🧐 Why Indian FMCGs are Shopping for Spices
Dabur is the latest in a string of FMCG companies to enter the spices and seasonings business. Here's why this space suddenly has everyone interested.
Some 400 years ago, Europeans came to India sniffing around for spices.
And now FMCG companies are doing the same: trying to get their hands on spices.
The latest company to do so: Dabur!
It has acquired a 51% stake in Badshah Masala (we know you read this in the tune of the company's ad).
The cost of the deal: A whopping Rs. 588 crores!
And that's not enough. Our dear Chyavanprash maker also wants to acquire the other 49% of the company in the next 5 years.
But why is it betting so big on spices?
🌶 FMCG's Spice Play
India loves spices.
Leave food items, we even put spices in our chai.
Despite this popularity, major FMCG companies were not in the spice business. Why?
Because Indians love DIY cooking. So, our grannies and great-grannies lovingly ground whole spices at home to make masalas.
There was hardly any demand for spice mixes and blends.
And the whole spices they got from local vendors and sellers whom they trusted and which suited their taste palate.
So, for the most part the spices market was unorganized.
And despite Everest claiming it is "taste me best" and MDH claiming it has "asli masale sach sach", 74% of the spice market is still unorganised. Meaning, most of the population is buying unbranded local spices according to their tastes.
Wait, then why enter the spice market?
Because of our changing preferences.
You see, after a whole day of grinding work, people are no longer in the mood to grind spices. And they also don't want to mix 7 different spices and figure out their proportions to make a dish that tastes good.
So, spices and especially blended spices (like your Chole Masala and Biryani Masala) are growing in popularity.
And while a lot of people are still buying these mixes and blends from local vendors, the rise of quick commerce is quickly bringing the branded spices sector into highlight.
You see, the ever busy professional millennials of today usually shop online, a place where these unorganized unbranded spice mixes have not reached yet. So, they end up buying branded spices increasing their market share. And to this generation, branded spices with their ingredients list and expiry dates also seem safer.
Looking at this trend a lot of FMCG companies want to enter this space.
Especially because blended spice mixes have a 40% gross margin. In a market where demand for other products is dying down, this seems like a great way for them to boost revenue.
What's more this space is set to double in size from Rs. 25,000 crores to Rs. 50,000 crores by 2025.
That's why a lot of FMCG companies have entered this space recently and many through acquisitions.
Other entrants in this space are Emami, Tata and Wipro. HUL was also planning on entering this space by acquiring MDH.
Now Dabur has also joined the race. The company is trying to expand its food business to Rs. 500 crores. And after seeing a 2.85% decline in profits last quarter, it has realised it needs to ramp things up. So, more acquisitions will be coming soon. The company has a Rs. 5,500 crore war chest dedicated solely for acquisitions.
But the question is was Badshah Masala the right choice for Dabur? The spices company doesn't have a huge market share. And though the Dabur brand gives it some more credibility, people don't really change their spice preferences so easily. This is one sector where brand loyalty is at its highest.
So, we'll have to wait and watch whether Dabur's acquisition actually makes sense.
⚡In a line: FMCG companies are betting big on spices thanks to our changing preferences.
💡Quick question: On an interesting note, we found out that most major spice manufacturers from MDH to Everest are unlisted companies. So, if one of these companies were to come out with an IPO which company would you bet on?
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