In BMI’s Food and Drink Business Environment Ratings Romania continues to improve its position, nowbeing placed fourth, out of the 14 markets surveyed in the Central and Eastern European (CEE) region.Despite facing recession, Romania is expected to fare relatively better, economically speaking, than mostCEE countries, which have consequently received lower scores for the quarter. However, Romania’s foodand drinks market will continue to be hampered by low per capita incomes, large sections of rural population,and its negative food and drinks trade balance. Over the next five years, the value of food consumption atconsumer prices is expected to increase by 48.12% in local currency terms, to reach ROL83.2bn(US$35.9bn), although the remainder of 2009 and into 2010 are likely to be more challenging.
In fact, a number of Romanian companies, in both the food and drink and the mass grocery retail (MGR)markets, have started to feel the effects of economic downturn. Elit Cugir, the leading charcuterie producerin Transylvania and among the top ten nationally, announced that job cuts would be considered the lastmeasure of protection against a continued sales decline and rising prices of raw materials. President of PepsiAmericas Romania was quoted as saying that he expected the single-digit growth of its sales for 2009, asthe company moves into production of non-carbonates. Similarly, water bottler Apemin Tusnad is notexpecting the repeat of a 14% year-on-year (y-o-y) value sales increase posted in 2008.
The performance of the food and drink markets will also depend on the wider retail climate. Given that thecountry's MGR sector was hit by a sharper than expected fall in consumer confidence, supermarkets andhypermarkets will struggle to retain their customers, who are increasingly seeking cheaper alternatives fromthe discount sector. In fact, according to a survey conducted by newspaper Ziarul Financiar (ZF), sales ofEUR100 per square metre registered by hypermarkets in 2006 (second only to France) are history. Demandfor cheaper private-label goods has picked up markedly, while discounters are also benefiting from theirability to set up in urban areas (unlike hypermarkets) and residential neighbourhoods, which reducestransportation expenses. The MGR market is expected to experience additional changes in the course of2009. For example, existing supermarket operators will focus on smaller formats in order to address changingneeds of their consumers, while smaller and independent retailers are likely to fall prey to larger companies,all of which will affect the market penetration of foodstuffs and beverages.
Nevertheless, the longer-term potential of the Romanian market - in addition to the increasing saturation ofWestern European markets - is one of the key reasons for continued investment in the country. To this end,global food and beverage giant Unilever recently entered Romania's ice cream market, increasingcompetition to domestic and multinational players, which include Nestlé Romania. Still, both companieshave the financial clout to weather the competition as well as the economic storm, even if it requires that theyreduce their margins for the time being.
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