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Czech Republic Food and Drink Report Q1 2009

http://www.companiesandmarkets.com/Summary-Market-Report/czech-republic-food-and-drink-report-q1-2009-64209.asp

Report Summary

In BMI’s Food and Drink Industry Business Environment Ratings (BER) table for Central and East European (CEE), the Czech Republic has dropped back down to sixth place after climbing up to second last quarter. Lower projected levels of growth make the market less attractive than some of its CEE peers, but the Czech Republic continues to offer some of the most stable foreign direct investment (FDI) climates in the region. Nevertheless, the country’s food and drink market is fairly mature and consolidated by regional standards, which – coupled with a population of just over 10mn – means that competition is strong, leaving little manoeuvring room for smaller companies, especially in the face of the current global financial crisis.

In the meantime, the country continues to attract large mass grocery retail (MGR) players, with hypermarket, supermarket and discount outlet operators in particularly showing dynamism in the past few months.UK retailer Tesco's local Czech subsidiary recorded a US$40mn profit for 2007, making a major comeback following losses of US$6.8mn recorded for the previous year. Similarly, German Rewe, which recently received a green light from local competition authorities to acquire Tengelmann’s Plus discount stores, announced a renovation of up to 30 of its new outlets under its Billa supermarket banner, illustrating its belief in the market.

In terms of wider operating environment, we expect Czech GDP growth to decelerate to 3.3% in 2009, from an expected 4.3% in 2008 and 6.7% in 2007, before an eventual recovery of 4.2% in 2010. Given that a key cause of the recent slowdown has been the contraction of credit availability owing to the ongoing global financial crisis, moves to increase the availability of credit will be particularly welcome.

However, the interest rate reductions announced by the central bank, Czech National Bank (CNB), are unlikely to be sufficient to overcome deteriorating consumer and business sentiment, which will remain the core drivers of the consumption, investment and employment slowdown. Still, despite the slight uptick of consumer price index (CPI) growth in September 2008, when it increased to 6.6% year-on-year (y-o-y) from 6.5% the previous month, we maintain that the underlying trend in the Czech Republic is now disinflationary, which means that an increase in food prices will not be a major factor in overall food and drink market growth in the short term.

In the meantime, figures released by the Czech Statistical Office in October 2008 show that livestock production in the country continued to decrease, falling by 3% y-o-y. While beef production rose slightly, it was not sufficient to offset significant reductions in pork and poultry production, negatively impacted by rising competition from more cost-competitive producers from other European Union (EU) countries.

Recent months have also witnessed a number of food-related scares, including the discovery of a pentachlorophenol-contaminated guar gum shipment by Indian company Satyam Enterprises and of Chinese imported milk products containing higher melamine content than is permitted, which will all affect the goodwill of retailers and consumers alike towards imports from emerging markets.

Table of Contents

Executive Summary ....................7
Business Environment ...............8
SWOT Analysis ............................ 8
Food .......... 8
Czech Republic Food Industry SWOT.................. 8
Drink.......... 9
Czech Republic Drink Industry SWOT................. 9
Mass Grocery Retail ............. 10
Czech Republic Mass Grocery Retail SWOT ..... 10
CEE Food & Drink Business Environment Ratings ............................. 11
Regional Food & Drink Business Environment Ratings, Q109....... 14
Czech Republic’s Food & Drink Business Environment Ratings ..... 14
Macroeconomic Outlook............ 16
Table: Czech Republic – Economic Activity ...... 18
Food...............19
Industry Forecast Scenario........ 19
Food Consumption................ 19
Table: Czech Republic Food Consumption Indicators – Historical Data & Forecasts.............................. 19
Confectionery........................ 20
Table: Czech Republic Confectionary Value/Volume Sales (US$mn, unless otherwise stated) – Historical Data & Forecasts........................... 20
Canned Food ........................ 21
Table: Czech Republic Canned Food Value/Volume Sales – Historical Data & Forecasts ....................... 21
Trade ....... 21
Table: Czech Republic Food, Drink And Tobacco Trade Indicators (US$mn) ............. 22
Industry Developments............... 22
Market Overview ....................... 24
Food Production................... 24
Leading Players .................... 25
Food Consumption................ 26
Confectionery........................ 26
Canned Food ........................ 27
Trade ....... 28
Agriculture............................ 29
Dairy Production.................. 29
Organic Food ....................... 30
Biofuels................................. 30
Drink ..............31
Industry Forecast Scenario........ 31
Alcoholic Drinks ................... 31
Table: Czech Republic Alcoholic Drinks Value/Volume Sales – Historical Data & Forecasts.................. 32
Hot Drinks ............................ 32
Table: Czech Republic Hot Drinks Value Sales (US$mn) – Historical Data & Forecasts......................... 33
Soft Drinks ............................ 33
Table: Czech Republic Soft Drinks Value/Volume Sales – Historical Data & Forecasts........................... 33
Industry Developments............... 33
Market Overview ....................... 36
Alcoholic Drinks ................... 36
Beer ......... 37
Non-Alcoholic Beer............... 39
Wine......... 39
Hot Drinks ............................ 40
Soft Drinks ............................ 41
Mass Grocery Retail..................43
Industry Forecast Scenario........ 43
Table: Czech Republic Mass Grocery Retail Sales By Format (US$bn)....................... 44
Table: Czech Republic Grocery Retail Sales By Format (%).......... 44
Industry Developments............... 45
Market Overview ....................... 46
Leading Players .................... 47
Table: Structure Of The Czech Republic’s Mass Grocery Retail Market By Estimated Number Of Outlets ........................... 49
Table: Structure Of The Czech Republic’s Mass Grocery Retail Market By Value (US$bn) ..................... 49
Table: Czech Republic Value Sales Per Outlet (US$mn) ................ 50
Competitive Landscape............51
Key Players................................ 51
Food And Drink .................... 51
Table: Czech Republic Key Players – Food, Drink & Tobacco Sector, 2007 ............... 51
Mass Grocery Retail .................. 52
Table: Czech Republic Key Players – Mass Grocery Retail Sector, 2007..................... 52
Company Analysis...................... 53
Food ........ 53
Nestlé Cesko ......................... 53
Madeta.................................. 54
Hamé ....... 55
Drink........ 56
Plzensky Prazdroj ................. 56
Budejovicky Budvar .............. 57
Karlovarske Mineralni Vody (KMV).................. 58
Mass Grocery Retail ............. 59
Ahold Czech Republic AS...... 59
Tesco Stores CR.................... 60
Lidl & Schwarz ..................... 61
Rewe ........ 62
Appendix: Agricultural Commodity Prices...........63
Food & Drink Business Environment Ratings .....64
Ratings Methodology ................. 64
Ratings Overview....................... 64
Ratings System...................... 64
Indicators.............................. 64
Limits Of Potential Returns................................ 65
Risks To Realisation Of Potential Returns ......... 66
Weighting.............................. 67
Weighting.............................. 67
BMI Food & Drink Industry Glossary ....................68
Food & Drink ............................ 68
Mass Grocery Retail .................. 68
BMI Food & Drink Forecasting & Sourcing ..........70
How We Generate Our Industry Forecasts ............. 70
Sourcing........ 71