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Amway’s fortunes dip in India

In terms of revenue, it is still bigger than fast moving consumer goods (FMCG) giants such as Gillette and home-grown Emami. But the country’s largest direct selling company, Amway has reported a sharp drop of about 20% in net profit in fiscal year 2014, while its revenue dipped more than 8% during the year.

This is the first time the company has witnessed a decline in both revenue and net profit while the market continued to grow. Its managing director and chief executive officer William S Pinckney’s arrest under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS) during FY14 and also again this year have impacted the company’s operations in the country.

In fiscal year ended March 2014, Amway India reported a 19.87% decline in net profit to Rs 198.16 crore, from Rs 247.32 crore during the previous fiscal year, according to the company’s fillings with the Registrar of Companies (RoC). Its revenue declined a 8.2% to Rs 1,990.29 crore in FY14, as compared with Rs 2,168.14 crore in FY13. In FY12, revenue stood at Rs 2,110.91 crore.

“The main reason for this decline is that we have experienced persistent and increasing challenges due to misconceptions about our business model as well as the lack of clear rules that distinguish fraud from legitimate direct selling activities. Much of the confusion about the Amway business is surrounded by our direct selling business model,” Pinckney told Business Standard, clarifying the fall.

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

Under Amway’s direct selling model, distributors are enrolled free of cost and make commissions on selling products directly to consumers and also from a share of their own group’s business volumes, comprising of other downline distributors.

Amway started operations in 1998 and now has presence across 80 cities covering about 10,000 postal codes, and has about 145 offices and 65 warehouses. Its competitors include Oriflame, Herbalife, Avon and Modicare. The direct selling market is estimated at about Rs 7,200 crore, and is projected to grow to about Rs 64,500 crore by 2025, a recent joint study by industry bidy FICCI and global consulting firm KPMG noted.

Amway started its business in India by importing all its products, and now produces almost 95% of its products here through contract manufacturing and is putting up its own factory at Nilakottal (near Madurai) with an investment of Rs 500 crore.

Personal care and nutrition & wellness is the largest segment and the company gets more than 70% of its revenue from this segment, Amway India stated in its balance sheet.

Pinckney also said that the company will continue to advocate for reform to direct selling laws and work with lawmakers to ensure they understand the legitimacy of direct selling and the Amway business. “We maintain our position that the Prize Chits Act needs to be amended so that Indian citizens are protected from the illegitimate financial frauds who offer illusionary products while allowing the legitimate direct sellers to operate,” he added.

An internal committee of the consumer affairs ministry is also working on possible amendments in the regulations and requirement of an independent regulator for the direct selling industry.

However, Amway is still bigger in size than Emami, which reported revenue at Rs 1,705.08 crore in FY14 and also Gillette that had a revenue of Rs 1,749.79 crore during the same year. But, Proctor & Gamble, which previously had revenue lower than Amway in India, has now crossed the direct selling giant with revenue at Rs 2,050.94 crore in FY14.

Besides, Amway India has also tried out the services business leveraging its huge distributors network. It is a corporate agent for Max Life Insurance  and sells health insurance for Royal Sundaram Alliance through its subsidiary, AmSure Insurance Agency Ltd.

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