Consumer

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

An Indian yoga guru's budding consumer goods empire is making multinationals in Asia's third-largest economy sweat. They're hesitant to acknowledge the threat, but a tilt in consumer preferences toward what Forbes has labeled India's Body Shop is becoming hard to write off as a passing fad. 

Fast-Moving...Lower
Stock in all four consumer-goods companies has fallen this year
Source: Bloomberg

Colgate-Palmolive India reported its worst sales growth in 44 quarters on Wednesday. Hindustan Unilever's revenue expanded at the weakest pace in more than six years and the new CEO of Nestle India recently got queried by analysts about how Maggi noodles will deal with competition from Baba Ramdev, the saffron-robe clad man who was, until just a few years ago, a slightly famous yoga teacher and dabbling anti-corruption campaigner. Now, his company Patanjali Ayurved makes everything from herbal soap to toothpaste, rose sherbet and aloe vera juice.

It's serious business, and one that seeks to capitalize on a hankering among urban Indians for natural remedies and ancient recipes, but at sensible prices. The long-established correlation between rising household incomes and a greater penetration of Western brands has broken down, perhaps irreversibly. Earlier this month, Mumbai-based brokerage IIFL said entrenched multinationals might lose 3 to 8 percent of their 2020 sales to Patanjali.

The 50-year-old is the bearded public face behind the unlisted company, which is controlled by an associate. (Apparently the holy man has no equity in the business.) According to IIFL, Patanjali may grow to 200 billion rupees ($2.9 billion) in annual sales  by 2020. If that forecast is on target, it would imply a 16-fold jump in revenue in six years. And the bulk of it could come at the expense of current market leaders, with Colgate poised to lose the most, the brokerage says.

That might explain why investors weren't impressed by Colgate's better-than-expected third-quarter earnings, which it managed to wrangle by pruning advertising spend by 11 percent. After the results, as many as 18 analysts tracked by Bloomberg cut their estimates for the group's per-share earnings for the next financial year.

Thanks to falling commodity prices, personal-care products are getting cheaper to make, and the cost savings are being passed on to consumers. Even then, there's little zing to sales volumes. While poor rainfall and weak farm-goods prices have hurt rural demand for Colgate's products, ``rising competition from Patanjali is one of the key reasons for slow growth,'' Prabhudas Lilladher analysts Amnish Aggarwal  and Gaurav Jogani wrote in a research note.

Slippery Slope
Colgate-Palmolive India's year-on-year sales growth is the weakest since 2005
Source: Bloomberg
* Comparable revenue for standalone operations

Colgate still controls 57.3 percent of the Indian toothpaste market, but its share has come down for a second straight quarter, the analysts say. Meanwhile, Baba Ramdev's recent distribution tie-up with Future Group, India's largest retailer, means the fight for market share will only get more intense. The retail group's founder predicts Patanjali will break into the top three consumer staples companies in India. Colgate, Unilever, Nestle and GlaxoSmithKline may all be affected, though to varying degrees.

To prevent getting beaten by an upstart, multinationals are quite likely to include more herbal and natural offerings in their own product portfolios. Colgate, for example, has introduced a new ``Made in India" variant of toothpaste with neem tree extracts. Hindustan Unilever acquired a herbal hair oil brand, forking out $48 million.

It's not clear if Patanjali will be able to profitably scale up its foods operation, or if it will remain largely a niche personal care business -- an Indian Body Shop. But as global corporates try to fight the yoga guru on his own turf, they also face challenges. For one, their costs will inevitably rise as they're forced to launch or acquire new brands and advertise them to the hilt.

Patanjali, by contrast, has just one brand -- and one brand ambassador -- to look after. That's reasonably risky, but so long as Baba Ramdev appears on TV looking healthy and fit, the company won't need movie stars or cricket players to endorse its products. More importantly, multinationals' natural instinct has been to wow emerging-market customers by flaunting the clinical research that's gone into their chemicals, lotions and pastes. An attempt to switch track and go herbal may ultimately be rejected as inauthentic.

Either way, shareholders in India's dominant consumer goods companies stand to lose. If Patanjali's competitors don't already realize, the yoga guru has them in a tight spot.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net