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NEW DELHI: Hector Beverages Private Limited, that sells drinks under the Paper Boat brand, is expanding its distribution network and working on online-only launches after covid-induced lockdowns led to one of the worst years for beverage makers in the country.

The company lost sales across modern trade channels and also suffered losses in the institutional segment, with sales to airlines and airports hit.

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Currently, it reaches 2,50,000 outlets, a number the company plans to increase to 3,50,000 this summer, said a top executive at the company.

"I think the big learning over the last few years is that this (distribution) is a big moat in India and will still remain in spite of e-commerce. So, if you have to build a very sustainable, long-term company in India, and go towards an IPO, which is the goal, then you have to build your own distribution network," said Neeraj Kakkar, co-founder and CEO, Hector Beverages.

Hector’s reach was restricted to 40,000-50,000 outlets two years ago. India has close to 12 million kiranas stores.

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

“Earlier, we used to launch many festival-only (seasonal) products. And 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," said Kakkar. He cited the example of traditional kanji which is popular around Holi and which the company is launching online. Another product is panakam, popular in the south around Ram Navami which the company wants to re-launch.

“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, now we’re bringing back everything as digitally native products," Kakkar added.

To be sure, 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 companies as they lost business during the key summer months due to the lockdown. Out-of-home consumption of beverages constitutes a significant portion of sales for the sector, including sales via restaurants, street-vendors railways, cinema halls, airlines etc.

Hector Beverages had to write off inventory worth Rs35 crore last fiscal as its summer season roll-out for beverages coincided with the world’s strictest lockdown. Its beverages, with shorter shelf life, suffered.

In the June quarter, Varun Beverages, PepsiCo’s key bottler in the India, reported a 48.2% dip in India beverage volumes.

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

Much like other companies that are currently seeing tectonic shifts in consumption, Kakkar said, Hector too is seeing a change in demand trends. Among them, a move to more packaged and hygiene brands, sharp growth in sales online, and resurgence of demand in tier 2 and tier 3 markets is helping the company mitigate the impact of loss of sales from channels such as aviation.

The company backed by Sofina, Sequoia Capital, Catamaran Ventures, among others, has been gunning for profitability. However, the pandemic has strained financials. For the year ended March 2019, the company reported a net loss of Rs59.88 crore even as revenues rose over 60% to Rs189.56 crore.

In FY20, losses ballooned to Rs100 crore on the back of significant inventory write-off in the month of March 2020. The company closed the year with Rs230 crore in revenue. It expects to narrow losses by end of the current financial year and turn to profit in FY22.

"We were on a turnaround, 2016–17 was not very good for us, but after that we were doing very well. In fact, in 2020 we were expecting to come out of woods, we were thinking we will move towards profitability, this (covid-lockdown) slowed down the effort a little bit," Kakkar said, adding that the company will look at raising funds after the summer season.

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