Indian Institute of Management Sambalpur

Assignment

Value Stick Strategy and Reinventing Business Model for Patanjali Foods Ltd

Submitted to -

Prof. Prashant Salwan

In Partial Fulfillment of the Course: “Business Models (BMD)”

Submitted by -

Aware Mayur Manish-2023MBA090

Yogesh Kapse-2023MBA157
Debatraye Bose-2023MBA178
Basit Ali Afridi-2023MBA253
Sapna Rani-2023MBA290

On
December 14, 2024

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 1. Introduction
Started in the year 2006 by Acharya Balkrishna and Baba Ramdev, Patanjali Ayurved Limited is one of
the leading players in the FMCG industry in India. The uniqueness of the business model that Patanjali
has adopted combines modern production and distribution models with traditional Ayurvedic principles.
The company's very basic philosophy of affordability, sustainability, and living with values has brought it
into households. Despite the competitions, Patanjali revenue was ₹31,721 cr with 74.38% YoY growth
compared to Year 2022. In its vertically integrated business model, the company sources raw materials
locally and has recourse to the huge network of distribution that it has in place, including 1.5 million
touch points all over India, e-commerce platforms, and exclusive franchise locations called Arogya
Kendras.
The nosiness plan introduces diversification across product categories such as food, personal care, and
nutraceuticals. To enhance the operational efficiency, Patanjali sold its food retail division to Patanjali
Foods Limited in 2022 to ₹690 cr. Read here how CSR can be supported through three constituent pillars
of community development, environmental sustainability, and Ayurveda.
This assignment recommends a value stick approach to strengthen its competitive edge after analyzing the
industry heterogeneity regarding customers, suppliers, competitors, and resources of Patanjali.

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 2.Industry Heterogeneity Analysis

2.1 Market Capitalization

Patanjali Foods Limited has a market capitalization of around rupees 70,000 cr as on FY 2024. It thus
features in the ranks of the top FMCG companies operating in India. The sector is seeing an increase in
market capitalization due to people demanding healthier and environment-friendly products. Major sector
leaders include HUL and Dabur. Analysis is that the Ayurvedic branding and strong product
diversification of Patanjali provide a competitive advantage, thus attracting investors and sustaining
growth in the market value.

2.2 Sales Growth Rate

The performance of Patanjali Foods has seen a YoY sales growth of 0.61% in the FY 2024. Total revenue
went from rupees 31,530 cr in FY 2023 to rupees 31,721 cr in FY 2024. The reasons behind the slower
growth are due to market saturation and external cost pressure. According to industry Benchmark though
the average sales growth rate for FMCG sector remains 8-10% in preceding years, Patanjali had
witnessed a better growth rate as the expansion was aggressive in the categories of edible oils and FMCG.
Trends and insights reveal that though total growth has been decelerating, categories such as FMCG have
been growing more, and the respective share in total revenue has increased from 19.4% to 30.06%.

2.3 Net Profit Margin

Patanjali figures for FY 2024 - ₹994 crore Net Profit, net profit margin stands at 3.1% (net profit/total
revenue) Industry comparison, the firm has marginally higher margins ~15%, mainly because of premium
product lines and economies of scale. Decline in rural demand of some of its
segments combined with higher input costs have further weighed down on the profitability of the firm.

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Optimised operations along with higher margins from high-margin product categories
would improve margins.

2.4 Net operating Profit Margin (NOPM)

An operating income of rupees 1,356 cr for Patanjali Foods for FY 2024 translates into a NOPM of 4.3%
worked out on the basis of operating income as a percentage of total revenue. The leaders in benchmark
have NOPMs that are way ahead at about 14-16% for Dabur and HUL. Analysis is hence, though
Patanjali has been garnering operational efficiencies through backward integration and local sourcing, it
has been suffering on margins with the added burden of high raw material cost and stiff competition
pricing.

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These are also included if we break down the heterogeneities further:

1.Customer Heterogeneity- Serves low-priced and health conscious in the rural and urban sectors with
Ayurvedic offers. Growing demand for non-toxic, Ayurvedic goods through health awareness. Expanding
health-related products and employing Ayurvedic trust.

2. Supplier Heterogeneity- In partnership with 57000 farmers from 190 FPOs with reduced imports and
sustainability enhancement. Manages supply volatility from farmer training. Diversifies sourcing using
1165 MSMEs, supporting “Atmanirbhar Bharat”
3. Competitor Heterogeneity- Dabur’s Ayurvedic skills and HUL’S huge distribution are challenges
who Patanajli fights with. Focuses on FMCG, premium health products, 1.5M outlets, D2C channels.
Builds Ayurvedic backed credibility through innovations and endorsements (MS Dhoni).
4. Resource Heterogeneity- Baba Ramdev’s image and cultural values bring in the element of trust and
Ayurveda with modern scientific basis through the R&D and DRDO tie-up.

3. Value stick strategy for Patanjali:

Value stick states how one should maximize WTP of the consumer but minimize WTS, respectively.
Strategy is applied here to focus on:
3.1. Increasing WTP (Willingness to Pay)
 Make use of leverage identity in Ayurveda: To establish credibility, create new goods with
genuine ayurvedic formulas, highlight traditional-modern combinations, and earn Ayurvedic
certifications.

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  Health Benefits & Education: Conduct campaigns emphasizing the health benefits of the
product, backed by expert endorsements, work with research institutes to validate clinical
benefits.
 Sustainability: To draw in eco-aware customers, it can use eco-friendly packaging and encourage
collaborations with nearby farmers.
 Premiumization: Use e-commerce to introduce customized goods and unique lines.
 Worldwide Growth: Ayurvedic roots are maintained while campaigns are tailored for local
audiences in target markets such as the USA and Europe.
3.2. Willingness to sell (WTS)
 Farmer engagement: Increase the training programmes for farmers across 57,000+ in the supply
chain, ensuring that quality can be maintained along with farmer loyalty.
 Employee care: Employee career-development and well-being packages for talent retention.
 Suppliers: Engage relationships with Farmer-Producer organizations (FPO) to mitigate supply
chains disruptions.
3.3 Strengthening Firm Margins
 In-house production: Quality, Scalability, and cost control are guaranteed via backward
integration across 25 plants.
 Direct sales: Use 3,420 Kendra to interact directly with customers, cutting down on middlemen
and increasing profits.
 Competitive pricing: Assure market penetration by providing middle-class households with high
quality, reasonably priced items.
 Innovative offering for customer delight: Introduce eco-friendly packaging and herbal wellness
packages to draw in customers who are concerned about sustainability and their health.
 Digital Expansion: Expand social media campaigns, collaborate with quick-commerce
platforms, and improve e-commerce platforms with AI personalization.
 Engagement: Promote brand resonance and loyalty by raising awareness through influencer
partnerships and cultural marketing.

Component Key Strategies

Willingness to Pay (WTP) Premiumization, Ayurvedic certifications

Customer Price Targeting middle-income segments

Compensation Enhanced supplier relationships

Willingness to Sell (WTS) Employee retention, supplier loyalty

4. Strategic Initiatives
 Product innovation: Introduce health-oriented product lines in the form of nutraceuticals and
herbal wellness kits.
 Digital Presence: Consolidate e-commerce platforms with customized Ayurvedic solutions.

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  Sustainability Goals: Scale up renewable energy initiatives and encourage eco-friendly
agricultural practices.
 Market diversification: Target premium urban markets and increase experts to countries with
substantial Indian diaspora populations.

5. Traditional vs Reinvented Business Model

Value Proposition for Customers (CVP)
Previous Model:
 Centred on providing reasonably priced Ayurvedic items to clients who are budget conscious and
health sensitive.
 Relied on Baba Ramdev’s reputation to establish credibility and confidence.
 International markets and premiumization are not given enough attention.

Reinvented Model:

Added eco-friendly products and high-end Ayurvedic product lines to CVP

 Focuses on targeting worldwide consumers by combining Ayurveda with contemporary scientific
confirmation.
 Maintains the authenticity of Ayurveda while adapting goods for global markets.

Profit Formula:
Previous:
 The revenue model is primarily centred on low prices and big volume sales, utilizing retailers
and direct distribution channels such as Arogya Kendras.
 Cost structure: Direct sourcing from farmers and backward integration result in low production
costs.
 Marginal Model: Using aggressive pricing to operate with a reduced profit margin.
 Resource velocity: Using a vertically integrated supply chain, the goal was to maximize output
and distribution.

Reinvented Business Model:

 Revenue model: A combination of value-based and price-based income from high end goods
with a greater share from high-margin items
 Cost structure: Economies of Scale can help offset the potential cost increases associated with
the emphasis on sustainability and environmentally friendly packaging
 Marginal Model: Higer profitability as a result of improved operational efficiency combined
with a larger margin from premium products.
 Resource Velocity: Streamlined with e-commerce systems for improved targeting and AI-driven
personalization.

Key Processes:
Old model:

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  Production: Direct manufacture in 25 plants and backward integration with nearby farmers.
 Distribution: Retail chains, exclusive outlets and an expanding e-commerce presence
comprise over 1,5 million touchpoints.
 Marketing: Significant dependence on traditional Ayurveda, cultural values, and Baba
Ramdev images

Reinvented business model:

 Production: Backward integration will remain a priority, while product innovation will receive
more attention.
 Distribution: Increasing online retail footprint and entering international marketplaces.
 Marketing: Digital marketing tactics emphasizing the scientific advantages of Ayurveda and a
more robust influencer-driven strategy.
Key resources:
Old Model:
 Mostly depended on the credibility of Ramdev and the widespread faith in Ayurveda.
 Restricted R&D resources.
Reinvented Model:
 Makes investments in cutting edge R&D facilities and global partnerships.
 Increase brand equity though international advertising and celebrity endorsements.
 Build a strong e-commerce foundation for smooth online transactions.
 Increases worker engagement through wellness programs and training courses.

Three characteristics of good business model:

Aligned with company goals: Yes, Patanjali’s emphasis on health is consistent with its concentration on
innovative, higher margin items.
Self-reinforcement: Increasing product options and digital presence broadens consumer reach and fosters
brand loyalty.
Robust: The plan puts Patanjali in a strong position to handle international competition and adjust to
shifting market conditions.
Business Model Cycle:

Policies: Sustainability initiatives, Strategic Pricing, and Digital marketing.

Assets: E-commerce platforms, product R&D, brand image.
Governance: Farmer training, partnerships with research institutes, influencer collaborations.
Consequences: Increased consumer trust, brand loyalty, higher margins, global presence.

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Virtuous Cycle:
Product Innovation & Premium offerings→ High demand → Customer Loyalty→ High revenue &
Margin → Stronger brand image→ Competitive edge → Diversification → Global expansion

Conclusion:
Patanjali Foods Limited demonstrated quite remarkably growth and resilience for a company in the
challenging FMCG industry, which integrated traditional Ayurvedic principles with modern business
strategy. Further competitive edge by way of increasing willingness to pay, optimizing willingness to sell,
and strengthening firm margins can be achieved using the reinforced value stick approach for Patanjali
Foods Ltd. The adoption of a reimagined business model centered on sustainability, digital presence, and
premiumization makes Patanjali well placed to capture new markets without compromising its core
values of affordability and authenticity.

Addressing industry heterogeneities and embracing strategic initiatives would enable Patanjali to sustain
growth, fortify brand equity, and solidify a strong base for domestic as well as international markets. Its
business model being aligned with the long-term goals ensures resiliency and adaptability within an ever-
changing landscape. Continuous innovation and execution in strategies would make Patanjali continue to
hold leadership in the FMCG segment and bring value to the stakeholders and promote overall wellness.

References:

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from
https://nsearchives.nseindia.com/corporate/RUCHI_03092024163952_Letter_to_SE_BRSR.
pdf
2. StartupTalky. (2024). Patanjali Business Model: Strategy and Revenue Insights. Retrieved
from https://startuptalky.com/patanjali-business-model/
3. Patanjali Ayurved. (n.d.). Patanjali Ayurved official website. Patanjali Ayurved. Retrieved
November 24, 2024, from http://patanjaliayurved.org/
4. Bloomberg. (n.d.). Patanjali Ayurved Limited company profile. Bloomberg. Retrieved
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November 24, 2024, from https://www.patanjaliayurved.net/
6. Wikipedia contributors. (2024, November 22). Patanjali Ayurved.Wikipedia. Retrieved
November 24, 2024, from https://en.wikipedia.org/wiki/Patanjali_Ayurved
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November 24, 2024, from https://economictimes.indiatimes.com/company/patanjali-
ayurved-limited/U24237DL2006PLC144789