Amway's fortunes dip in India

Firm continues to be bigger than FMCG giants Gilette & Emami despite 20% fall in net profit and 8% decline in revenue in FY14

Amway, India’s largest direct-selling company, saw a drop of 20 per cent in net profit and 8 per cent in turnover in 2013-14.

This was the first time both declined, even as the market grew. The operations are believed to have been affected by the arrest of its managing director & chief executive, William S Pinckney, under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 — first in 2013-14 and again earlier this year.

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Amway India’s net profit in the financial year ended March stood at Rs 198 crore, down 20 per cent from Rs 247 crore the previous financial year, according to its filings with the registrar of companies. During this period, revenue declined 8.2 per cent from Rs 2,168 crore to Rs 1,990 crore. In 2011-12, the revenue stood at Rs 2,110 crore. “The main reason for this decline is that we have faced persistent and increasing challenges due to misconceptions about our business model, as well as the lack of clear rules to distinguish fraud from legitimate direct-selling activities. Much of the confusion about Amway’s business is around our direct-selling model,” Pinckney told Business Standard.

Despite its recent problems, Amway remains bigger in size than Emami, whose revenue in 2013-14 was Rs 1,705 crore, and Gillette, which reported a revenue of Rs 1,750 crore. However, Proctor & Gamble, whose revenue in India was lower than Amway previously, has crossed the latter. It had a turnover of Rs 2,051 crore in the country in 2013-14.

About half the 1.5 million direct distributors Amway operates through are actually consumers who have turned distributors, primarily to buy for themselves at a discount. Amway’s business associates form a substantial alternative distribution chain, as beverage companies alone cover about five million of the country’s close to eight million retail outlets.

Under Amway’s model, distributors, enrolled for free, earn commissions on sale of products directly to consumers, in addition to a share in business volumes of their group, comprising other downline distributors.

Amway started India operations in 1998. It has a presence in 80 cities across 10,000 postal codes, 145 offices and 65 warehouses. Its competitors include Oriflame, Herbalife, Avon and Modicare. The direct-selling market is estimated at Rs 7,200 crore, and is projected to grow to Rs 64,500 crore by 2025, showed a recent joint study by the Federation of Indian Chambers of Commerce and Industry  and global consulting firm KPMG. When the company began in India, it was importing all these. Today, 90 per cent of its products are made here, through contract manufacturing. It is also setting up its own factory at Nilakottal (near Madurai), with an investment of Rs 500 crore.

Personal care and nutrition & wellness are the largest segments, with a little more than  70 per cent of revenue from these, the balance sheet shows.

Pinckney said the company would continue to push for reforms in direct-selling laws and work with lawmakers to ensure they understood the legitimacy of such sales and Amway’s business. “We maintain our position that the prize chits Act needs to be amended, so that Indian citizens are protected from illegitimate financial frauds offering illusory products and, at the same time, legitimate direct sellers are allowed to operate,” he added.

At present, an internal committee of the consumer affairs ministry is working on possible amendments to the regulations and evaluating the need for an independent regulator to oversee the direct-selling industry.