In a bid to drive volumes and boost reach in general trade, Patanjali Ayurved is working on overhauling its incentive structure for its distributors and retailers. The company is now working on introducing a monthly incentive structure for distributors, said people familiar with the development. Patanjali's new policy is a departure from the flat or uniform margin structure that the company has been offering so far.

Patanjali adopted the new strategy after its revenues dropped for the first time in five years. After almost doubling revenues on a year on year basis, Patanjali Ayurved saw a 10 percent decline in revenues in FY18.

A report by Care ratings showed that Patanjali clocked revenues of Rs 8,148 crore in FY18 compared to Rs 9,019 crore in FY17.

Distribution in general trade has been the Achilles heel for Patanjali and the company has been looking at building deeper networks in smaller towns as well. Patanjali distributes to over 5 lakh kirana stores as of now, but expects to reach 50 lakh stores in 2-3 years.

The company is looking to tweak its margin structure as well, sources privy to the matter told CNBC-TV18, adding that the company will revise margins across product categories depending on the nature of the product.

Patanjali is drawing out a plan to offer lower margins for products with higher transportation costs. Distributors and retailers will get higher margins for products with higher storage or warehousing costs. Products which require cold chain storage infrastructure etc... are the ones where a higher margin will be ascribed.

As of now, Patanjali is offering margins of 12-20 percent for retailers and about 4-5 percent for distributors across product categories. The company is also building its own network of representatives to build its direct distribution in tier two and tier three cities.

“The company is synchronising the rate structure on a win-win basis to provide products at lowest possible rate to consumers," Patanjali spokesperson told CNBC-TV18. "We are ensuring that the distributor and retailer gets the fair margin for their contribution to the whole supply chain.”

This new distribution strategy could help the company scale up both revenues as well as reach. In an interview to CNBC-TV18, Patanjali MD, Acharya Balkrishna said, “We have not had a good FY18 owing to GST and demonetisation. The company has not grown in FY18 at the same pace as FY17. We have now strengthened unit, system and sales team in FY18 to compensate for a lackluster year.”

First Published:Nov 26, 2018 4:29 PM IST