Why consumer companies need to buck up
What do Patanjali Ayurved Ltd, Avenue Supermarts Ltd and Flipkart Ltd have in common, besides being homegrown consumer companies?
Why have these companies done quite well for the most part of the last five years even as the overall consumption story has lost some of its shine? What is it that these consumer companies have understood about the Indian consumer that the others have missed?
Let’s start with Patanjali Ayurved. The Baba Ramdev-led company has seen a meteoric rise over the last five years. From Rs446 crore in 2011-12, its revenue rose to Rs2,006 crore in 2014-15 to about Rs5,000 crore in the year ended 31 March 2016. This further doubled in financial year 2017 to Rs10,561 crore.
The consumer packaged groups company intends to grow at over 100% even on this large base to cross Rs20,000-Rs25,000 crore in the current fiscal year.
To put this in perspective, India’s largest consumer packaged goods company by sales Hindustan Unilever Ltd has grown at a compounded average of just 9.3% during the same period.
Similarly, Avenue Supermarts, the owner of retail chain D-Mart, which went public in March this year is now one of the most expensive retail companies in the world.
Its shares trade at a price-to-earnings (PE) ratio of 92 times for fiscal year 2018, while Wal-Mart Stores Inc., the world’s largest brick and mortar retail company has a PE ratio of 20.21.
Meanwhile, Flipkart Group, which includes Myntra, Jabong and PhonePe is India’s largest e-commerce marketplace and had a 55% market share of Indian e-commerce gross sales in March 2017. The world’s third largest retail company Amazon.com Inc’s India unit is its largest competitor, according to an October report by Morgan Stanley Asia Ltd.
As such, the three companies cater to different sections of the consumer pyramid with slight overlaps.
Flipkart caters to the top of the pyramid and has captured the consumer’s aspirational and discretionary spends. D-Mart attends to the middle class Indian looking at great value and savings, who also buy online at times.
Patanjali is a mass consumer brand that caters to the middle class and even a class below them, some of whom are buying products like biscuits and shampoo for the first time while associating with the brand.
“Across the pyramid, there has been a value discovery,” says Sreedhar Prasad, partner, strategy, KPMG explaining that the indigenous brands have tapped into these markets by creating value at lower prices and providing brand association.
There is nothing new about the Indian consumers’ need for value.
All the same, this need for value has now further amplified given the low consumer confidence and the uncertainties in the overall macro-economic environment.
To be sure, great value does not necessarily mean buying the cheapest product available in the market. It’s about getting the best value for the money spent. For example, an Audi could be better value for money than a Maruti.
It could also mean offering the same benefit at a lower cost, a fact well understood by the etailers like Flipkart who have consistently lured consumers to shop online with great deals and discounts.
But that’s not the only way. Patanjali refuses to offer even a nominal discount. Yet, it’s great value.
What it requires then is that companies work even harder—play the market share game, dip into new consumer pools or service existing ones better, says consumer economy expert Rama Bijapurkar who finds supplier laziness prevailing as companies wait for the bottom to rise or the tailwinds to propel them forward.
Shop Talk will take a weekly look at consumer trends, behaviour and insights.
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