Bulgaria food & drink expectations

by S. C.

In BMI's Business Environment Ratings, Bulgaria is once again in joint 10th place, alongside fellow 2007 EU entrant Romania, out of the 14 main markets surveyed in the CEE region. For the foreseeable future, Bulgaria will remain considered a marginal food and drink market, given its modest population size and relatively small annual GDP per capita. On a positive note, Bulgaria enjoys the maximum score for its per-capita food consumption growth, which is further buoyed by a high score for per-capita soft and alcoholic beverages consumption. Illustrating the country's attractiveness as a manufacturing base, USbased Kraft Foods is to relocate its confectionery production from Romania to Bulgaria in 2009. However, it is clear that the financial storm is having an impact on Bulgarian food and beverages producers. In December 2008, Bulgarian boutique producer of red, white, and rosé wines Todoroff Winery was reportedly planning to beat the recession by focusing on premium quality wines and prioritising value sales over volume, as its major export destinations - namely Russia, the UK, Poland and Germany - are suffering considerably from the global financial crisis. Nevertheless, Todoroff should also benefit from the recently secured geographical indications protection from Australia, which now recognises 51 local wine-growing areas. In the meantime, Bulgaria's domestic alcoholic drinks market seems relatively robust, although value growth will be slowed by low disposable incomes and an ageing, declining population, as well as any further increases in excise tax. While the developments in Bulgaria's food and drinks market have been relatively subdued over the past three months, its mass grocery retail (MGR) market has exhibited considerably more dynamism. At the start of 2009, German retail giant Rewe announced that it would launch its Penny discount model in Bulgaria by the end of 2009, responding to changing market conditions and bolstering its respectable portfolio of Billa hypermarkets. Billa recently reaffirmed its medium-term expansion plan of opening eight new stores each year in Bulgaria, to add to the existing total of over 75 units. Similarly, French hypermarket retailer Carrefour is planning to become the leading retailer in Bulgaria in the medium term, with a focus on new marketing concepts, lowering prices and aggressive expansion. In terms of a wider operating environment for food and drinks companies, having reassessed underlying growth dynamics, we now expect the Bulgarian economy to continue powering along at a healthy clip over the next 10 years. Although our projection for 2009 envisages a slowdown in economic growth - to just 1.1%, in light of cooling domestic demand and a deteriorating external environment - market conditions should pick up beyond 2010. In addition, we believe that the economic asymmetries that currently conspire against macroeconomic stability will have contracted to less precarious levels by the end of our 10-year forecast period. As a result, per-capita income is projected to increase to US$13,294 in 2018, trebling from US$4,132 in 2007, placing Bulgaria roughly on par to Hungary and Slovakia in 2007 and Poland in 2008, which will provide a major impetus for the country's food and drinks markets.