Direct selling companies like Oriflame, Amway beat economic slowdown, grow 23% in FY12

08 Aug,2012

By Ratna Bhushan

 

Sanjana Jalan, an executive with a multinational and mother of two living in upscale Gurgaon, has not shopped for cosmetics at malls for a year or so. “I just call up my Oriflame distributor who delivers the cream and lipsticks I want at my home at the same prices I would pay for a brand in a retail store,” she said.

 

If it’s convenience that makes Ms Jalan opt for a direct-selling brand, Lata Gupta, a receptionist at an export house in Mumbai, uses only Tupperware containers in her kitchen because of their durability. “These last really long, make my kitchen look smart…and products come with a life-long guarantee that’s something others don’t offer,” said Ms Gupta.

 

Reasons may be different, but Indian consumers are increasingly buying Amway shampoos, Tupperware containers, Oriflame creams and Herbalife wellness drinks. While traditional FMCG companies are facing slower growth due to economic slowdown and weak monsoon, direct-selling companies seem to have bucked the trend riding on stable demand, direct engagement with consumers, flexibility in market penetration and lower costs.

 

“The direct selling industry is showing diversified consumption patterns across the country, increasing demand from tier-2 and tier-3 cities and higher acceptability by consumers, distributors and entrepreneurs,” said Chavi Hemanth, secretary general at the Indian Direct Selling Association (IDSA).

 

Direct selling firms-which sell their products to consumers without routing them through retail stores-are estimated to have posted 21 per cent-23 per cent growth in India in 2011-12, according to IDSA and industry body PHD Chamber.

 

In contrast, traditional FMCG companies, which sell through retail channels, grew 15 per cent in 2011, and 17 per cent so far this year. Of course, the direct-selling industry with estimated revenues of over Rs6,000 crore in 2011-12, is minuscule compared to the country’s FMCG industry estimated at about Rs150,000 crore.

 

But direct sellers such as Amway, Tupperware, Oriflame, Herbalife and Modicare are growing faster-the industry is expected to touch Rs10,800 crore by 2014-2015.

 

“Since we engage directly with end consumers, we haven’t seen a significant slowdown. Traditional FMCG companies are unable to offer a personal connect with their consumers,” said Bill Pinckney, MD of Amway India, the country’s biggest direct selling firm with sales of Rs2,130 crore.

 

Amway, which sells shampoo, toothpaste, home care products and health supplements in India, overtook traditional firms like L’Oreal, Nivea and Kellogg by revenues last year.

 

So what helps direct sellers largely avoid the slowdown? For one, say industry experts, the direct selling industry is by and large not impacted by fluctuations in rural demand because most products target urban consumers. Also, these firms have direct engagement with consumers, most companies have brought down prices at par with traditional products, and almost all products offer buy-back guarantees.

 

Direct selling firms have lower costs of doing business because they don’t invest heavily in mass media and save on expenses involved with distributor and retail channels.
“Also, their consumer outreach is much higher,” said SP Sharma, chief economist and head of research at PHD Chambers, which brought out the report: ‘Expanding horizons – Indian direct selling industry’.

 

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