Earlier in March, speculation was rife about the top fast-moving consumer goods (FMCG) company Hindustan Unilever Ltd (HUL) acquiring one of the oldest players in the spices segment, Mahashian Di Hatti Pvt. Ltd or MDH. MDH and HUL both denied the move but investors enthused with the reports of the deal, which would have given the largest FMCG company a foothold in the rapidly growing spices segment, where only regional companies have successfully built a play so far.
The spices market in India, according to a report by Avendus Capital, is valued at Rs 70,000 crore, in which branded spices command only a 35 percent share. A paper released by the investment bank last year estimated that the branded spices market is set to double in size by 2025 to Rs 50,000 crore. Avendus estimates that by FY30, 15 spice companies are estimated to exceed Rs 1,000 crore in revenue, and of this, four will achieve ₹5,000 crore in annual turnover.
FMCG companies have so far mostly stayed away from the segment due to its commoditised nature, but the rapid shift of consumers to branded products makes the segment ripe for the picking.
“Till 2000, under the government policy only MSMEs (micro, small and medium enterprises) could sell spices, which limited the entry of large players in the segment. Also, consumers preferred buying spices as commodities and grinding them at home. But that’s changing now and this has triggered the interest of large FMCG companies,” said Ankur Bisen, senior partner and head of the consumer, food and retail practice at consulting firm Technopak.
FMCG in the spices space
Though FMCG companies such as Tata Consumer Products and ITC are trying to gain share in this sector through their brands Tata Sampann and Aashirvaad, respectively, regional players continue to rule the segment.
According to market estimates, Everest, MDH, Sakthi Masala, Aachi and Eastern Condiments are the top players in the packaged spices market. Everest has an 11-12 percent share of the market, MDH 8-9 percent, Sakhti Masala 7 percent, and Aachi and Eastern command 5 percent each, as per industry estimates. About 2,000 brands are competing for a share in the rest of the market (over 50 percent), which makes it a tough segment to crack for FMCG brands. Companies such as ITC and Tata Consumer have managed to gain less than 1 percent share in this market organically so far.
The spices segment can be divided into the subcategories of pure packaged spices and blended spices. Both have their own set of challenges.
Pure spices or commodities are prone to price fluctuations which also impact margins. “The price of the commodities fluctuates frequently and it has to be sourced from mandis, which created bottlenecks for FMCG companies that need supplies in large quantities,” said Sanjesh Thakur, partner, Deloitte India.
The blended spices category, on the other hand, though a high-margin and high-growth category, has its constraints given the varied consumer palate of the country.
“The biggest challenge before any company trying to penetrate this segment is the fact that each region has its spice blend. The way fish curry is cooked in Goa is very different from Maharashtra or West Bengal. Hence, a national-level brand is yet to emerge in this category,” said Thakur.
Pure packaged spices command a margin of 30-35 percent, while companies draw margins of as high as 60 percent from blended spices. The packaged spices market has witnessed a growth rate of 12-15 percent in the last five years, according to industry estimates. The blended spices sub-segment on the other hand has grown at 24-25 percent over the same period.
Consumer goods companies, too, have realised these challenges in the pure and blended spices segment and have taken the inorganic route to tap this segment. ITC in 2020 acquired packaged spices company Sunrise for Rs 2,150 crore. The company is a significant player in the eastern region, with a 15-20 percent share. In West Bengal, Sunrise has a 50 percent share, as per market estimates. Its share nationally, however, is below 5 percent. In another major deal in the segment, Norway’s Orkla Foods acquired Eastern Condiments in 2020 and merged it with MTR Foods, the Bengaluru-based food products company it had bought in 2007.
Finding the right blend
Besides the inorganic route, Tata Consumer and ITC are striving to build a play in the segment organically too. The companies have taken several initiatives such as offering innovative packaging and offering unique blends to edge out regional players.
Tata Consumer and MTR have introduced ziplock packaging for spices to retain their freshness after opening the pack. MTR has introduced “innovative blends” in a bid to outdo regional players. The company has launched spice blends such as Bisibelebath Powder, Vangibath Powder, Tomato Rice Powder, etc.
Tata Consumer is also betting on the consumer shift from the unbranded to branded segment to drive its growth in the category. “There is huge headroom for large players to drive conversion. We are seeing great traction for our pure range of spices as the Tata brand name denotes trust and quality and consumers value this increasingly in a category prone to adulteration,” said Deepika Bhan, president, packaged foods (India), Tata Consumer Products.
ITC is strengthening its distribution in the category and modifying its offerings according to the palate of various regions. “We have customised our products in line with the regional tastes and preferences and have adjusted the delivery on the key parameters in terms of pungency, volatile oil, aroma and the core ingredients itself,” said Ganesh K Sundararaman, SBU chief executive, staples, snacks and meals, foods division, ITC.
“Going forward, the idea is to take the regional specialities to newer markets. We are also looking at introducing new culinary solutions in western cuisine,” he added.
Industry analysts say catering to regional tastes is going to be the top challenge before FMCG companies and, hence, the segment is likely to see further consolidation.
“Spices have always been a regional growth story. All regional players have their flavours and are hence attractive acquisition targets for large FMCG companies,” said Thakur of Deloitte.
“Companies are not likely to start from scratch but acquire these small firms,” he added.
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