Browse the complete Report on: Romania Food and Drink Report Q4 2010
Our expectations for Romania’s food and beverages spending are modest. The performance of the markets for the remainder of the current year will be shaped by the recent increase in the value-added tax (VAT) to 25%, which has in turn led the central bank to upwardly revise inflation figures, as well as high unemployment levels. As consumer confidence is far from recovered in relation to pre-crisis levels, we expect that discretion will continue to be exercised in regards to purchases of foodstuffs and beverages, with premium items to suffer the most.
Headline Industry Data - 2010 per capita food consumption = +2.40; forecast to 2014 = +12.01%
- 2010 alcoholic drinks sales = +0.24%; forecast to 2014 = +16.32%
- 2010 soft drinks sales = +3.58%; forecast to 2014 = +24.63%
- 2010 mass grocery retail = +6.50%; forecast to 2014 = +44.11%
Key Company Trends
Foreign Players Increasing Stakes in Local Companies – In July 2010, a 54% stake in Romanian dairy distributor Delaco was acquired by French Bongrain SA, which deals in cheese and dairy products, having been given a green light by regulatory authorities. The Romanian arm of confectionery giant Cadbury – Kandia-Excelent – is to be sold to international investment fund Oryxa Capital, as part of ongoing efforts to meet European Commission competitive requirements following Kraft's acquisition of Cadbury in Q110. Global and regional confectionery giants Hershey, Nestlé and Ülker were all linked with Kandia-Excelent, which is particularly strong in sugar confectionery and chocolates. Finally, although the deal is currently being assessed by the local competition authorities, German mass grocery retail (MGR) player Lidl has moved to take over compatriot Tengelmann’s retail chain Plus, both in Romania and in Bulgaria.
Key Risks to Outlook
Economic Woes – While early signs have been positive, we caution that the Romanian economic recovery will remain fragile, with weaker external demand and the overhang of high unemployment preventing a return to pre-crisis rates of growth. Actual unemployment and the fear over further job losses (especially given the government's plan to shrink the public sector) will keep household spending weak and prevent economic growth from hitting the 9% growth rates recorded at the peak of the previous cycle, especially given the recent VAT hike, from 19% to 25%. While the IMF has allowed Romania to target a larger fiscal deficit this year (6.8% of GDP, rather than 5.9% originally stipulated), this may prove insufficient leeway, with significant risks of delay over the disbursement of outstanding loan tranches. Thus, while fiscal consolidation will further weaken the economy over the medium term, a failure to implement new austerity measures would risk suspension of the IMF loan program, which in turn would lead to deterioration in foreign investment climate and result in Romania being further sidelined by multinationals looking to expand in Central and Eastern Europe (CEE).
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