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Opinion | FMCG firms await recovery in the hospitality sector

HoReCa was the first sector to shut its doors to customers even before the lockdown

The latest report on consumer behaviour by market researcher Nielsen explains how cooking at home is now almost embedded in Indian minds, thanks to being cooped up indoors for months during the pandemic-induced lockdown. The discovery of the kitchen, it said, is driven by critical needs to be healthy, safe and economical given the uncertainties around covid-19. Even though they find cooking time-consuming, people have shed their inhibitions about rustling up meals as they look for quick, authentic recipes online.

The same report talks of a bearish consumer attitude towards expenditure on dining out and travel. Such a mindset, which stems both from the fear of contracting the infection and job insecurity, has dealt a body blow to the hotels, restaurants and cafes (HoReCa) business of fast-moving consumer goods companies.

Arvind Mediratta, MD and CEO, METRO Cash and Carry India, said HoReCa was the first sector to shut its doors to customers, even before the lockdown started. The wholesaler, whose primary customers are kiranas and the hospitality sector, admitted that its sales started declining in early March. Hotels and restaurants stopped entertaining customers as gatherings were restricted. Even caterers serving weddings and institutions lost business as schools, colleges and offices shut down.

Even though the Worldpanel division of market research firm Kantar tracks only household consumption, its managing director K. Ramakrishnan said the complete closure of HoReCa will definitely affect FMCG firms as food comprises 70% of the total volume for the industry. “Atta is a big component for snacks and biscuits, so is dairy. HoReCa is a subset of out-of-home consumption, which is down too," he said.

Consequently, companies in the food segment, such as Hindustan Unilever Ltd (HUL), Adani Wilmar, Nestle India Ltd, ITC Ltd, Gujarat Co-operative Milk Marketing Federation (GCMMF), the owner of dairy brand Amul, and numerous other big and small firms that feed HoReCa, saw their businesses contract. In its June-quarter earnings, HUL said its ice-creams, food solutions and vending businesses, which are driven primarily by out-of-home consumption, were massively impacted by the lockdown and closure of restaurants and eateries.

HoReCa customers buy fresh and frozen fruits, vegetables and meats, groceries, commodities, processed foods, confectionery ingredients and beverages, among others, from both MNCs as well as small, local players. METRO, which deals in many brands in these categories, saw its business dip. “HoReCa is facing a dip of 60-70% on pre-covid levels," said Mediratta,

R.S. Sodhi, managing director, GCMMF, which sells dairy products to the HoReCa segment as well, said several cheese manufacturers in Maharashtra who supplied only to the hospitality sector, especially restaurants and fast-food chains, have been wiped out with their closure. Amul was better placed as only 10-12% of its total business comes from HoReCa, he said.

“This segment has not revived. It is a loss for us as well, but it’s something we can bear because household consumption in many categories has grown really well," he said. GCMMF saw 30-35% growth in household consumption of cheese during the lockdown. For Amul, 12-15% of milk sales, 20% of paneer sales and 70% of fresh cream sales comes from the hospitality sector. But Sodhi claims what Amul lost in HoReCa, it gained in household consumption.

METRO has been proactive in generating additional business by tying up with government and defence services and hospitals. It has also partnered with online food aggregators and logistics firms such as Swiggy, Dineout and others supplying inventories to HoReCa.

From his understanding of working closely with the sector, Mediratta said it may take about six months for recovery and about one year to reach pre-covid levels of business. However, those pivoting to cloud kitchens, takeaways and home deliveries will recover faster. And that should be a big relief for FMCG firms too.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pre-ssing issues related to all three. Or just fun stuff.

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