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What is HoReCa sales and marketing?

Posted by | Sep 24, 2020

Let’s begin with the most trending news piece for the past 6-7 months. Yes, we are talking about Mr. Corona! 

What a mess Mr. Corona has created in people’s everyday lives! He came as an uninvited guest and has proved to be very rigid. It reminds me of the Bollywood movie ‘Atithi tum kab jaoge?’ (it translates to “When will you go, dear guest?”). Lockdown of cities, shutting down of shops and businesses, worldwide travel restrictions, etc. have proved futile in changing Mr Corona’s course of action. 

Well, the extended period of lockdown and indoor stay all the time has made me realize the things I love the most in my life. I missed having my tomato tossed cheesy pizza and masala French fries over a cup of cold coffee on the counter I used to go to every other day. And let’s not get started with tandooris, dosas, pakodas, street foods, and whatnot. Pretty sure, many of you would already have familiar experiences of missing out on your favorite dishes, and yes, we are talking about the great Indian Food Industry here. 

Ho-Re-Ca is an abbreviation for Hotels, Restaurants & Cafes. It is used interchangeably with the food industry. We all know our restaurants by the food they serve or the ambiance they provide. But what makes all of these seamless? Efficient management and numerous backstage operations.

One such significant operation is the sourcing of raw materials and its supply chain management. The Hotels, Restaurants & Cafes are among the biggest revenue generators for many FMCG companies, including big and small. 

There are dedicated teams in FMCG companies working with these clients to fulfill their needs. 

What makes this HoReCa industry so attractive? Let’s explore!

Why market to HoReCa businesses?

With India becoming the world’s fifth-largest destination in the retail sector, several global FMCG players show confidence in the Indian markets due to robust household demands. Digital technology will play an essential role in the development of such industries. 

By driving the growth, the fast-moving consumer goods and online retail companies are looking for opportunities to go beyond traditional trade channels to increase revenue while gaining clear entry into the Indian HoReCa (hotel, restaurant, and catering) market segment. In the past few years, the foodservice (also known as the HoReCa business) has become one of India’s fastest-growing industries.

For FMCG companies, the Business-to-business (B2B) market place, mostly catering to HoReCa, sees a significant uptick compared to the regular Kirana store market place. It explains the potential the industry holds.

The time for organized retailers to enter this market is ripe. However, the sector’s biggest challenges include transparency of transactions, stable supply, and value solutions for products and services. By taking advantage of the industry’s current opportunities, the following factors will play a significant role in organizing the HoReCa industry, which will enable participants to develop their businesses substantially.

Lifestyle changes are one of the key drivers

HoReCa is a broad market with huge potential. The players in this industry do operate at a very granular level and also at a grand level. Depending on the lifestyle changes, their offerings vary and hence the nature of their sourcing. The emergence of QSR (Quick Service Restaurants) and cloud kitchens most recently explains how the markets adapt themselves with changing priorities.

The current COVID situation will make some permanent fixes in the way the industry operates. Hence, it can benefit the players that treat hotels, restaurants, cafes as their clients providing the necessary raw materials. We all will be the flag bearers of such changes.

Supply chain management is the backbone in the HoReCa sector

Supply chain management has a make-or-break effect on almost all aspects of the HoReCa sector. As India begins to open its economy further, prudent supply chain management will be a key for small and medium players, and it creates an opportunity for FMCG players to step in. Committing funds for the development of intermediaries is key to the HoReCa sector growth and in turn for Raw material providers.

For an FMCG player doing business with a HORECA client, it will be prudent to have long term partnerships. Hence it is crucial to develop trust among the clients. Lack of transparency and traceability can lead to headwinds in the supply chain and expose brands to unnecessary risks.

Distribution models for HoReCa business

The logistics management for the HoReCa sector ensures timely and quality service delivery to entrusted customers. It is good to have some ideas on the various distribution models operating in the industry.

Pre-sales model

The main features of the pre-sale model come from the order being placed before delivery. The order is set by the sales agent who performs a predefined sequence of visits to customers (this sequence will become the distribution channel) or is determined by the delivery truck driver, whose job is both sales and logistics.

Auto-sales model

The principal difference between the auto and pre-sales model is that order before delivery is not essential. The driver generally follows a route to customers that are assigned to him with no prior knowledge of the quantities that will be delivered to each customer. 

Direct Delivery model

Here, the customer takes the initiative to directly place an order to the manufacturer via email, telephone, WhatsApp channels, etc. It takes place without a middleman and is the most used model in the organized HoReCa sector.

How the sales to HORECA work in India?

HORECA’s sales are carried out through separate sales channels. Channel partners are responsible for processing the products required by HORECA customers. Independent sales teams of FMCG companies visit HORECA customers to get contracts. These independent teams are skillful in B2B sales. So, it can help them penetrate the product into the HORECA account.

What bigger players have to say about the HoReCa industry

The hotel, restaurant, and catering industry, or HoReCa as it is known, has become an important growth driver for cash-carrying companies operating in India (such as Wal-Mart, Metro Cash & Carry, and LOTS Wholesale Solutions) in the context of continuous growth as disposable income and dining out speeds up. A deep understanding of the market and the key drivers for HoReCa is necessary to continue having a long-term play here. 

This segment of the business expects consistent availability, quality, and on-time delivery. Walmart India delivers express delivery, and they have customized solutions as per their clients’ needs.

Opportunity for Cash and carry players

HoReCa’s food purchase market in India is USD 55-65 billion, ranging from corner kiosks to high-end star restaurants. The organized HoReCa market is currently concentrated in tier I and tier II cities, which presents a huge opportunity for cash and carry players because of the larger transaction volume and faster access speed than kiranas.

Understanding the HoReCa department’s importance and opportunities, cash and carry companies are also deploying new strategies to grow their businesses. Participants in this field have also adopted various methods, such as establishing relationships with top chefs in large hotels and providing them with the varieties they need to drive sales.

Opportunity for private labels

HORECA customers are present on many scales, small to big. It presents a unique opportunity to introduce private labels in the market. When it comes to papad, tomato sauce, vinegar, Hakka noodles, or juice, HoReCa customers are least bothered about the brand. Hotels, restaurants, and cafes sign fixed-price contracts to manage their food costs, and it becomes an opportunity to introduce good quality private labels. The price of such labels that HoReCa customers get is almost half the price of other brands, which ultimately reduces food costs and creates a win-win situation.

The emergence of Cloud Kitchen

Cloud kitchen is a restaurant that doesn’t have any physical space for dine-in. It works in the delivery mode only. I must say it is a very convenient option for catering to people across demographics. Cloud kitchen start-ups are coming up throughout the country, and in the next few years, few of them are going to operate on a large scale. As they grow their customer base, they will also need to source their raw materials.

Here it presents a new segment of clients for FMCG companies. Localized distribution channels will come handy while serving these clients. The needs of cloud kitchen business owners will be different from traditional players. A dedicated team of salespeople dealing with such clients will be beneficial in the long term as well.

The current scenario and prospects

The current situation might be the worst for the industry in several decades, and it continues to bleed the business houses to stay afloat. As many research reports suggest, it will take a while to achieve the pre-COVID levels of sales coming from the HORECA industry. But undoubtedly, this is a growing sector which will have to redefine itself. If you take a clue from the stock market, you can see that the stock market movement counts in the situation in advance.

And with the government relaxing norms phase by phase, the hotel stocks are seeing a rise. While it will be immature to say a recovery is near, the signs are certainly promising. Among other things, cloud kitchens and home delivery will be on the rise. Once the hotel industry reopens fully, it will take a while to win customers’ confidence. It is expected that normal footfall will be observed towards the end of the year 2021. 

As is always the case, among the dark clouds, there is a silver lining. The situation brings forward an opportunity for innovations, safer and more hygienic practices, creative business models, and new ways to serve the customers. Let the vaccines do the magic. Let the industry that took care of our taste buds be back strongly. 

If you liked this article, leave a comment. If you disagree with any of the arguments mentioned above or points, let us know in the comment section.

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