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Croatia Food and Drink Report Q1 2010
Business Monitor International, Nov 2009, Pages: 80
The Croatia 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 Croatia's food and drink industry.
In the Q110 Business Environment Ratings (BER) matrix for the 15 main markets of emerging Europe, Croatia’s position has worsened considerably. Having previously been placed seventh, Croatia now only places above Ukraine and Bulgaria, and is noticeably below neighbouring Serbia. The constraints of the small market (limited by the small and price-conscious population) have been exacerbated by the economic downturn. Calculated in local currency, food consumption values are forecast to dip by some 2% year-on-year (y-o-y) in 2009, to HRK12.47bn (US$2.26bn). Through to 2014, the value of food consumption will rise by a modest 6.58% in local currency terms, although the market is not expected to experience much dynamism, despite the scheduled accession to the European Union (EU) over the coming few years.
In the shorter-term, the situation will remain challenging. This is illustrated by the fact that the recent one percentage point rise in value-added tax (VAT) to 23% will not be passed on to the consumer. Industry sources report that the decision was made in order to prevent a fall in food sales due to price rises. Consequently, food consumption values are unlikely to be artificially boosted during the current year, with the predicted mild economic recovery in 2010 also having only a marginal positive effect on the sector’s growth.
In fact, adverse economic conditions and flagging consumer confidence are already having an impact on companies’ performance. In August 2009, Croatian Podravka, a diversified conglomerate, posted a 2% y-o-y decline in the revenues achieved by its food and beverage arm for H109 (ending June). Sales fell to HRK1.37bn (US$268.9mn) compared with a 2% y-o-y increase in group-wide sales to HRK1.74bn (the company also operates a pharmaceutical unit). The fact that half of the company’s sales are now achieved outside its home market cushioned the impact of the declining sales in the home market. In fact, growing from a lower base, Podravka's group-wide foreign markets sales increased by 4% y-o-y in H109, with a particularly strong contribution from the South East Europe Unit.
Other Croatian companies are also increasingly looking abroad for growth. The leading Croatian mass grocery retail (MGR) operator Konzum recently finalised a EUR50mn loan with the European Bank for Reconstruction and Development (EBRD). The loan will strengthen the retailer's balance sheet and allow it to push ahead with plans to launch additional stores in neighbouring Bosnia and Herzegovina, where it is already a market leader with a 12% share. On the other hand, other MGR operators appear to have faith in the Croatian market, with Spar expanding its local footprint through Spar Croatia. The company also secured a loan from the EBRD, with the money to be used to increase its presence in non-urban areas of the country. Additionally, the recent merger with Italy-based retailer Coop Consumatori Nordest (CCN) will see an additional four hypermarkets converted to the Spar banner. Spar is likely to increase its private label and discount offerings for the duration of the economic difficulties, as premium products continue to be sidelined in favour of staple goods.
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