FMCG spices it up, pharma takes a shot at diagnostics

ET Intelligence Group: Kolkata-based Emami Group, through its branded food manufacturing arm, has entered the ₹80,000-crore Indian spices market. Two years ago, its Kolkata peer ITC forayed into the segment through its acquisition of spice maker Sunrise Foods. Tata Consumer Products, too, has recently added the spices category to its Tata Sampann brand of products.
If spices appear to be the chosen route for a horizontal product-category extension for FMCG, diagnostics seem to offer similar opportunities to large pharma companies.

Ahmedabad-based drug major Torrent Pharma is reportedly set to foray into the diagnostics business, although a formal announcement is awaited. Last year, its Mumbai-based peer Lupin made an organic foray into the ₹70,000-crore sector. Mankind Pharma and Reliance Life Sciences are other large players that have entered the sector.

As competition increases, consumer goods and pharma companies are seen scouting for non-traditional opportunities that are easy to foray into and are low capex propositions in a largely unorganised sector with low entry barriers and regulatory compliances. Both spices and diagnostics industries with their several small, local players fit the bill. There is huge scope for growth in both sectors. Expansion of the export market in the case of spices and increased domestic penetration for diagnostics are big draw cards.

However, the existing established players in both these sectors are in for intensifying competition from the entry of large companies that have pan-India distribution, deep pockets, management expertise and an existing consumer base. Little wonder that several existing players in both sectors are seen as becoming natural acquisition targets for the new corporate entrants.

The Indian spices industry has old, established players such as Everest, MDH, Badshah, Rajesh Masala and Priya Masala. The organised players, nevertheless, make up around 25-30% of the total market.

Similarly, the diagnostics sector in India has large existing listed players, such as Dr Lal PathLabs, Metropolis Healthcare and Thyrocare Technologies, and unlisted players such as SRL Diagnostics, Suburban Diagnostics (now acquired by Dr Lal PathLabs) and Neuberg Diagnostics. These, along with a few others, constitute just 15-20% of the industry dominated by unorganised players.

In the near-to-medium term, the entry of established corporate players in the largely unorganised sectors augurs well for consumers. They can most likely expect improvement in quality and service at affordable rates as well as new product offerings. Organised players enjoy economies of scale in sourcing, manufacturing or service and distribution network - factors that can potentially push small and local unorganised players out.

In a sparsely regulated sector like diagnostics, the entry of organised players may bring in improvements in standard operating procedures and increase the reliability of the results. This should also prompt the government to frame comprehensive regulations for the industry.