The growth story behind half a billion dollar bets on 'regional' Indian spice makers

• FMCG major Dabur India announced the acquisition of a 51% stake in Badshah Masala for ₹588 crore.
  
• With this, FMCG and PE bets on the ‘regional’ Indian spice makers has crossed half a billion dollars.
  
• According to a report by Avendus, the branded spices category presents a ₹50,000 crore opportunity by 2025.
  

Dabur India’s acquisition of a 51% stake in Badshah Masala for ₹588 crore fits into the FMCG major’s strategy to expand its food business to ₹500 crore in three years.

According to a report by IDBI Capital, this acquisition will also strengthen Dabur India’s portfolio in the large market of blended-branded spices. This market, the research report says, is worth ₹12,500 crore, or about $1.5 billion.

And it’s not just Dabur India that’s snapping up top regional spice-makers – FMCG majors and private equity funds are also betting on this market. Kerala-based Eastern Condiments was acquired by Norwegian food major Orkla for ₹2,000 crore and was later merged with Southern food company, MTR.

ITC too acquired Kolkata-based spice maker Sunrise for ₹2,150 crore.

The branded spice industry’s potential has private equity players interested as well – A91 Partners picked up a 25% stake in Pushp Spices for ₹126 crore and InvestCorp acquired a minority stake in Intergrow’s Kitchen Treasures brand for ₹80 crore.

Overall, these recent deals add up to ₹4,944 crore, or a little over $600 million.

Branded spices – a ₹50,000 crore opportunity

Spices are at the centre of almost every Indian meal, regardless of the region. This presents a ₹50,000 crore opportunity by 2025 for branded spice makers, up from ₹24,000 crore, according to a 2021 report by financial services firm Avendus.

The report notes that while straight spices have gross margins of 33-35%, blended spices offer even better margins at over 45-50%.

The report underlines multiple factors which make spices one of the most attractive categories in the packaged food segment.

Thanks to its extensive use in Indian meals, spice is a large category that can be addressed by multiple brands catering to the very wide taste palate of Indians.

“Having fresh ‘home cooked food’ has always been the way of life for Indian households. With increasing health awareness, consumers are realising the importance of fresh cooking at home rather than having unhealthy food outside,” said the Avendus report, underlining the large market available for spices.

The gradual shift from unorganised to branded spices, and the increasing adoption of blended spices makes this a high-growth category. The organised sector is expected to account for half of the total business by 2025, up from 36% in 2020, according to Avendus.

Customers are ready to pay a premium for easier cooking

Apart from a gradual shift from unorganised to organised, the report adds there has also been a noticeable shift from traditional home-ground masalas to branded spice mixes like garam masala, pav bhaji masala, and sambhar masala, to name a few.

According to the report, blended spices are growing at a CAGR (compounded annual growth rate) of 25%, while straight spices are growing at a CAGR of 12%.

Multiple factors like region-specific blends, brand stickiness, convenience and the availability of various options across cuisines have contributed to higher growth of blended spices. The report notes that customers are ready to pay a premium if it makes their cooking faster and easier.

“Global MNCs have a significant share in a few packaged F&B categories, whereas spices comprise only of local Indian players due to its regional/local nature. The spices market is a challenging category for MNCs to expand organically,” the Avendus report added.

The local/regional nature of spices has also meant that MNCs – which have a significant share in other packaged food categories like noodles, savoury snacks, ready meals and juices – have not been able to crack the spices category.

According to the report, this category is dominated by local players like Everest, MDH, Sakthi, Aachi, and Eastern with a combined share of 43%, while MNCs have no presence. These companies, except Aachi, also figure amongst the top 20 food companies, the report added.

“Even national players have to modify their blended spices recipe to suit the tastes of different regions,” the report adds.

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