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Direct selling companies like Amway India beat economic slowdown of India, growth increased 23% in Financial Year 2012
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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 says.
If it's convenience that makes 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," Gupta says.
Reasons may be different, but Indian consumers are increasingly buying Amway shampoos, Tupperware containers, Oriflame creams and Herbalife wellness drinks.
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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," Chavi Hemanth, secretary general at the Indian Direct Selling Association (IDSA), says.
Direct selling firms—which sell their products to consumers without routing them through retail stores—are estimated to have posted 21%-23% 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% in 2011, and 17% so far this year.
Of course, the direct-selling industry with estimated revenues of over Rs 6,000 crore in 2011-12, is minuscule compared to the country's FMCG industry estimated at about Rs 150,000 crore.
But direct sellers such as Amway, Tupperware, Oriflame, Herbalife and Modicare are growing faster—the industry is expected to touch Rs 10,800 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," says Bill Pinckney, MD of Amway India, the country's biggest direct selling firm with sales of Rs 2,130 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," says SP Sharma, chief economist and head of research at PHD Chambers, which brought out the report: 'Expanding horizons - Indian direct selling industry'. "For example, while a traditional company needs to tie up with retailers to enter new markets, a distributor of a direct selling company can reach even remote target markets directly," he says.
While wellness products top the charts as the best-selling category of direct sellers in India, cosmetics and personal care, and home improvement products too are in demand.
Most big consumer products companies, however, do not consider direct selling a threat.
"Direct selling works more for problem solution or concept selling products; not for mass products like the ones we sell. In that sense, we don't consider them a direct threat yet," says the CEO of a traditional FMCG company that sells personal care products directly overlapping with companies like Amway and Oriflame.
An executive of a premium hair-care products maker, however, said the company is keeping a close eye on Amway. The direct selling firm's Satinique shampoo is one of Amway's top-selling products in both big packs and sachets, putting pressure on established products such as L'Oreal's Garnier and HUL's Sunsilk.
The direct selling industry in India operates on a strength of close to 39 lakh distributors. Traditionally a woman-dominated industry, more and more men are getting into it. The share of male distributors went up to 36% in 2010-11 from 30% in 2009-10, the IDSA-PHD Chamber study says.
Globally, the industry clocked retail sales of $132.2 billion in 2010, growing at 12.5%, through 87 million sales persons. Up to 40% sales have been happening across Asian markets, says the direct selling industry.
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Thanks for Times of India for this article.
