Direct selling firms bullish despite bearish times

Leading direct selling FMCG firms are bullish about their growth prospects in India despite a negative consumer sentiment in the wake of the financial turmoil.

Companies like Amway, Oriflame and AMC Cookware are banking on the expectation that many people who have either lost their jobs, or are finding it difficult to secure one, would have either taken up, or may take up to direct selling.

The direct selling sector is estimated to be growing at 20 per cent annually. Indian Direct Selling Association (IDSA) Chairman David Stanley, also the CEO of AMC Cookware, estimates that the direct selling industry in the country employs 1.5 million entrepreneurs. The turnover of the Indian direct selling industry grew from Rs 3,100 crore in 2006 to Rs 3,500 crore in 2007. The sector, according to IDSA, clocked a turnover of Rs 2,851 crore for 2007-08 and expects it to double to over Rs 5,000 crore by 2012.

Several American and European companies, notes Stanley, are finding India and China as their favourite destinations to expand their businesses as these two countries are comparatively less affected than the rest of the world. Globally, direct selling is a $102 billion business.

However, traditionally, direct selling companies in India like Amway, Avon, and Oriflame sell products that are priced at a premium compared to other FMCG companies, building on the wellness and superior quality claims. Their focus is clearly shifting to less expensive products of daily use to ensure faster growth in a recession-hit market.

Amway India, for instance, will introduce ‘regular’ products priced at a ‘mass’ level, on a par with its market competitors. The company expects to touch a sales turnover of Rs 3,200 crore by 2012, up from its current Rs 1,000 crore figure.

Amway Vice-President Diptarag Bhattacharjee explains: “We will introduce products and product extensions for categories that are used regularly, so that sales do not dip even if consumer spending does in the short term. For instance, in spite of the recession, consumers will continue to buy basics like toothpastes and toothbrushes, hair oil, disposable razors, shampoo, shaving cream, and others.