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Spain Food and Drink Report Q4 2009
Business Monitor International, Oct 2009, Pages: 72
Spain Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Spain's food and drink industry.
There were several indicators over the last quarter of the impact of the ongoing recession on some of the major players in Spain’s food, drink and mass grocery retail (MGR) sector.
Firstly, in mid-July 2009, food and drink giant Sara Lee agreed to sell three bakeries in Spain to local food producer Grupo Siro. Following the completion of the transaction, Sara Lee's Spanish bakery business will consist of eight plants employing 2,500 people, while Siro will operate 14 production facilities with 3,100 employees. Sara Lee has attributed the decision to the country's weak economic climate. Sara Lee International Beverage and Bakery's CEO has said that sale will improve the company's 'production economics' and that the firm will continue to supply Spanish consumers with the 'products they know and love'.
The move can be seen as an attempt to cut costs at a time when Spanish consumers are increasingly price sensitive. The market will therefore continue to be a very difficult place to do business for major brand builders such as Sara Lee, and the authors expect such firms to continue to look for ways to cut costs and create efficiencies so as to maximise their chances of maintaining sales in what is now a highly price sensitive environment.
Additionally, there were reports in July that French retail group Les Mousquetaires, which owns the Intermarché supermarket network, is planning to exit the Spanish market. The report, which has not yet been confirmed, suggests that local operator Bon Preu has been lined up as a buyer for the firm's 53 outlets. The move would be indicative of the current difficulties surrounding the Spanish retail market which, up until recently, was among the most dynamic in Western Europe. If Bon Preu does go on to acquire Les Mousquetaires' Spanish operations it could be seen as significant that none of the leading operators were prepared to take a punt on the business. The Spanish MGR market was once seen as one of the most attractive in Western Europe and was a hotbed of merger and acquisition activity in 2006 and 2007. The reluctance of the big three operators (Carrefour, El Corte Ingles and Mercadona) to use the current market weakness to broaden their networks is perhaps indicative of the current pessimism concerning the length and depth of the downturn.
In more encouraging news, Spanish food group Ebro Puleva benefited from lower commodity prices to report a jump in earnings for the first half of 2009. In the six months to June the firm's earnings before interest, taxes, depreciation and amortisation (EBITDA) were up by 21.5% to EUR144mn (US$205.4mn) (for continuing businesses). However, there were also signs that it may not escape unscathed from the economic downturn, with the company reporting that revenues declined by 1.8% over the period. This is in contrast to 2008, when it managed to successfully grow sales by 18.8% against a gloomy economic backdrop and can be primarily attributed to a 15.5% drop in sales at the company's dairy unit. While Ebro Puleva's ability to grow earnings against a difficult economic backdrop is a positive, it is unlikely that this will remain the case if sales continue to stagnate or decline. Given the gloomy economic outlook for Spain, with GDP expected to contract by 3.9% in 2009 and by 0.9% in 2010, Ebro Puleva, along with other major players, may be facing a difficult couple of years.
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