It was a deal on a slow sizzle for nearly five years but gaining a majority stake in spices company, the 64-year-old Badshah Masala, was sweet news for Dabur India’s CEO Mohit Malhotra. The homegrown FMCG major is the latest entrant in a segment whose growth is as hot as the spices it churns out.
Last month, the company picked up a majority stake in Badshah with a commitment to acquire the balance 49 per cent after five years. “The deal had been in the making for nearly five years now and is in line with the company’s ambition to make a bigger play in the packaged food segment,” says Malhotra.
The money maker
With spices firmly positioned at the centre of the Indian thali, it has emerged as one of the most attractive and profitable segments in the packaged foods sector. No wonder this sector has been witnessing frenetic deal action of late. Bigger players are acquiring regional players and new entrants have jumped on the bandwagon. Experts believe more M&A deals could be on the anvil in this space.
As Malhotra explains, “Our strategic intent is to expand our food business to ₹500 crore in three years. When we evaluated various categories, we felt that the branded spices segment is scalable, has good margins and is a space where we have the right to win. We will now use the Dabur infrastructure in terms of distribution, procurement and other areas to scale up the Badshah business. We think there is also a strong potential for exports.”
The big boys have been gearing up to corner a bigger share in the fast-growing branded spices segment for some time now. Their big bet is on the strong consumer shift from loose and home-ground masalas to packaged spices driven by a focus on health and convenience.
In 2020, FMCG major, ITC, acquired Sunrise Foods in an all-cash deal. MTR Foods, the wholly-owned subsidiary of Norwegian major Orkla, bought a majority stake in the Kochi-based Eastern Condiments in 2021. PE players such as A91 Partners and Investcorp too have thrown their hats in the ring with investments in Pushp Spices and Kitchen Treasures respectively. Sources say many players have also held discussions with promoters of MDH.
According to Avendus Capital, the total spices category in India is pegged at about ₹67,500 crore in 2021. Of this, the branded spices category only accounts for about ₹25,000 crore but expected to double to ₹50,000 crore by 2025.
Saloni Jain, Director, Consumer, FIG & Business Services, Avendus Capital, points out that it’s a challenging category for organic expansion due to the presence of legacy brands enjoying high brand stickiness and domination of regional brands that cater to local palettes. “With major FMCG companies having a large appetite to grow in the segment inorganically and valuation remaining strong for prospective sellers, we expect significant deal activity in this segment in the near medium term,” she adds
Many existing and new entrants are organically growing their spice business for now.
Tata Consumer Products, for instance, relaunched its Sampann spices range with new packaging this year and also forayed in the southern region with a pure spices range.
In July, Emami Agrotech did a national launch of its spice brand, Mantra, and has been strengthening distribution in the northern and eastern regions. Krishna Mohan Nyayapati, Director, Emami Agrotech, says, “We decided to create our own brand and are targeting revenues of ₹700 crore in the next 3-5 years. The branded spices category is growing at a close to 20 per cent and has a strong growth potential over the next few years. So there is bound to be more consolidation and all key players in the foods space are expected to evaluate this segment. I believe we will gradually see standardisation of 10-12 top spices across the country while blended spices products will cater to regional palates.”
Abneesh Roy, ED-Institutional Equities, Nuvama Group, explains that most key food players are expected to have a presence in the branded spices segment. “The FMCG business today is all about having a pan-India presence and having capabilities to play in quick commerce and e-commerce. Smaller companies have their constraints. Spices is a good margin business and only 30 per cent is with organised players. So, I do see more consolidation in favour of larger players. Larger players are also expected to drive premiumisation and innovation.”
But existing players like DS Group, known for Catch masala, say they remain unfazed with this deal activity and are speeding up expansion to grow its pan-India presence.
Says Sandeep Ghosh, Business Head, DS Spiceco, “Being a well-entrenched player, we believe we will be the largest beneficiary of this shift from the unorganised to organised sector. The entry of other large players will only help speed up the expansion of the overall branded spices market. We have a strong presence in the North and East region and are growing in strong double digits. We have also started focusing on distribution in the southern region through modern trade and e-commerce.”
The Indian masala sector is bound to get spicier with the ambitious plans of all the major players.