HoReCa: Reasons for FMCGs to Focus on This Channel

Not just FMCGs but online retail players are also looking beyond conventional trade HoReCa Channel to boost revenues while gaining entry in the HoReCa segment. In the recent years, hospitality industry, also known as HoReCa industry is one of the fastest growing markets across the world. B2B wholesale giants such as Metro Cash and Carry and Walmart are increasingly becoming part of the FMCG supply chain owing to their reach in the HoReCa (Hotels, Restaurants and Catering) space that services the hotel industry.

FMCGs are eying at this lucrative segment today since it outnumbers the mom and pop stores in India. According to German wholesale retailer Metro Cash and Carry, the HoReCa segment accounts for nearly 1.3 crore organizations against 1.2 crore kirana stores across the country.

Why Focus on HoReCa Channel in FMCG Industry?

However, there are few companies equipped with a robust GTM strategy for HoReCa Channel. In fact, the leadership team at Metro Cash and Carry believes that most companies lack a proper market strategy for HoReCa and brands ride on their natural edge in this segment to tap them. Possibly that explains the reason why there’s a mere 0.2% success rate with FMCG product launches. Nielson, in a recent report mentions that only 31 out of 15000 product launches succeed every year.

The reason why the rest of the brands fail is a lack of an all-pervasive distribution strategy. It is interesting to know that the best FMCG companies manage to penetrate only 30-40% Kirana stores with their top brands stagnating at a penetration level of not more than 50%. However, HoReCa Channel as an alternate model and independent segment has gathered immense focus owing to its contribution that is higher than retail. In addition to traditional Kirana stores, Modern Trade and General Trade, FMCGs are building a strong focus on the HoReCa channel as well.

Growth in HoReCa Channel Segment

In a recent Economic Times article, online retail player Big Basket shared plans to generate 500 crore revenues from their newly launched HoReCa segment in 2018. Such is the attractiveness of the new segment that the company is setting up dedicated distribution centres across 8 cities so that scaling up is not a deterrent to catapult growth. The last decade has witnessed the emergence of large number of organized food processors with a strong focus on HoReCa Channel. Frozen food manufacturers and marketers have a strong foothold in this industry since their major business comes from this channel.

The growth in the Food and Services Industry therefore, finds the organized food services segment demand for quality raw materials with higher standards. This leads to better practices and technology transfers.

Growing at a faster pace, this segment also takes up 75% sales against retail. In addition to fueling growth, it is also helping define lifestyle changes of the modern consumer. What could be the reasons that sets the pace for this new industry across the commercial ecosystem? Well, the propensity to travel by nuclear families has become a way of life. This implies having favorite meals in the comfort of a third home. Owing to higher spending capacities of a metrosexual Indian, the likelihood of having meals outside home has gained frequency. This also explains the discovery of food apps that has suddenly gathered momentum.