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Hungary Food and Drink Report Q1 2011
Business Monitor International, Nov 2010, Pages: 91
Hungary 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 Hungary's food and drink industry.
Private consumption weakness is showing little sign of letting up in Hungary, reaffirming our long-held view that household spending will be the straggler in its economy. In fact, having risen by 1.0% month-on-month (m-o-m) in July 2010, retail sales in Hungary took another dip in August. While we expect the government's plans to lower income tax and provide new tax relief for families will be supportive of consumer spending going forward, robust recovery in retail sales is not expected in the near term. In fact, the proposed changes will hit large corporates, with a potential to hinder future foreign direct investment (FDI) inflows, placing downside risks on Hungary's growth potential and therefore also on its consumer outlook. We also expect Hungarian real private consumption expected to have contracted for a fourth successive year in 2010.
Headline Industry Data (local currency)
- 2010 per capita food consumption: +1.82%; forecast to 2015: +17.32%
- 2010 alcoholic drinks sales: +0.28%; forecast to 2015: +24.06% -
- 2010 soft drinks sales: +2.11%; forecast to 2015: +21.26%
- 2010 mass grocery retail sales: +2.68%; forecast to 2015: +22.4%
Key Company Trends
Capacity Expansion Continues Despite Operating Challenges - In October 2010, Austria-based confectioner and vitamin tablet manufacturer Ed.Haas and Hungarian confectionery manufacturer Pez Production Europe jointly opened a new manufacturing plant in western Hungary. The company has shifted its confectionery production unit from Austria to Hungary, in a bid to cut costs, despite our consumer outlook for Hungary remaining extremely challenging. Similarly, in August 2010, Hungarian white meat processor Her-Csi-Hus invested HUF300mn (US$1.39mn) to upgrade its poultry farm facilities in central Hungary, expanding its processing capacity.
Retail Chains Facing ‘Crisis’ Tax – Retail chains in Hungary look set to bear the brunt of the government's newly proposed crisis tax, which will impose a rate of 2% on sales over HUF100bn (US$505mn). Expectations are that some of this tax will have to be passed onto the consumers, making them even more price-conscious. Though the tax would help the government to maintain its debt levels, we believe that it could have a negative impact on the profitability of the Hungarian retail industry.
Key Risks to Outlook New Tax to Further Discourage FDI – The maturity of the Hungarian food and drink industry as well as the lack of scope for major long-term growth is expected to detract established multinational companies from increasing their involvement in the country. Instead, this investment is likely to be directed in favour of markets with stronger medium and long-term growth visibility. The likelihood of this scenario playing out has been increased by the recently approved changes to the tax regime, which is expected to ease the burden on the consumer at the expense of large corporations, including those in the retail sector.
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