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Bulgaria Food and Drink Report Q1 2010
Business Monitor International, Nov 2009, Pages: 80
The Bulgaria 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 Bulgaria's food and drink industry.
In BMI’s Q110 Business Environment Ratings (BER) for the major markets of Central and Eastern Europe (CEE), Bulgaria remained second-last, but this time 15 countries were surveyed, with Turkey the addition. A rapidly deteriorating economic outlook is the key factor responsible for Bulgaria’s low ranking, even though other markets have also suffered downgraded scores as a result of tightening consumer spending levels. Investment in Bulgaria will continue to be disadvantaged by modest and falling population numbers, low food and drinks prices as well as by currency depreciation expected over the medium term.
In fact, while the publisher forecast a 13.63% growth in its food and drink expenditure through to 2014, as measured in local currency, 2009-2014 growth measured in US dollars will actually be in negative territory (at -18.48%) as the local tender depreciates. The announced expansion of foreign discount store operators in the country’s mass grocery retail (MGR) sector – including German Rewe’s discount chain Penny Markt – will also conspire to increase downward pressure on the overall values of food and beverages sold in the country.
In fact, although trade data have been woeful, the key factor tipping the economy over the edge has been the collapse in household spending, with the extent of consumer indebtedness and the deteriorating outlook for the labour market finally dawning. Household spending fell a staggering 6.0% year-on-year (y-o-y) during Q109, an outright reversal from the 1.8% positive growth seen in the previous quarter, and marking the first decline in over ten years. Leading indicators further suggest that the coming quarters will be particularly tough for retail as well as industrial sales. While the government has moved to limit the employment of non-EU citizens, high levels of unemployment will continue to weigh down on food and drinks consumption. Proportionally, food spending is forecast to continue falling over the coming five years, especially as the expected influx of hard discounters takes advantage of economic difficulties.
Nevertheless, low production costs will continue to attract some foreign operators. To this end, intent on expanding across the whole of CEE, US-based food behemoth Kraft Foods poured EUR20mn into its Bulgarian business in a bid to strengthen its chocolate operation. Currently trying to buy UK-based confectionery giant Cadbury, Kraft is eager to bolster its position in Europe (including emerging Europe). Around the same time, American private equity firm Advent International reached an agreement for the acquisition of 75% of Bulgaria’s leading bottled water producer Devin, pending regulatory approval. Despite the downturn, Devin has continued to perform well in 2009, as the Bulgarian bottled water industry remains some way off maturity, and as functional drinks continue to post sales growth, unlike the overall soft drinks sector.
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