Abstract
In Q309, the Czech Republic improved its position in the BMI’s Business
Environment Ratings (BER)
matrix for the 14 key markets within Central and
Eastern Europe (CEE). Strong per capita consumption
on food and beverages,
the fact that the fall-out from the global economic slowdown will not be as
severe
as elsewhere in the region, and the high level of multinational
involvement in the country (including the
recent announcement that spirits
major Pernod Ricard is constructing a new factory) have boosted the
Czech
Republic to the third place in the matrix, from the sixth occupied in Q209. In
the next five years,
the country’s total food consumption is expected
to increase by 38.5% in US dollar terms, to reach
US$15.03bn, despite
lower rates of growth in the short term.
In fact, adverse economic
conditions are already taking their toll, with industry consolidation
continuing.
Since the start of 2009, two of Heineken’s three
subsidiaries in the Czech Republic, Krusovice and
Starobrno, reported that
they will merge in the course of mid-2009, as the latter faces lower demand
for
exports due to the European economic slowdown. On a regional basis,
Polish coffee and tea producer
Mokate acquired Czech Republic-based Marila
Balirny, in a strategic move aimed at strengthening its
position across
CEE. Similarly, Czech meat conglomerate Agrofert acquired a 54% share in
Milkagro, a
company that controls dairy firm Olma Olomouc, with the
purchase extending the reach of Agrofert to
the second key main food
processing area, namely dairy.
In other worrying news, Czech brewer
Plzensky Prazdroj, a subsidiary of Anglo-South African brewing
giant
SABMiller, decided to lay-off 6% of its workforce. While this may only be a
temporary measure,
the move gains a political dimension when pitched
against the fact that the brewer actually posted a 166-
year record growth
for beer sales in 2008. Indeed, the Czech Republic is currently governed by an
interim
administration, following the March 2009 dissolution of the
previous administration that failed to survive
a vote of confidence.
Rising unemployment levels will, therefore, not only impact on the food and
drinks
spending, but also serve to shape the government’s policy in
the coming months.
In the meantime, weaknesses of the Czech
Republic’s economy – we are forecasting a GDP contraction of
2.1% in 2009 – are filtering through to its MGR sector as consumer
spending continues to tighten.
Consumers are likely to be buoyed by news
that cheaper private-label goods are set to take up more shelf
space over
the coming months as retailers expand their own offerings, which will –
however – also mean
lower short-term growth for consumer spending on
food and drinks. While it holds true that food retailers
are likely to be
able to withstand the recessionary shock better than non-food retailers,
consumers will not
tolerate inertia and are likely to respond to
value-offerings.
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