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

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  • 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 have passed half a billion dollars.
  • According to a report by Avendus, the branded spices category offers a chance of 50,000 crore 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 branded mixed spice market. This market, the research report says, is worth 12,500 crore, or about $1.5 billion.

And it’s not just Dabur India bringing in the top regional spice manufacturers – FMCG majors and private equity funds are also betting on this market. Kerala-based Eastern Condiments was acquired by Norwegian food giant Orkla for ₹2,000 crore and later merged with southern food company MTR.

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

The potential of the branded spice industry also has private equity players interested – A91 Partners acquired 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 come in at ₹4,944 crore, or just over $600 million.

Branded spices – a chance of ₹50,000 crore

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

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

The report highlights several factors that make spices one of the most attractive categories in the packaged food segment.

Thanks to its extensive use in Indian meals, spices is a large category that can be tackled by multiple brands targeting the very broad palate of Indians.

“Having fresh ‘home cooked food’ has always been the way of life for Indian households. With increasing health awareness, consumers are realizing how important it is to cook fresh food at home instead of having unhealthy food outside,” the Avendus report said, highlighting the large spice market.

The gradual shift from disorganized to branded spices and the increasing acceptance of blended spices makes this a fast-growing category. According to Avendus, the organized sector is expected to account for half of total revenue by 2025, up from 36% in 2020.

Customers are willing to pay a premium for easier cooking

Aside from a gradual shift from disorganized to organized, the report adds that there has also been a noticeable shift from traditional house-made masalas to branded spice mixes such as
garam masala, pav bhaji masala, and
sambhar masalato name a few.

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

Multiple factors such as region-specific blends, brand retention, convenience and the availability of different options in different cuisines have contributed to higher growth of mixed herbs. The report notes that customers are willing to pay a premium if it makes their cooking faster and easier.

“Global multinationals have a significant share of a few packaged F&B categories, while spices are only made up of local Indian players due to its regional/local character. The spice market is a challenging category for multinationals to expand organically,” the Avendus report said.

The local/regional nature of spices has also prevented multinationals – which have a significant share of other packaged food categories such as noodles, savory snacks, ready meals and juices – from cracking the spice category.

According to the report, this category is dominated by local players such as Everest, MDH, Sakthi, Aachi and Eastern with a combined share of 43%, while MNCs are not present. These companies, in addition to Aachi, are also among the top 20 food companies, the report added.

“Even national players have to adapt their mixed spice recipe to the taste of different regions,” the report adds.

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