BMI's Executive Summary

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Both Hungary's consumers and its food and drink industry are struggling with rising food prices. Rising grain prices are continuing to squeeze Hungarian bakers, and in September the Hungarian branch of the International Union of Bakers-Confectioners said that consumers have to accept that bread and milk as well as other food and drink products. Due to a drought across southern Europe and rising demand from Asian markets, prices of basic commodities have been soaring globally. Although a slowdown in consumer price growth in September to 6.4% year-on-year (y-o-y) from 8.3% in August in Hungary was in line with our expectations of a decline in the comsumer price index (CPI) in the latter half of this year, high food prices still remain a key concern. On a monthly basis, food prices grew by 2.2% in September, up from just 0.1% and a decline of 0.8% in August and July respectively, with these rises having a negative effect on consumer confidence.

Poor weather also had an effect on drinks companies' profits, such as PepsiAmericas. In October the company posted a lift in operating income for its third quarter, on the back of rising sales, with operating income for the three months to the end of September rising by 27% y-o-y to US$140mn. Sales in the quarter were also up by 11% to US$1.2bn. The company said that acquisitions, worldwide net pricing gains and strong volume growth in Central Europe were to thank for this growth. Volumes in Central Europe were up by 25.2%, with acquisitions driving the majority of the increase. However, poor weather in the company's developing markets, including Poland, Hungary, Czech and Slovakia, led to slower volume growth in the region. Net sales in Central Europe rose 52% to US$238.2mn.

Meanwhile, as also discussed in the report, the European Union (EU) looks set to reform its milk quota system in the face of a rapidly changing global milk market. The current quota system, which has been in place since 1984, is set to continue until 2014/15. But in the face of soaring dairy prices worldwide, there is considerable pressure on the European Parliament to abolish the quotas as soon as 2008/09. Under the current system, farmers in Europe must comply with milk quotas which limit the amount of production per country. If countries exceed their annual quotas, they must pay a 'superlevy' which is an annual fine calculated by the European Commission (EC). Although this system may have been sensible 25 years ago when the EU was dealing with a massive milk surplus, in today's environment of rising demand and shrinking supply, we believe maintaining such a system makes little sense for farmers or the EU. Given this situation, it looks as though the current quota system should soon be gone, which will be welcome news for Hungary's dairy producers, who have been facing far greater competition in their domestics market following EU membership.

Contents

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Chapter 1 – Business Environment

Retail Business Environment Rankings

Table: Central And Eastern Europe Business Environment Rankings

SWOTS

Hungary Food & Drink Industry SWOT

Hungary Political SWOT

Hungary Economic SWOT

Hungary Business Environment SWOT

Macroeconomic Outlook

Table: Nominal And Real GDP

Chapter 2 – Retail

Plenty of Potential for Private Labels in CEE

Table: PL Market Share Within Overall Food And Drink Retail Sales, 2006, Selected CEE Countries

Table: Leading CEE retailers by PL market share

Industry Forecast Scenario

Table: Hungary MGR Value Sales By Format – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview – Hungary

Table: Structure Of The MGR Market By Number Of Outlets

Table: Structure Of The MGR Market By Value (US$bn)

Table: Value Of Sales Per Outlet 2005

Chapter 3 – Food & Drink

CEE Food Focus: Fittest Fight for Future of CEE Dairy Market

Table: EU Allocation Of Milk Quotas To 2004 Accession Countries In The CEE (1,000 Tonnes)

Industry Forecast Scenario

Food

Table: Hungary Food Sector Indicators – Historical Data & Forecasts

Drinks

Table: Hungary Drink Consumption Indicators – Historical Data & Forecasts

Industry Developments

Market Overview

Table: Hungary Agricultural Sub-sector Production – Historical Data (Volume, tonnes)

Chapter 4 – Tobacco

Industry Developments

Market Overview

Table: Cigarette Value/Volume Sales – Historical Data & Forecasts

Chapter 5 – Competitive Landscape

Key Players

Table: Key Players – Hungary’s MGR Sector (2005)

Table: Leading Companies In Hungary’s Food & Drink Sector (2004)

Regional Company Case Studies

Mercator – CEE Case Study

Financial Highlights

Table: Mercator’s Financial Highlights

The Only Way Is Up…

Current Position

Table: Mercator’s Market Share Growth To 2005

Covering All The Bases

The Importance Of Private Label

Future Position And Growth Strategies

Table: Projected Growth In Market Share, According To Company Strategy, 2005-2010

Group Diageo – CEE Case Study

Table: Brand Performance – Europe, Year Ending June 30 2006

Table: Diageo: Distribution In The CEE

Groupe Danone – CEE Case Study

Groupe Danone – The CEE Figures

Table: Key Figures By Business Line

Table: Key Figures Over Five Years, Fresh Dairy Products (EURmn)

Metro – CEE Case Study

Table: Metro’s Presence In CEE

Table: Development Of Group Sales And Divisional Sales As Well As Regional Sales

Company Analysis

Luca

Sio-Eckes

Tesco

CBA Kereskedelmi Kft

Nestlé Hungaria

Spar Magyarország

Buszesz Foods

Brau Union Hungária Breweries

Auchan

BMI Forecast Modelling

How We Generate Our Industry Forecasts

Retail Industry

Sources

Competitive Landscape for Europe Food & Drink Reports: Sample of  
Companies Ranked

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At-a-glance perspective on the strengths, weaknesses, opportunities and threats facing each market’s food & drink industry. BMI also provides similar economic and business environment studies. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) covering all leading food and drink companies operating in each market, including competitive intelligence on geographic presence and competitive positioning of multinationals against local companies; leading products, services and brands; sales and local market share; foreign direct investment, projects, partners and acquisition strategy. Illustration of the industry via rankings tables comparing revenues, number of outlets, number of employees and registration dates. BMI analyses each company’s performance, market position, strategy and investment potential.

Network of European Food Sources

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BMI's European Food Reports are based on an extensive network of multilateral organisations, government departments, food industry associations, chambers of commerce and company reports. Information sources include: