Abstract
In Q409, the Czech Republic fell to eighth position in BMI’s Business
Environment Ratings (BER)
matrix for 14 key Central and Eastern European
(CEE) markets, having been placed third and sixth in the
previous two
quarters, respectively. Despite the Czech Republic being a relatively mature
food and drink
market with high per capita levels of both food and drinks
consumption, it is expected to post slow
growth over the next three years.
The key reason for this is the fall-out from the global economic
slowdown,
with weaknesses in the Czech economy having already filtered through to its
mass grocery
retail (MGR) sector. Indeed, the country remains on track for
a 3.1% contraction of real GDP in 2009, as
the collapse of export demand
and foreign direct investment (FDI) inflows feeds through to a modest
contraction of domestic demand. However, the economy does continue to display
resilience in the face of
Europe-wide recession, principally thanks to the
relatively stable financial system. This should both limit
the severity of
the GDP contraction, as well as leaving the country well-placed to take
advantage of a
global economic recovery.
In the short term, however,
the situation will remain challenging. In fact, following recent news of
consolidation of its local operations, Dutch Heineken is shutting down two of
its local breweries,
continuing its cost-cutting initiative. As most of
the beer majors operating in CEE have found, Heineken' s
volume sales have
also come under pressure since Q408, as profound economic weakness has
impacted
consumption. In related news, Czech brewer Plzensky Prazdroj, a
subsidiary of Anglo-South African
brewing giant SABMiller, posted only a
marginal increase in its 2008 revenues, as its focus on premium
beers
failed to pay off in the face of economic difficulties.
Similarly, Belgian
brewing behemoth Anheuser-Busch InBev (A-B InBev) is looking to sell its
CEE
operations, including its Czech subsidiary Pivovary Staropramen.
Interest has been expressed by a
number of private equity firms, including
TPG and KKR, as well as Cinven and Warburg Pincus. The
Czech Republic' s
oldest brewer – Budějovický Měšťanský
Pivovar (BMP) – is also reportedly up for
sale, although it posted a
4.75% year-on-year (y-o-y) increase in 2008 volume sales. The state-owned
Budejovicky Budvar is thought to be leading the pack of brewers interested in
acquiring BMP.
Recent developments in the Czech food industry seem to
illustrate a more positive situation for larger
conglomerates, which are
able to capitalise on the weaknesses of smaller local and regional players.
To
this end, in June 2009, leading Czech food company Hamé –
the Czech arm of Icelandic food
manufacturer Nordic Partners –
bolstered its presence in Hungary by acquiring the canned meat
business of
Globus. Already present in the market through its domestic subsidiary
Hamé Hungaria, the
company’s move is expected to at least
double Hamé' s share of the Hungarian canned meat industry,
although
more will have to be done if Hamé is to close the gap on the markets
leaders.
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