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Latvia Food and Drink Report 2010
Business Monitor International, Jan 2010, Pages: 75
Latvia 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 Latvia's food and drink industry.
In the Q110 Business Environment Rating (BER) matrix covering food and drink sectors of the 15 major markets in emerging Europe (which now include Turkey), Latvia ranks 11th, and again below its Baltic peers. The country’s food and drink market prospects – already constrained by a small and falling population – are judged to have been significantly worsened by the fallout from the sharp economic slowdown. Food consumption is expected to post negative 2009-2014 growth in US dollar terms, falling by 6.7% to US$1.94bn and considerably below the US$2.84bn recorded in 2008. Additionally, in its most recent publication of the corruption index, Transparency International notes that corruption in Latvia increased in relation to 2008. In the 2009 version, the country dropped from 52nd to 56th place on a global scale, as economic crisis saw an increase in bribery and illegal transactions.
In the meantime, a range of food and beverages industry players have been reporting poor financial results. Latvia's leading confectionery company Laima posted a 230% dip in full-year 2008 net income, despite a 2.6% year-on-year (y-o-y) increase. The firm is aiming to maintain flat turnover in 2009 and pursue further export opportunities. Similarly, the leading mass grocery retail (MGR) operator, Rimi Baltic, reported a 5.9% y-o-y drop in H109 sales in the Baltics as a whole, with Latvian operations posting a 6.5% y-o-y decrease. Earlier in the year, Rimi had played down suggestions that it would trim its store hours in Latvia (as had already been done in Estonia), in response to weakening demand, as the global financial meltdown brings the region to its knees. However, Rimi's near-term performance will be shaped by the rising importance of its SuperNetto discount banner and thus thinning margins.
On the other hand, Latvian consumers seem to have developed more of a taste for foreign-made foods and beverages. The Latvian State Revenue Service recently reported that locally produced beers meet 81% of domestic demand, with the figure lower by 10% to the level recorded in H108. Similarly, imports of UKmade foods and non-alcoholic beverages rose by 51% y-o-y to GBP8.6mn in 2008, and would have been even higher had alcoholic drinks been included. This shift in consumer behaviour is being explored with deals such as the agreement between UK-based spirits maker William Grant and leading Russian spirits producer and distributor SPI Group to distribute Grant’s core brands across the Baltic countries, as well as the Estonian Altia/Spanish Grupo Codorníu partnership to distribute the latter’s still and sparkling wine brands in Latvia and Estonia, among other regional markets.
A number of risks to the performance of Latvia’s food and drinks market remain, not least the possibility of currency devaluation. The country, positioned as the weakest economy in the Baltic region, is expected to post double-digit contractions through the remainder of the year, as the economy remains in recession through to later in 2010. Retail sales in Q209 (perhaps the most important indicator given Latvia's consumer-dominated economic model) shrank 25.2% y-o-y, having fallen 22.5% in Q109.
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