demand is strong, despite overall consumer sentiment remaining tepid on account of inflationary pressures. Not surprising that many companies are entering into categories like honey, launching Atta biscuit and focusing on using natural and healthy ingredients for their products.

Baba Ramdev's Patanjali, with more than 350 products ranging from noodles and biscuits to shampoo and toothpaste, is giving heads of consumer goods companies reason to sit up and take stock. Fast moving consumer goods companies have realized that Patanjali is rapidly becoming a contender in the consumer goods space.

Honey category has seen a lot of traction post the entry of Patanjali's honey. But now another player has entered this fast-growing and less cluttered space. Recently, Emami launched Zandu Pure Honey and claims there is no added sugar in it. The company also claimed the honey has been tested in a German laboratory.

However, unlike Patanjali priced at 42% discount to Dabur, Emami's product is priced at a 35% premium to Dabur (being positioned on quality). Experts said that Emami has entered the market just at the right time when Patanjali has created significant awareness in the market by positioning its product on better price against Dabur.

Honey is a close to Rs. 6.5 billion category, dominated by Dabur Honey, which has close to 60% to 65% market share. Healthcare for Emami under Zandu has seen significant growth and the range of Emami has increased by 37% year-on-year (y-o-y) in H1FY16.

Country's largest FMCG company, Hindustan Unilever (HUL) has 'resurrected' its herbal brand Ayush by launching it online. A bunch of new products in the realm of haircare, skin care and pain balms have been launched on various e-commerce platforms under Lever Ayush Therapy.

The company plans to take the brand to general trade in the future. The firm is also expected to increase its 'natural' offerings, moving into newer categories such as health foods, oral care and lip care, among others.

HUL's MD and chief executive Sanjiv Mehta reiterates, "What we find is that consumers' interest in natural and ayuvedic products is growing. It is one of the emerging trends now. As a consumer goods company, we have to respond to this, which is why Ayush, which existed in our portfolio, has now staged a comeback. We also acquired Indulekha to grow our presence in the value-added hair oil segment. We will continue to make investments in this area."

Industry source says herbal and non-herbal companies are now going back to the drawing board, looking at how they can incorporate natural ingredients when developing new products for consumers.

Colgate's volume growth has taken a hit on account of Patanjali's Dant Kanti toothpaste, and the company is aggressively advertising its active salt neem toothpaste, launched a few months ago.

Dabur, has recently introduced new Ayurvedic products targeting men, women, and children. Existing products such as Dabur Honey and Chawanprash are being pushed aggressively in the marketplace as Patanjali positions itself as a price warrior in these categories.

Godrej Consumer, launched a neem-based mosquito coil, a crème hair colour that has coconut oil and launched new variants under Godrej No 1, its naturals platform in soaps.

Himalaya - another herbal products company - recently launched its range of wellness products, which aim to provide therapeutic solutions to consumers. Products ranging from anti-hairfall creams to pills for staying slim are part of this new initiative by the company.

Indians are willing to trade up more in categories such as health and food more than leisure, beverages, apparels, home care and personal care, a recent survey by the Boston Consulting Group says.

Nearly 39% respondents, who participated in the survey, said they would consciously spend more to get a product that was better than the rest in health, which BCG said was a sign of trading up.

BCG also said that consumers in health and food were trading up in two ways. One was they were consuming more value-added products and second was they were willing to pay a price premium for select brands.

Patanjali has a strong new products pipeline. The products are not only innovative, but also reasonably priced. A central R&D facility equipped with latest technology along with a separate new product department have helped in lining up a series of new launches over the next few months.

The new launches pipeline includes sugar-free Chyawanprash, PowerVita, Seabuck thorn dietary supplement and powdered hair dye, among others. Over FY12_15, Patanjali registered revenue CAGR of 64.7%. The company has an aggressive plan to enter every consumer category (keeping aside those that impact lifestyle and health).

At the current juncture, though its presence in many categories may not queer the pitch for other consumer goods companies (each category not too big to impact except ghee, which is expected to be Rs. 12 billion in FY16), over the long term, gaining palpable distribution prowess could pose a serious threat to competition.

Patanjali's proactive moves in innovation have been crucial for its growth. Other consumer companies will need to step up innovations, particularly in the herbal and ayurvedic space (distribution strength will come handy) to counter competition, industry experts said.

Patanjali clocked revenue of Rs. 20.3 billion in FY15 with EBITDA margin of 20%. The company targets to achieve revenue of Rs. 50 billion to Rs. 60 billion in FY16 itself.

Growth is being driven by the company's largest selling product, cow's ghee, followed by Dant Kanti and Kesh Kanti. Patanajali also has a robust pipeline of new products, which will help achieve its target. Patanjali operates via three business segments, viz., foods (foods, supplements, digestives, dairy, juices, etc), FMCG(cosmetics - shampoo, soaps, facewash), home care (detergent cakes, powder, liquid, etc) and ayurvedic products (healthcare products for blood pressure, skin diseases, joint pain, etc).

In FY15, of the total sales of Rs. 20.3 billion, food and cosmetics contributed Rs. 8 billion each, while healthcare products comprised the remaining part of the sales. The company has adequate capacity to achieve its revenue target of Rs. 50 billion to Rs. 60 billion in FY16.

Patanjali is working on a kitchen concept, as part of which it will launch products that will touch all categories of the SKUs used in an Indian kitchen. For instance, the company already has products that are used in the Indian kitchen such as dishwash bar, ghee, rice (has 3 variants of rice), pulses, spices, mustard oil, flour and madhuram (replacement for sugar made out of jaggery) under the Patanjali brand name.

Patanjali's key strength, apart from its product quality, lies in pricing. The company's products are priced at 15% to 30% discount to competition, which makes it an attractive proposition for consumers.

It is able to offer such discounts primarily because of having negligible advertisement and promotion spend versus other consumer companies, which have advertisement and promotion spends ranging from 12% to 18%, as a percentage of sales.

Another reason for the discounts is the consumer-centric ideology of the organization and selling best quality products at attractive price points. There may even be some products in the company's portfolio, which are making losses or fetch low margins. But it continues to sell these products to meet consumer needs.

Patanjali Ayurved has limited advertising expenses, which gives the company enough leeway to pass on the savings from lower ad spends by way of lower prices. The company advertises in a limited way - news tickers, regional newspapers, some digital advertising, etc, though going ahead it might start other forms of advertising too.

Patanjali has adopted unique information-based advertising. For instance, the company highlights the positives of cow's ghee, which automatically helps in the sale of Patanjali ghee. In the recent past, the company's print advertising has seen a marked increase.

For consumers, Baba Ramdev remains the face of Patanjali and its products. Baba Ramdev, during his yoga sessions, showcases Patanjali products. After the session, he makes the attendees aware of the benefits of using Patanjali products. Till date, close to 70 million people have come in contact with Baba Ramdev through his yoga camps and it is believed that this can increase to about 200 million, going ahead.

This highlights the potential reach that Patanjali brand can have without much mainstream advertising. Also, being associated with Baba Ramdev, helps in creating a better perception among consumers that being ayurvedic offerings, Patanjali products are healthy.

New products that are expected to be launched soon are Patanjali Noodles (already launched in select metros and compete with instant noodle players like Nestle and ITC), Dant Kanti Advance (already has 3 variants of Dant Kanti toothpaste - Regular, Medicated (similar to sensitive) and Junior) in the market.

Also, PowerVita (will provide competition to all health food drink companies Mondelez, GSK Consumer) made up of ayurvedic ingredients like Brahmi, etc, and sugar-free Chyawanprash (that is competition to chyawanprash manufacturing companies like Dabur and Emami) will be launched.

Seabuck thorn dietary supplement in collaboration with DRDO - made under a technology-sharing agreement with DRDO is used by army personnel in tough terrains as a source of nutrients and is likely to be out soon. This product will have richness of all the necessary nutrients and will be made available to civilians too thanks to Patanjali.

Powdered hair dye (the company has a separate unit, Coloroma, which manufactures herbal colours and dyes). Divyapay (health drink comparable to tea) in dip dip format too is available.

A range of products for children is also being planned under Patanjali, which will include products like baby oil, talcum powder, baby soap, shampoo, etc. Products in the R&D phase at Patanjali include butter milk in powder form, oats with masala, chicory coffee (caffeine free), weight gain and weight loss products and Madhuram - ginger and rose flavour.

Yoga guru Ramdev said Patanjali's atta noodles is on course to oust Maggi as the top noodles brand in the country in the next few years, and the 'swadeshi' FMCG company will overtake all multinational firms in the consumer goods space, barring Hindustan Unilever.

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