Managing Fragmentation, a study of spices segment

Abstract

Michael E. Porter, in Competitive Strategy: Techniques for Analyzing Industries
and Competitors, states a fragmented industry is an industry in which no firm has a
significant market share that can strongly influence the industry outcome.
An industry is generally fragmented because of low entry barriers, substantial number of
small and medium-size firms, absence of economies of scale or experience curve, high
inventory costs or erratic sales fluctuations, diverse market needs, high product
differentiation.
Indian spices industry has all the features of a classical fragmented industry, low entry
barriers, significant number of small and medium size firms, diverse market needs. Though
the industry is mostly unbranded, Indian spices market is fragmented with several regional
brands. Many family owned companies are involved in discussions with companies for sale.
In the Rs. 63,000-crore spices the share of branded packaged at about 30 per cent. However,
the branded segment has been growing at 15-20 per cent at the cost of unbranded segment.
As the branded segment starts growing, it will attract national players. In a fragmented
industry national players will have to employ multiple strategies to improve market share.
This paper explores the opportunities in the spices segment as national brands look forward to
leveraging economies of scale while building low cost facilities at multiple locations, product
differentiation, backward integration to lower cost and gain price competitiveness.