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June 10, 2022

5

What is actually the on-trade channel? And why is succeeding there so critical?

Martin Müller

Content Lead

SharpGrid is a data and tech company reinventing the on-trade channel market research. We chose this mission because the on-trade channel has always been very challenging to grasp and analyze in its entirety with traditional methods of market research. Its complexity starts with the name “on-trade” itself and what type of outlets (points of sale) the channel encompasses. 

Because companies and professionals differ in naming conventions and outlet definitions, we want to clarify the confusion by setting common ground and vocabulary, but also share some interesting facts about the channel to underpin its importance for brands and vendors.

Part 1: What is the on-trade channel? 

Starting from the bottom, there are 2 major business channels for food & beverage producers like Coca-Cola, Heineken, Unilever and others. They are called on-trade and off-trade. The difference is simple: 

  • An off-trade outlet is an outlet where you buy food or beverage and take it away to consume elsewhere, typically at home or work. Think of supermarkets, hypermarkets, convenience stores and the like.
  • An on-trade outlet is an outlet where you will be served “ready-to-eat & drink” food and beverage and you can consume them at that place

Generally speaking, you can count all sorts of food & beverage outlets as a part of the on-trade channel. We’re talking about:

  • Restaurants, bistros, pizzerias, eateries
  • Pubs, (wine) bars, clubs, discos
  • Cafés, bakeries, sweet shops
  • Fast food places with often limited service or seating
  • Eateries (canteens) serving to people in offices, factories, schools or hospitals
  • Places that are a part of some other service, like a hotel breakfast buffet, refreshment corner in an amusement park or a gas station café 
  • Temporary on-trade outlets like catering at weddings or a beach refreshment stands
  • … and other types of formats that are often local or emerging

The on-trade channel is a union of all these outlets serving food and beverages. But not every outlet or POS is relevant for every vendor or brand. For example, alcohol manufacturers omit outlets that do not offer alcohol like bakeries or school canteens, whilst food manufacturers do not target outlets that sell beverages only. As a result, the scope of the on-trade channel is driven by the product portfolio of each vendor, be it brand manufacturer, distributor or service provider.

To add to the confusion, specific on-trade outlets can be called differently, depending on the market or an individual point of view. “A coffee place” in Greece is quite distant in terms of proposition and product selection from a coffee place in Germany or Spain. The difference between pub and restaurant is not clear and may differ by market. 

SharpGrid has addressed these discrepancies by applying our “core consumer occasion” approach. With that, we are able to determine what every outlet is popular for (like coffee, beer or active fun like live music or dancing), thus enabling a consistent view and analysis of the on-trade across local markets, avoiding naming confusions.

FREE ON-TRADE DATA: Discover the on-trade market position of your brands and your competitors completely free of charge

Part 2: The many names of the on-trade channel

While the definition of on-trade is not 100% consistent, the name of the channel is another story. “On-trade” appears to be the most widely used name for the channel but many other monikers are in the play as well. Just in English alone there are at least 7 more titles: 

  • On-premise
  • Out-of-home
  • HoReCa
  • Food Service
  • Immediate Consumption (IC)
  • Gastro
  • Hospitality

There are also several ways to call the on-trade outlet (the place where you will be served food & beverage) itself. You might have come across names like POS, outlet, venue, etc. The naming conventions differ from country to country. A person from Belgium might say “HoReCa outlet”, another person from Spain might call the same place an “out-of-home point of sale” and someone else from France might go for “IC outlet”.

You might be starting to see that the whole thing is kind of confusing.

At SharpGrid, we have decided to use the words “on-trade” and “outlet” to be consistent in our communication (just consider our product Outlet Census), but we’re trying to use local naming conventions whenever possible. That’s why our international business development professionals are always native speakers with roots in the given country.

READ MORE: 2 major hidden costs of the on-trade channel you should know about. And how to stop them from eating away at your profits

Part 3: The importance of on-trade channel 

Having said all that, it’s time to look at how important the channel is. For producers, it can be a huge source of profit, as prices of some beverages (e. g. a pint of beer) will be triple or more compared to their store-bought options. Producers typically achieve much higher margins and profit here than in other channels.

The second value is in brand/loyalty building. In the on-trade, it is possible to accurately craft the desired positioning and messaging for each brand, associate with the “right” outlets and consumer segments and build awareness, trial and loyalty.

Lastly, the on-trade is also the right place for testing innovations, trying new ways to get a product to the right customers, and launching new products.

While the above is true in general, the importance of on-trade as a share of total category turnover can differ massively between markets

Part 4: On-trade markets in different countries 

Firstly, the sheer size of the on-trade channel and how much money and time people spend there depends on the preferences, culture and economic development of each market.

Secondly, the importance of on-trade for each category like beer or energy drinks will also depend on how and where local consumers prefer to consume it. Beer tends to have a higher on-trade share (more people consume it in pubs rather than buy bottles at stores) than non-alcoholic drinks which in turn have a higher share than spirits. Take a look for yourself:

a. The on-trade share of beer

  • Beer on-trade share in Spain: 85 % 
  • Beer on-trade share in the United Kingdom: 71 %
  • Beer on-trade share in Austria: 60%
  • beer on-trade share in Czechia: 30%
  • Beer on-trade share in Romania: 22%
  • Beer on-trade share in Poland: 14%

b. The on-trade share of non-alcoholic drinks

  • Non-alcoholic drinks share in Austria: 66%
  • Non-alcoholic drinks share in Germany: 54%
  • Non-alcoholic drinks share in Switzerland: 51%
  • Non-alcoholic drinks share in the United Kingdom: 31%
  • Non-alcoholic drinks share in Poland: 21%
  • Non-alcoholic drinks share in Romania: 20%

c. The on-trade share of spirits

  • Spirits on-trade share in Austria: 56%
  • Spirits on-trade share in Spain: 50%
  • Spirits on-trade share in Italy: 43%
  • Spirits on-trade share in Germany: 36%
  • Spirits on-trade share in Romania: 8%
  • Spirits on-trade share in Poland: 8%

While there are markets with smaller (but fast-growing) on-trade like Poland, the vast majority of developed countries pose a great opportunity for food & beverage producers. However, becoming an on-trade leader is no easy feat as there are many obstacles and unexpected hidden costs that can climb up to millions of Euros each year.

Part 5: SharpGrid and on-trade: Big data for business growth

So there you have it. This is on-trade. The last thing to discuss is SharpGrid's role in it. 

Our core mission is to help vendors accurately measure and navigate the on-trade channel, target the best outlets with highest commercial potential, see their sales / branding performance, allocate resources effectively, set killer route-to-market strategies, save time and money and manage their sales teams better. All in the name of the highest achievable ROI. 

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