Hungary second only after Russia in emerging Europe region

by S. C.

Having lost its pole position to Russia in 2009, Hungary remains second in our updated Food and Drink Business Environment Ratings (BER) for the 15 key markets in the emerging Europe region. While its composite score is slightly higher than previously (due to the country's somewhat more optimistic longterm economic outlook), challenges remain, not least in the shape of a declining and ageing population. The economic downturn resulted in a 1.45% year-on-year (y-o-y) decrease in overall food consumption values for the year, which fell to HUF4,052bn (US$20.1bn), with the drop even more pronounced in US dollar terms, on the back of the weakened forint. Nevertheless, high values of per capita consumption of both food and beverages will continue to prop up Hungary in its BER matrix, as will its attractive regulatory environment. Over the coming five years, we expect a return to growth of overall food consumption values in Hungary, reaching HUF4,826bn (US$24.82bn) in 2014, up by 19% in local currency terms on 2009.

In the meantime, downward pressure on prices will continue to be exerted by the changes in the mass grocery retail (MGR) industry in Hungary. In line with growing demand for economy products, in April 2010, French retail giant Auchan announced plans to export its Russia-made private label products (which are usually sold for 20-40% less than their branded equivalents) to outlets in other markets in the region. Following their launch in Ukraine, Auchan outlets located in Hungary, Romania and Poland are next in line to stock private label goods that include dairy and tinned vegetables. In fact, we also expect the growth of the Hungarian discount MGR sector will be one of the key influences on the development of the country's wider food and drinks markets.

In the alcoholic beverages arena, the challenging local market (which has witnessed declines in beer consumption for the past three years, among other issues) is pushing domestic players into expanding their geographical reach. To this end, in March 2010, the Association of Hungarian Grape and Wine producers (MSZBSZ) established a new company, Kozossegi Bormarketing, to be engaged in the commercialisation and promotion of high-quality Hungarian wines on export markets. The money for the promotion of Hungarian wine will be provided by the Bormarketing Fund, which currently totals HUF800mn (US$4.03mn).

Other domestic players in the food and beverages industry are continuing to invest in capacity and product portfolio expansion, despite the subdued market potential - in the short term at least. Hungarian frozen food producer Naedudvari elelmiszer recently finalised a HUF150mn (EUR0.5mn) investment in the establishment of a breaded cheese products and ready-made frozen meals facility. A quarter of the total funding was obtained from EU sources. Naedudvari elelmiszer's portfolio mostly includes meat and dairy products (including milk) as well as frozen foods, which are increasingly required by convenienceseeking and time-pressured lifestyles.