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Lithuania Food and Drink Report 2007
Business Monitor International, Jan 2007, Pages: 72
The Lithuania Food Drink Report provides independent forecasts and competitive intelligence on Lithuanias food and drink industry.
Lithuania remains one of Europe’s most dynamic food, beverage and retail markets. During 2006, the country continued to see one of the highest rates of growth in the mass grocery retail (MGR) sector of any Central and Eastern European (CEE) market, with a compound annual growth rate (CAGR) of 21.0% seen in this forecast, which has been updated this quarter. Still, the market may be slowing somewhat in Q4, in line with the broader economy. Nonetheless, in terms of growth prospects and regulation, Lithuania remains one of the most attractive markets in the CEE - the broader issue is if the market is big enough to attract multinational food retail players.
One key worry is the level of consolidation in Lithuania. The country’s MGR sector and, in fact, retail as a whole, is dominated by VP Market. The main foreign player in the market remains Rimi Baltic. In Q406, joint-venture partner Kesko, the Finnish MGR leader, said it would exit, leaving Sweden’s ICA, owned by Dutch retail giant Ahold with sole control over the venture. Supermarket group Norfos continues to expand in Lithuania, while eyeing Russia, but runs a fairly distant fourth in the market. A major factor dictating concentration in the market, therefore, is the fate of second-largest retailer Iki, a multi-format chain owned by local Paulink but reportedly up for sale. If VP Market or Rimi made a bid, competition authorities could intervene.
The question of concentration is one that worries the country’s many small food processors and farmers, as well as bigger multinational players, who fear the buying power of a few dominant players. A study released in December 2006 by the Baltic International Centre for Policy Studies (Biceps) has fuelled the debate. The survey argued that concentration in the grocery sector in the three Baltic States had reached Western European, mature market standards. Notably, it found that Lithuania had the highest degree of concentration of any of the three Baltic States, reflecting the existence of four strong players operating across all three MGR formats. The authors of the study believe that competition authorities would examine any further mergers and acquisition activity more closely. The report received substantial coverage in the local media and competition authorities will no doubt be looking at it ahead of any future inquiries.
Concentration in the retail market does not mean the market is mature in itself. Overall value growth remains strong in the overall food sector, beverages and the MGR sector, which encompasses a fair amount of non-food sales, primarily through hypermarkets. Lithuanians are becoming wealthier, but remain among the poorest citizens in the EU, providing considerable scope for long-term growth. A strong economy and relatively stable political picture have secured Lithuania’s top spot again in this quarter’s Business Environment Rankings. If entrants can find room, the market still has much to offer.
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