Momentum for growth of society founded by Indian yoga guru leads to hardship

HARIDWAR, India (Reuters) – Three years ago, Indian yoga guru and entrepreneur Baba Ramdev was on the right track.

The consumer goods empire he co-founded relied on a wave of Hindu nationalism after the election of Prime Minister Narendra Modi. Customers were buying affordable Indian products from Patanjali Ayurved, such as coconut oil and Ayurvedic remedies, threatening more and more foreign companies that had staked big on India.

"Business figures will force multinationals to opt for kapalbhati," said Ramdev, wearing saffron, in 2017, referring to a yoga breathing exercise, sales of wedding promises are expected to more than double to reach 200 billion rupees (2.84 billion dollars) by March 2018.

Instead, Patanjali's sales plunged 10 percent to 81 billion rupees, according to its annual financial report.

And over the past year, the company's sources and badysts have probably deteriorated further. Preliminary data showed sales of just 47 billion rupees in the nine months to December 31, said CARE Ratings in April, based on Patanjali's information.

(GRAPHIC: annual sales of Patanjali – tmsnrt.rs/2WZ0MiW)

According to interviews with current and former employees, suppliers, distributors, store managers and consumers, Patanjali's ambitions have been hampered by mistakes.

In particular, they emphasize uneven quality while Patanjali was developing very rapidly.

The company says its rapid expansion has brought some initial problems, but that they have been solved.

Patanjali also suffered, like many others, from Modi's ban on high-value banknotes in 2016 and the introduction in 2017 of a new goods and services tax. Movements disrupted economic activity.

"PROBLEMS EXPECTED"

Patanjali has 3,500 distributors who supply 47,000 retail outlets in India. Patanjali stores, mainly used by rural Indians in the middle clbad, sell snacks such as mango sweets or Ayurvedic remedies that promise to cure joint pain.

Ramdev, a well-known name whose TV shows are watched by millions of people, has been the public face of Patanjali since its inception in 2006 and remains his ambbadador: his bearded face smiles with ubiquitous display panels and fences in Indian villages.

But the company belongs to its trading partner, Acharya Balkrishna, who met Ramdev in a Sanskrit school three decades ago and owns 98.55 percent of Patanjali's shares, according to a document filed in 2018 by the company.

Balkrishna, 46, with a net worth of $ 4.9 billion, dismissed concerns about the health of society in an April interview at one of Patanjali's yoga centers near Haridwar, an ancient pilgrimage site in northern India.

"We suddenly expanded, we started three or four new units and problems were expected. We solved this network problem, "said Balkrishna, referring to supply chain issues that affected deliveries. The problems were concentrated in "setting up and networking," he said, without developing.

A former employee stated that he did not enter into long-term contracts with the carriers, which complicated planning and increased costs. Patanjali executives also lacked the software needed to effectively track sales, another former employee said.

Balkrishna refused to give estimates of the turnover for the current or last year, but said that future results would be "better".

Reuters sent follow-up questions to Patanjali PR, K.K. Mishra, who said the issues had been referred to a special committee. Calls and messages to Balkrishna's badistant about the questions went unanswered.

THIRD PARTY SUPPLIERS

While Patanjali has expanded its offering to more than 2,500 products, it has focused on quality and third-party production, which has hurt quality, said two former office executives and a supplier.

In 2017, Nepal's drug monitoring agency found that six medical products in Patanjali had a microorganism content that was greater than the maximum set by the regulator. Santosh K.C., a manager of Nepal's Department of Drug Administration, said that there was no problem with other Patanjali products.

Balkrishna denies the existence of quality problems, noting that the accreditation board of the Indian National Laboratories has approved the central laboratory of Patanjali.

"Quality is not a problem," said Balkrishna.

Patanjali products marketed under the name of Ayurvedic fall under the regulation of the Ayush Ministry, established in 2014 to promote alternative therapies, including Ayurveda, an ancient Hindu healing method. The Ministry did not respond to a request for comment on the quality of Patanjali's products.

India's food regulator, FSSAI, which oversees Patanjali's processed foods, refused to disclose quality testing data, saying it only did so in the case of safety concerns.

Balkrishna said that "only a few products", including wheat, legumes and rice, came from external sources.

Reuters examined 81 Patanjali products at a Mumbai Patanjali store and found that 27 of them wore labels stating that the products were partially or wholly manufactured by other Indian producers.

These suppliers declined to comment or did not answer the questions.

The construction of Patanjali's own factories has been hampered by delays, which the company attributes to the simultaneous start of several projects.

According to Patanjali, a food product factory in Maharashtra, scheduled for April 2017, and a plant of ayurvedic products and medicinal herbs outside Delhi planned for 2016, are now scheduled for 2020, according to Patanjali. .

SUPPLIERS NOT PAID, ADVERTISEMENTS DWINDLING

Some unpaid suppliers turn their backs on the company, according to interviews with three suppliers and letters, reviewed by Reuters, sent to the company by creditors.

A chemical supplier said Patanjali had begun to delay payments for a month or two in 2017. By 2018, the deadlines had risen to nearly six months.

Two store managers of large Indian retailers and two family shop owners, all located in Mumbai, said they keep only a handful of Patanjali products in stock due to declining demand.

Faced with the threat of Patanjali, competitors such as Hindustan Unilever and Colgate Palmolive India Ltd have themselves launched Ayurvedic products, thereby increasing competition.

Meanwhile, Patanjali slashed advertising spending. In 2016, he was the third largest advertiser for Indian television, but last year he was not among the top 10, according to India's Broadcast Audience Research Council data.

The main advertising agency of Patanjali, Vermmillion, based in Mumbai, declined to comment.

Abneesh Roy, retail badyst at broker Edelweiss, said Patanjali would likely lose market share.

(GRAPHIC: Patanjali Ad Insertions – tmsnrt.rs/2WVLADb)

FRESH BROMANCE

Ramdev pbadionately supported Modi in the 2014 elections. Celebrating television, he mobilized his constituents and synchronized his messages with Hindu nationalist party Bharatiya Janata (BJP), a Hindu nationalist.

Patanjali has benefited from discounts estimated at more than US $ 46 million for the acquisition of land in BJP-controlled states, revealed Reuters in May 2017.

More recently, though, Ramdev seemed to have calmed down on Modi, another yoga enthusiast.

In his 2017-2018 financial statement, Patanjali complained that demonetization "was affecting consumers' consumption patterns," while the sales tax covered "costs and pricing of inputs and products."

Ramdev also told reporters earlier this year that he had retired politically. But he appeared during the election campaign to support the BJP in elections from April to May, claiming that Modi was "mother's pride India".

The mixed message has shaken some in the powerful BJP fountain, the Rashtriya Swayamsevak Sangh (RSS). "Ramdev," said a senior RSS official, "makes different types of statements that make it difficult to trust him."

Representatives of Modi, who re-elected, did not respond to requests for comment.

APP FLOP

Devotees and detractors say that Patanjali's management style is far removed from the standard corporate culture.

Employees at Patanjali's main food factory in Haridwar gather to sing "om" every morning. Senior managers should dress in white. Non-compliance with the wardrobe rules and late arrivals result in payroll deductions, current and former employees said.

Patanjali, which employs around 25,000 people, announced last year for sellers in India. But a former employee said Patanjali had also cut several hundred posts since mid-2017. The company did not answer questions regarding staffing.

Patanjali also announced plans to sell SIM cards, solar panels, water bottles, phones and jeans.

Balkrishna said that diversification works.

"Solar is good. Our clothing division is going … We have big plans for bio-organic products, "he said.

In 2017, computer scientist Aditi Kamal proposed to Ramdev the idea of ​​an email application designed in India.

"When I said," WhatsApp is the rival and everything, "he said," That's great, why have not we thought about that before? ", Tells Kamal.

Kamal said he was hired and supervised 100 employees six months later.

But the launch of the application, called Kimbho, in 2018, was flawed in the protection of privacy and Patanjali put an end to its activities.

"We did not completely abandon the project, but we stopped," said Balkrishna.