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Hector Beverages Pvt. Ltd, which sells the Paper Boat brand of traditional drinks, is expanding its distribution network and working on more online-only launches.

Beverage makers were among the worst affected during the covid-led lockdown. The company lost sales across modern trade channels and institutional sales to airlines and airports, which comprised a large portion of its business.

At present, it has 250,000 outlets and plans to increase it to 350,000 this summer, said Neeraj Kakkar, co-founder and chief executive officer, Hector Beverages.

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“The big learning over the last few years is that this (distribution) is a big moat in India and will remain so despite e-commerce. So, if you have to build a very sustainable, long-term company in India, and go towards an initial public offering, which is the goal, you have to build your own distribution network," said Kakkar.

The company’s share of online sales is up from 6% pre-covid to 14-15%. As a result, it is reviewing its plan to bring back its seasonal launches, some of which it discontinued, for sale on e-commerce sites.

“Earlier, we used to launch many festival-only (seasonal) products. They were very difficult to distribute offline as it would take time to roll them out in modern and general trade. We are now launching such products online," he said.

One such traditional homemade drink kanji, which is popular around Holi, will also be launched for online sales, while panakam, which is popular in the south, will be relaunched at Ram Navami.

“Because online is becoming such a huge play, it allows us to go back to our roots. It squeezes time for such launches. We discontinued some variants. We are bringing back everything as digitally native products," he said.

During the lockdown, both e-commerce and kirana stores outperformed modern trade or large-format outlets for groceries and staples.

The year was particularly trying for beverage firms that lost business during key summer months. Out-of-home consumption of beverages, including at restaurants, street vendors, railways, cinema halls and airlines, constitutes a significant portion of sales for the sector.

Hector had to write off inventory worth 35 crore in the last fiscal year as its summer rollout for beverages coincided with the world’s strictest lockdown. Its beverages, with shorter shelf life, suffered.

“We were sitting on the highest-ever inventory. We were expecting a good season. I think the good part is that after June, things have recovered strongly," said Kakkar.

Much like other companies that are seeing tectonic shifts in consumption, Kakkar said Hector too is seeing demand trends shifting. These include a move to more packaged and hygiene brands, sharp growth in sales online, and resurgence of demand in tier-2 and 3 markets, which is helping Hector mitigate the effect of low sales in channels such as aviation.

“The good part is that post summer, growth rates in tier-2 and tier-3 markets are very encouraging, though some of our channels are still not back," said Kakkar.

Hector, which is backed by Sofina, Sequoia Capital and Catamaran Ventures, has been looking to turn profitable. In FY20, its losses touched 100 crore on the back of significant inventory write-off in March. The company closed the year with 230 crore in revenues. It expects to significantly narrow losses by end of the current fiscal year and turn profitable in FY22.

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