Bulgaria Food & Drink

The countdown to EU accession has set off a fight among food retailers for market share and a dwindling number of urban and suburban locations for supermarkets and hypermarkets. The opening of the first Kaufland discounter in the country in April is an opening salvo for what promises to be a concerted assault on the market by discounters. BMI forecasts that the mass grocery retail sector (MGR) will grow by 73% between 2005-2010, with hypermarkets leading the way. Discounters will also emerge in the next five years as a key retail location for Bulgarian shoppers seeking to maximise income spending power. By 2010, food consumption will fall as a percentage of GDP from 15.1% in 200 5to 12.6% in 2010. This will represent greater efficiencies in the food supply chain and the ability of consumers to spend more on purchases of white goods, entertainment and other non-food, discretionary spending.

But Bulgaria's food processing industry is also facing a tough period. As the latest EU monitoring reports revealed in May, the country still has to cover considerable distance in a few short months. While a new Veterinary Framework Law came into effect in May, the country is under considerable pressure to bring its animal product waste disposal and disease control measures fully into alignment. The government has pledged to build a new waste rendering plant in the south of the country as soon as possible. This will all be necessary if Bulgaria wants to see its beef and poultry products allowed into EU markets where they have been subject to numerous bans. So it was a particularly unwelcome blow when the latest bird flu scare hit the country in July. While the domestic poultry in question tested negative for the deadly HN-5 1flu virus, outbreaks of the virus in neighbouring Romania and the discovery of the virus among wild swans in February have conspired to take the bottom out of domestic poultry consumption. .

The challenges faced by companies operating in Bulgaria are reflected in BMI's updated business environment rankings table. Bulgaria's 12^th place ranking is the product of an uncertain economic and political environment and the relative size, stability and wealth of other CEE markets. Bulgaria remains a poor country and EU accession is placing its agricultural sector under enormous pressure. EU structural funds are meant to cushion the pain, but the reality is that many Bulgarians may feel betrayed if the upheaval caused by accession does not lead to tangible benefits after January 2007. The country's ability to compete and the willingness to continue to modernise production and liberalise regulations will be under greatest strain after the country has joined the EU, not before.

As BMI's ranking underline, Bulgaria remains a challenging place to do business. And there will clearly be losers among the current incumbent retailers unable to match the low margins of retailers such as Carrefour, due to open its first stores by 2008, and other likely entrants such as Aldi. Still, continued market entry underlines that for its manifest problems, Bulgaria's food and drinks market remains an island of growth in Central and Eastern Europe.