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Czech Republic Food and Drink Report Q1 2010
Business Monitor International, Nov 2009, Pages: 88
The Czech Republic 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 the Czech Republic's food and drink industry.
In the Q110 Business Environment Ratings (BER) matrix for the 15 key markets of the emerging Europe region, the Czech Republic occupies third position, a big improvement from its previous ranking. Having been placed eighth in Q409, the country’s mature and steady market conditions are providing a safer bet for food and drinks players than emerging, but also volatile, Turkey, for example. While let down by its modest forecast food consumption growth per capita and the currently negative trade balance, the overall score is buoyed by maximum scores for soft and alcoholic drinks consumption per capita, as well as by the near-perfect score for food consumption per capita.
Nevertheless, although the forecast food consumption growth is modest, the sector is still expected to post a 16.61% increase in value between 2009 and 2014, as measured in local currency terms, even though 2009’s difficulties will artificially boost the growth rate. The prolonged economic difficulties are turning consumers towards more economical products, including discount items and private label goods. All of those factors will be negatively reflected in the development of the value of the food and drinks market, at least in the shorter term, compounded by political wrangling over 2010 budget. In the meantime, a number of retail operators have already cut down the number of non-essential lines they stock. By 2014, the value of food consumption in the country is expected to reach CZK243.1bn (US$13.8bn).
On the purely economic front, we hold to our view that the rate of economic decline will have begun to stabilise during H209, as both external and domestic demand conditions tentatively improve.
Additionally, we stress that, despite this improvement, economic growth over the medium term will be constrained by European Union (EU)-wide deleveraging, which will weigh on external demand for Czech goods going forward. Nevertheless, during Q209, household expenditure increased by 1.6% y-o-y following 1.8% growth during Q109. This is in marked contrast to elsewhere in Central and Eastern Europe (CEE), where consumer spending has been hit hard by rising unemployment of falling incomes, although retail sales did plunge in Q209.
In terms of major industry developments, despite a steady domestic performance, leading Czech Republic-based food processor Hamé reported a 2% year-on-year (y-o-y) H109 (January-June 2009) sales contraction. Hamé was weighed down by the inability of many of its suppliers, particularly in Russia and Ukraine, to meet payment deadlines, which has forced the firm to impose stricter parameters. In the meantime, its compatriot bakery group United Bakeries, a subsidiary of Luxembourg-based bakery group European United Bakeries – denied rumours of a take-over, although the continuation of the economic downturn may reverse its position. In other negative news, Anglo-South African brewing giant SABMiller announced that it would reduce its annual beer volume growth target for its European region to 2-4% over the medium term, from the previous target of 4-6%, in the face of flagging consumption in its key markets, which include the Czech Republic and Poland.
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