Touch and Feel

Direct selling FMCG major Amway is now looking beyond established channels to grow its presence in India

When the world’s biggest direct seller Amway signed up Bollywood actor-cum-director Farhan Akhtar as the face of its flagship brand Nutrilite a year ago, he was the company’s first brand ambassador in two decades of its presence in India. For more than a year, Amway went all out running TV, print and outdoor campaigns. 

The high visibility campaigns would set the tone for the company to pursue its omnichannel strategy to reach more consumers. In the past one year, Amway not only went online – moving from being a B2B player to a B2C player; but also set up 32 pick-and-pay stores across several cities in India where consumers can walk in and pick up their products directly. Their target is to have 50 such stores by the end of 2018. 

It’s only natural that Anshu Budhraja, CEO, Amway India is excited about the company’s new strategy. “We want to place the company in a position of strength where it is well-entrenched in the click and brick model. These consumer-centric stores are located in high footfall mom-and-pop setting where the brand will have high visibility,” says Budhraja. 

He is quick to clarify that at the core of its being, Amway will remain a direct selling company and the new channels will help the existing direct sellers. “I would say it complements my channel, and doesn’t conflict with it. Any consumer can walk into the store and buy Amway products seamlessly like in any other store. At the back end, we assign a local distributor to help customers know more about the products that they can buy later. The distributor then becomes a good touch point for further discussions about the brand,” he says.  

Richa Kumar, who has been an Amway distributor for the past two years, feels that the opening up of stores and sales via the company’s website have helped generate additional customer leads without effort. “The contact details of direct buyers are shared with us. In my experience, some of the customers have shown interest in engaging with the distributor to know more about our range or purchase products in the future. The discounts and incentives are given only if you become a part of the chain, so they continue to engage with distributors,” she says. While the final prices are the same across all platforms, the distributor can give customers a discount from their own margins if they expect a repeat order or if they are buying large quantities.   

There is a very good reason why Amway is embracing a multi-channel strategy in India, when in its home market it continues to be a hard-core direct-selling company. The company’s sales in India has been slipping continuously over the past three years even when leading consumer companies have grown steadily. Amway’s revenues plummeted from Rs.1,990 crore in 2014 to Rs.1,629 crore at the end of December 2016 (see: A chequered run). Apart from increasing competitive pressure, six of its products were banned by Maharashtra state government in 2015 that took a toll on its sales. Amway has since then ensured that its products comply with all food regulations issued by the Food Safety and Standards Authority of India (FSSAI).

What’s disturbed this global direct-seller during the past two years was also a couple of run-ins with the regulators and state governments, which only exacerbated the situation and probably compelled the company to rethink its strategy. Their former CEO, William Pinckney was arrested twice in Andhra Pradesh and Kerala for financial irregularities. The complaints against the company were made by selling agents in the Amway chain who did not get what they anticipated to earn. In the absence of guidelines for direct selling, states often tried such cases under the Prize Chits and Money Circulation (Banning) Act which has been strongly contested by the company. This is despite the fact that the direct selling sector in India accounts for Rs.8,200 crore, according to a KPMG-FICCI report. However the good news for Amway is that new direct sales guidelines in India were finally released in 2016. Once these guidelines become the law, direct sellers like Amway are expected to face a lot less trouble on the regulatory front.  

The Indian strategy to have branded stores bears an uncanny resemblance with how Amway dealt with its China crisis in 1998, when Chinese government banned all the direct selling activities in China. Amway opened branded stores in China back then and changed its sales strategy. But probably the most critical plank of Amway’s China strategy was to carefully engage with Chinese officials. China lifted the ban on direct selling in 2005 when it signed WTO agreement. To engage with future decision makers, Amway sponsored a fellowship at Harvard’s Kennedy School of Government to rising stars in the Communist party. The fellows are known as Amway fellows, and years later several of them hold key positions in provincial governments in China. Now, more than a decade later China is Amway’s largest market, contributing one third of its $8.8 billion revenue in 2016.

“China allows direct selling but it has its own set of regulations,” says Sujit Jain of Netsurf Communications. Netsurf a personal, organic and beauty care company operates as a direct selling business with 35,000 sellers working for them and last year their revenues were around Rs.150 crore. Some of their brands include Naturamore and Herbs and More.  Rules set by the Chinese government necessitate direct sellers to have physical stores and forbids most forms of multi level marketing. 

 However Jain doesn’t believe that behind Amway’s India strategy lays a philosophy to shun direct selling and becoming a regular retailer on the back of aggressive marketing campaigns. “It is only natural that they want to ride the FMCG boom in India like Patanjali did in recent times. Secondly, there is a lack of sound regulatory framework for direct selling in India. That is why they are trying to find other avenues for growth,” says Jain. Thanks to its success with China’s hybrid model, the approach has been exported in bits and pieces to various parts of the world. “Direct sellers have used celebrities in a limited way in the past too.  Amway being the biggest player has funds for Above the Line (ATL) promotions. It is using ATL to promote products, to provide collateral support to direct seller. It is a push strategy unlike the usual pull strategy” says Jain.  

Changing tracks
Direct sales are an asset-light model as the distributor directly connects with the customer. Thus, having offline stores can pressurise Amway’s margins. “Retail expansion in India is an expensive strategy. Both salaries and rents are increasing. But now that consumers can buy directly, Amway will be able to retain some of its margins to set off against the cost of opening retail outlets,” says Jain. 

“Our goal is not to be in swanky malls. We want to be in neighbourhood places where people converge for daily needs. We are not on an expansion spree like McDonald’s or Pizza Hut. That’s not our strategy. We follow our distributor sales. If we see distributor sales going up in a particular locality, then we come up with a store,” he explains how the strategy would work for them. 

Before opening up its stores to consumers, Amway set up stores primarily for its distributors. The company started with six stores in 2005, which was open only to distributors. Over the years, the store count has risen to 150 stores across the country. While most of them function as ordering points for distributors, especially in tier III towns, 20 of them double up as office-cum-stores for Amway and 32 of them are express-pick-and-pay stores. While the company refused to disclose how much it invests in a store, about 15-20 of its stores are large formats, where the company also offers nutrition and beauty consulting to distributors.

While Amway has mostly converted its existing real estate into customer facing pick-and-pay stores, it has also taken fresh space for its stores in places such as Dwarka and Laxmi Nagar in Delhi, Galleria in Gurgaon, Vimannagar in Pune, and Velachery in Chennai. “Wherever we were not in the hub of economic activity, we have taken fresh space for our stores. We had a big 10,000 sqft store in Okhla Industrial Area in Delhi. But that’s not a heavy footfall area. So, we have opened stores in places like Rohini and Gurgaon,” says Budhraja. 

In this year of operations, Budhraja is happy with the traction that the 32 pick-and-pay stores are witnessing. “Direct consumers now contribute close to 15% of overall store sales. We only sell our nutrition and beauty products in these stores. All the stores are growing at around 15%. It is a new strategy for us and we are making it work by using more technology, having more demonstration areas, and enhancing skills of sales people,” he explains. According to the Amway India chief, beauty products, which used to make up about 8% of overall sales four years ago, now contribute about 12-15%. It has two main brands under which they offer products — Artistry, a super premium brand and Attitude which is an India-specific brand. 

Getting online
While Amway started its own B2B e-commerce platform for distributors as part of its multichannel strategy in 2008, the gates were opened for direct customers only last year and it is now one of the fastest growing distribution platforms. Today, around 40% sales come from online consumers and distributors.  Except for its cosmetic brand Artistry, Amway sells all its products online. Consumers are required to sign up so the company can then assign a distributor to the online buyer.“A lot of people didn’t have access to Internet earlier. So, multi-level marketing (MLM) thrived in such a scenario,” says Saloni Nangia, president, Technopak. 

“But now, with growing Internet consumers, the opportunity in India is large. Amway is a well-recognised brand. Going B2C makes more sense for them,” she says. Budhraja expects the percentage to go up significantly in the future as Amway plans to launch its own mobile app soon. 

Amway is also working on a one-on-one consumer connect strategy. It works something like this — one minute for the customer to register, an hour to get in touch with a distributor and one day to deliver. Budhraja is aware of who and what he is competing against. “The consumer experience with the brand is critical. You cannot have Amway delivering in ten days while other e-commerce companies are delivering in two to three days. We deliver within a day in top 20 cities,” says Budhraja. To ensure that there are no operational glitches, the company has outsourced its entire delivery process to third party logistics players. 

So, will Amway allow the Amazons and Flipkarts of the world to sell their products online in the future? “Never,” says Budhraja categorically. He feels that if they start selling on Amazon and Flipkart, they would cease to be an MLM or direct selling company in the long run. But the company hasn’t been able to stop their distributors from selling their products on these sites. Amway and many other direct sellers like Tupperware and Oriflame have issued several warnings to distributors who list their products on third party e-commerce sites but has met with little success. “Every player in the industry has faced this issue. No company has been able to restrict the sale of its products on third party e-commerce platforms,” says Nangia. The newly announced guidelines, however, restrict e-commerce companies from selling products on other websites without the permission of direct-selling companies and Budhraja believes that once it becomes a law, they will be able to take action against distributors who sell on other platforms. 

Lots more on offer
After building a dominant position in the health and personal care category for over a decade, Amway has introduced its premium cookware range in India in January 2017. “Amway sells more than 450 products globally but in India, our product range is leaner with about 130 plus products on offer. We launched durables because we believe that the Indian direct selling market has evolved and seems ready for the next phase of growth,” says Budhraja. He feels that as the company introduces more products, its multichannel presence will become its key competitive advantage. 

Even as it forays into new segments, the company wants to consolidate its strong position in the nutrition segment. Currently, products under Nutrilite contribute 60% to the company’s overall sales. “Nutrition is our lead category. We wanted to expand the Nutrilite brand more into wellness and penetrate newer geographies. Farhan has definitely enhanced the positioning of the brand. As the next step, we are getting more personalities associated with adventure and sports to promote the brand. They may not be big celebrities, but are very well-known in their fields. We will be announcing more on this in the next six months,” he says. 

It is clear that Amway is serious about the Indian market where it has the largest share among the direct sellers (see: Standing tall). The company is looking to invest Rs.1,000 crore in the country in the coming year. It has set up its fourth manufacturing facility outside its home country USA, in Madurai, Tamil Nadu. Riding on the growth in the Indian market, Amway aspires to more than triple its revenues, to about Rs.6,000 crore by 2025. “We are confident of our future in India,” concludes an optimistic Budhraja. Its multichannel strategy and new product launches will definitely help Amway get closer to that number.