In BMI’s Food and Drink Ratings for Q309, Hungary no longer occupies pole position, having lostthe top spot to Russia. The key reasons behind this change are the declining (and ageing) populationnumbers and the rapidly deteriorating economic outlook. Nevertheless, the country continues to offeran attractive regulatory environment, while its per capita food and beverage consumption levels arealso among the highest in the region. Therefore, those factors will serve to uphold Hungary’s matrixstanding, albeit in the longer term, although more favourable conditions and market growth potentialof other Central and Eastern Europe (CEE) countries will mean increasing challenges for Hungariancompanies and foreign direct investment (FDI).
In order to protect themselves from such factors, larger local companies are increasingly lookingabroad for expansion. To this end, in April 2009, Fornetti - the leading bakery firm in Hungary -revealed that its Bulgarian franchise will open in autumn 2009. The EUR6mn (US$7.96mn) plant isexpected to increase Bulgarian sales to 600 tonnes per month, up by around one-third of the currentdistribution capacity, and - more importantly - eliminate its reliance on imports from the parentcompany. Similarly, UK beverages conglomerate Diageo revealed that the Hungarian premiumliqueur Zwack is to be launched in the US, as the company attempts to penetrate new markets.
On the domestic front, retail volumes are falling, although - in January 2009 - the Central StatisticalOffice (KSH) announced the first marginal increase in six months. On a year-on-year (y-o-y) basis,sales of food, tobacco and beverages were 1.5% down in January 2009, although unchanged inrelation to the previous month. BMI estimates that mass grocery retail (MGR) sales in Hungary in thecurrent year will be lower than in the previous 12-month period, as adverse economic conditions resultin higher levels of purchases within the discount and private-label sectors.
In terms of the wider operating environment, the recently appointed Prime Minister of Hungary (whopreviously served as the Minister of Economy) is planning a range of fiscal reform measures, whichare likely to be publically unpopular, but are necessary to respond to the economic crisis. Hungary isheading for a deep recession in 2009, with BMI subsequently revising our GDP growth forecast downto -3.4%, which will result in lower purchases of non-essential food and beverages. A key factornegatively impacting the Hungarian economy in 2009 will be the recession in all key external tradingpartners, which will have a marked effect on Hungary’s highly export-oriented agricultural sector.
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