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Decoding the Indian spice market | Shift from unbranded to branded spices won't be quick

The fragmented Indian spice industry is worth Rs 80,000 crore and the branded market is valued at Rs 30,000 crore and estimated to grow at an annual pace of 10-15 percent.

March 23, 2022 / 05:13 PM IST
Indian spices (Photo courtesy Ratul Ghosh)

Indian spices (Photo courtesy Ratul Ghosh)

Amid reports that Hindustan Unilever Ltd (HUL) is in talks to buy a stake in spice maker Mahashian Di Hatti Private Limited, popularly known as MDH, some experts are betting on periodic bouts of consolidation in the Indian spice market.

''In the last two years, multiple transactions have happened in the spice market. Due to COVID-19, consumer behaviour has also changed as experimentation in terms of cooking has increased,'' said Abneesh Roy, executive director of institutional Equities at Edelweiss Securities, said in an exclusive interview with CNBC-TV18.

Given its national presence, MDH could be valued at between Rs 10,000-5,000 crore, Mint reported on March 22, citing people familiar with the development.

Products sold by MDH include ground spices like black pepper, red chilli, cumin, dhania and coriander and turmeric powders; it also sells blended spices like biryani and chicken masalas and curry powder.

Recent acquisitions have seen spice makers quoting valuations worth 12-15x EBITDA, or earnings before interest, tax, depreciation and amortisation, an indicator of corporate profitability.

In May 2020, ITC Limited bought Sunrise Foods Private Limited for Rs 2,150 crore, valuing it at 25 times the previous year’s operating profit.

Also Read: Hindustan Unilever in talks to buy majority stake in MDH Spices: Report

Growth trajectory

India is known as the land of spices. It is one of the world’s largest producers of cardamom, cloves, chilli, curry leaves, fenugreek and fennel seeds, turmeric and black pepper, among others.

India produces about 75 varieties out of the 109 spices listed by the International Organization for Standardization.

Owing to their reputed immunity-boosting properties, demand for Indian spices has risen even more since the outbreak of COVID-19.

Key spice makers in the country include MDH, Everest Food Products Pvt Limited, Aachi Foods, Sakthi Masala Private Limited and Eastern Condiments Private Limited.

The Indian spice industry is estimated to be worth an annual Rs 80,000 crore and the branded market Rs 30,000 crore, Sanjiv Bisht, vice president-spices & aqua at ITC, told CNBC-TV18.

The overall spice market is growing at an annual rate of 7-10 percent and branded products at 10-15 percent.

''Branded spices will grow at a rate of 15-16 percent and can touch almost 50 percent of the total market share in the next five years,'' claimed Roy of Edelweiss.

Marquee investing bank Avendus Capital estimates India’s branded spice market to double in size to around Rs 50,000 crore by 2025.

The market is fragmented among regional spice makers who cater to local consumer preferences and cooking habits that differ across states. India's cultural and regional diversity makes it difficult for brands to gain nationwide market dominance.

Also Read: Idli-dosa war: MTR takes on iD Fresh Food in latter’s own stronghold

Navigating India's diversity

Some analysts say expansion beyond Tier II cities would be a challenge for branded products. Tier III, IV and V cities are dominated by local brands that have built trust among local consumers over the years and cater to local palates with specially tailored blends.

''Spices is a more than 100-year old market in India with established players. In every local market, there are more than 100 brands that we have to compete with,'' Sanjay Sharma, chief executive officer of MTR Foods Private Limited, said in an interview with CNBC-TV18.

It’s tough for branded spices to capture a 50% market share in a country as diverse as India.

Sharma explained that there is no national spice brand in India. ''We have over 30 different states and probably 150 different cuisines. Can one brand or one spice satisfy everyone's needs? Absolutely not,'' he said.

For instance, a state like Karnataka has six different cuisines and Kerala five different cuisines, he said. So it is not possible for a brand to decode the market and convert it from an unbranded to branded one.

Local spice makers are not novices, they have an established presence. This is a major reason why the shift from unbranded to branded spices won't happen in a hurry.

''A large ability for any brand to win lies in the market and how it builds its competitiveness in the space in every retail outlet,'' he said.

Modern trade accounts for less than 10 percent of the spice market; close to 88 percent of market is still in the hands of general trade, which means brands have to go from outlet to outlet to start selling their products and emerge winners, Sharma said.

Also Read: FMCG sector: Margin pressure to persist on high agri-input costs

The diversity is exemplified by the difference between rural and urban India. In the financial year 2021, dry chilies accounted for a 19 percent share of the spice market in rural India. For the same year in the urban market, the top positions were held by ginger and garlic, according to Statista Research.
Nikita Prasad