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Lithuania Food and Drink Report 2010
Business Monitor International, Jan 2010, Pages: 67
Lithuania 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 Lithuania's food and drink industry.
In our Q110 Business Environment Rankings (BER) table for the 15 key markets in the emerging Europe region (now also including Turkey), Lithuania ranks eight, below its Baltic peers of Latvia and Lithuania. Its food and drinks market prospects are closely linked to the sharp contraction of the country’s GDP growth during 2009, as well as the subsequent increase in its unemployment levels (which are expected to reach 16% at the end of the year, twice the figure recorded a year ago). Additionally, Lithuania’s recovery beyond 2009 will also be weak – at best. Indeed, with the government having shown no signs of abandoning the litas' peg to the euro and instead attempting to adjust the external asymmetries built into the economy through an unprecedented internal devaluation, the impact on output, wages and prices will not only be pronounced, but will also serve to prolong the ongoing downturn.
Nevertheless, food consumption values are forecast to post significantly higher growth levels (in both local currency and US dollar terms) than in Latvia and Estonia. By 2014, spending on food is expected to reach LTL14.52bn (US$4.12bn), with the value contracting by 2.30% year-on-year (y-o-y) in local currency terms during 2009, before returning to the positive territory in 2010. However, mass grocery retail (MGR) margins will continue to be squeezed for the duration of the economic downturn. Leading Baltic MGR operator Rimi Baltic, which recently reported a 5.9% y-o-y total sales slump for H109, posted the worst performance in Lithuania (a 7.3% y-o-y contraction).
Still, a number of foreign players have invested in Lithuania in recent months, indicating the belief in the longer-term potential of the country’s food and drinks market. For example, in August 2009 UK-based spirits maker William Grant reached an agreement with leading Russian spirits producer and distributor SPI Group to distribute its core brands across the Baltic countries. The extension of this partnership is very much a far-sighted move, as the Baltic region has been devastatingly impacted by the global financial meltdown as well as the increase in excise on alcoholic drinks, bringing rates in line with EU membership requirements.
In the meantime, emerging Europe-focused core Coca Cola bottler Coca Cola Hellenic Bottling Company (CCHBC) was thought to be planning a market share offensive across the Baltic states of Estonia, Latvia and Lithuania as it targets establishing itself as the region's largest soft drinks bottler by 2012. Although Baltic region volume sales are unlikely to be nearly as strong as they were prior to the downturn, CCHBC will probably see the recession as an opportunity to capitalise on its size to strengthen market share, as many of its less financially endowed Baltic region multi-category competitors pursue defensive cost saving policies. Rising health consciousness is also an increasingly important purchasing determinant. Bearing this in mind, demand for the calorie-free Coke Zero carbonate alternative and CCHBC's Nestea ready-to-drink tea range could emerge as important Baltic region growth drivers.
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