One Part Of Consumer Goods Sector Is Booming Amid Tepid Household Demand

Large conglomerates, including Hindustan Unilever Ltd., Adani Wilmar, Nestle India Ltd., ITC Ltd. and Amul owner Gujarat Cooperative Milk Marketing Federation, feed HoReCa. However, few companies are equipped with a distinct distribution strategy for this channel.

While HoReCa has traditionally been a high-volume and low-margin business, the attractiveness of the segment is prompting food companies to set up diversified lines to cater to this growing space in a bid to prop up revenues.

"Earlier, HoReCa was supplied through a wholesale channel, but we are slowly getting the dependence on wholesale channel reduced by having our own HoReCa channel," Adani Wilmar's management told investors during the September-quarter earnings call. "This has shown a growth of over 50% quarter-after-quarter."

The consumer goods subsidiary of the Gautam Adani-led conglomerate had contracted a large number of caterers and banquets to cash in on the wedding season. "Today, we do branded sales of roughly around 1 lakh tonnes of food and oil only to the HoReCa segment."

The retail arm of Reliance Industries Ltd. has also been strengthening its business-to-business supply network with the acquisition of wholesale distributor Metro Cash & Carry. The deal gave Reliance access to Metro's 31 wholesale distribution centres across the country and a large base of customers, including hotels, restaurants and caterers.

There is a notable increase in purchasing behaviour and this surge in spending is driving a robust upswing in the HoReCa channel, according to Angelo George, CEO of Bisleri International Pvt. "To cater to the growing demand, we are enhancing our production capacities."

Consumer staples firms have been grappling with muted demand as high inflation continues to weigh on wallets. The second quarter saw companies reporting sub 5% volume growth and the festive quarter is also likely to see a similar trend as demand in general trade fared weaker than expected. But out-of-home consumption is growing stronger.

For Nestle, the growth was stronger in the out-of-home consumption channel, which grew at over 30% in the September quarter. "The growth has come because of kindling consumption, portfolio transformation, geographical expansion and significant investment in infrastructure" according to Managing Director Suresh Narayanan.

HUL said sales of ice-cream and food solutions, which are driven primarily by out-of-home consumption, remained "resilient" in a weak quarter.

Sales of ice cream grew in the mid-single digit on a high base, while food solutions reported double-digit growth during the July–September period.

Impulse categories like confectionery and packaged food, which includes snacks and biscuits, have grown 2.5% and 3.5% respectively, in November, according to Bizom, a sales automation firm that transacts with 75 lakh mom-and-pop stores. This was against a 2–15% decline in all other segments, ranging from beverages to personal care.

HoReCa has traditionally been a significant revenue generator for small and medium-sized consumer goods companies as well.

"We have seen a 15% growth in HoReCa business this wedding season," Shammi Agarwal, director of Pansari Group, said. "Categories like rice, refined edible oil, mocktail syrups and seasoning are driving the spike in sales."

There is a decline in demand for mustard oil, which is typically favoured for home cooking, according to Agarwal.

This trend, he said, clearly suggested that even though consumers were spending less towards household groceries, they were not shying away from dining out or catering.