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Slim customers, fat profits
Smita Tripathi | May 24, 2003
It was a situation tailormade for American corporation Herbalife International. Three years ago it made a debut in India just as health consciousness was on the rise.
Today the company, which sells nutritional food and dietary supplements, has sales of Rs 330 crore (RS 3.3 billion) and it's fattening swiftly.
Herbalife couldn't have timed its arrival better. The World Health Organisation reckons that about 50 million Indians are overweight -- and, therefore candidates for Herbalife products.
"Nearly 15 per cent of the urban population in India is overweight. However, people are now becoming more health conscious and managing your weight is becoming a fad," says Manoj Shirodkar, country director, Herbalife International India Pvt Ltd.
Of course, Shirodkar is not complaining. The larger the number of obese people and the more weight conscious they become, the better it is for him.
After all, nearly 80 per cent of his turnover comes from weight-management products. The remaining 20 per cent comes from nutritional food.
Herbalife India is a subsidiary of Herbalife International, which is a $1.8 billion direct selling company specialising in nutrition, skincare and weight-management products.
The parent company has a 75 per cent share in the Indian company which was set up in 1999 in Bangalore. Since then it has been growing at a healthy 20 per cent and posted a turnover of Rs 100 crore (RS 1 billion) in 2002-03.
Shirodkar believes that India could be a huge market for nutritional food and slimming products. He says that the weight-managemnt category alone is growing at 15 per cent annually.
Herbalife sells seven products in India of which two were launched in the last four months. Globally it has a portfolio of over 40 products.
So what makes Herbalife click? "We have a very strong distributor network and in a direct selling company that is most important," says Shirodkar.
After only three years Herbalife has established a network of 40,000 distributors across the country and nearly 1,000 people apply to become distributors every month.
Shirodkar says that distributors get a fair deal with Herbalife. A person who wants to become a distributor has to pay Rs 1,500 as a one-time membership fee. He then gets products worth Rs 2,000.
Once he has sold them, he can purchase more products from Herbalife at a 25 per cent discount. The more he sells, the higher the discounts. So some top-selling distributors can earn margins of upto 65 per cent according to Shirodkar.
Moreover, unlike other direct selling companies, here there isn't a pyramid structure. Each distributor's commission depends on how much he sells.
"Most of our distributors have been our customers. They tried the products, liked them and so were convinced that they could sell them to others," says Shirodkar.
As a result the company hardly spends anything on advertising and promotions. "There is no point in advertising, as our products cannot be bought at the local grocer. One has to buy through a distributor.
"Therefore, it becomes essential that the distributor pushes the product," says Shirodkar. The company provides promotional material to the distributors free of cost.
"The key to success is distributor enthusiasm. The distributor has to be enthusiastic about the products and should have faith in them," says Shirodkar.
Moreover, since the products are food supplements, the distributor has to be familiar with the ingredients and other details. All distributors are trained every six months by Herbalife International's medical advisory and scientific board, part of the US company's R&D department.
Besides this, Herbalife India conducts monthly training sessions. During the training programmes, the distributors are trained on general nutrition, dos and don'ts of weight-management and selling skills.
"Our training session trains them on both the technical side of things and the sales side," says Shirodkar.
In fact, Herbalife's major expenditure is on training. Nearly 20 per cent of the operational budget is meant for training distributors. Herbalife says that its anti-fat foods work by creating a feeling of fullness and also by suppressing fat absorption.
For Herbalife, the money definitely lies in making the obese people of India health conscious. Nearly 80 per cent of its turnover comes from weight-management products. The remaining 20 per cent includes nutritional food and drinks for children.
Globally nearly 60 per cent of sales come from weight-management products. Other products include skincare and nutritional products. Currently, Herbalife India does not plan to introduce the skincare and cosmetic range in the country.
"We plan to concentrate on the slimming and weight-management products as there is relatively less competition is this field," says Shirodkar.
He feels that in this market he is competing with gymnasiums and centers such as VLCC, while there is no food supplement that helps you lose weight.
In India the products are available in vanilla, chocolate and mango flavours. The mango flavour was specially introduced keeping Indian tastes in mind. Soon a strawberry flavour is going to be launched.
By the end of the year, Herbalife will launch four more products. It is also strengthening its storage and warehouse network.
Currently, there are 15 warehouses and this will go up to 19 by the end of the year. "We would like to have a warehouse in every state. This will help us avoid inter-state transportation thereby cutting costs," says Shirodkar.
Herbalife India has also reduced costs by manufacturing the products in India rather than importing them from the US. The Indian company has a third-party manufacturing facility in Pune.
The raw materials are procured by Herbalife and the technical know how comes from the US. Herbalife also maintains the quality control.
With WHO stating that by 2020 more people will die of heart attacks than of diabetes and tuberculosis, weight-management is definitely becoming the new mantra.
No wonder then, Shirodkar is grinning all the way to the bank.