Croatia Food & Drink

One of the most interesting stories to be highlighted in this quarter's update of the Croatian Food & Drink Report is the potential government intervention into restrictive and cumbersome legislation limiting significant investment in the retail and agricultural sectors. An initiative was announced at the end of August 2006, which would address problematic trade laws and break down barriers that have previously hindered investment from foreign and domestic players. If the project goes ahead, it will reportedly cost around EUR100,000 and will be assisted by the development agency US AID. Early projections cite up to 40% of all relevant legislation could be considered, discarded or altered. A similar process has already successful occurred in Moldova and the Ukraine.

While the Croatian government endeavours to tackle the country's macroeconomic problems, the mass grocery retail (MGR) sector appears buoyant. Drivers behind this growth include consolidation within the sector, increased competition between the leading players and the presence of competitive foreign players on the market. A further catalyst for growth is Croatia's burgeoning tourist industry, which has been undergoing considerable growth in peacetime. BMI takes the view that growth trends observed over the review period will accelerate up to 2010. Total turnover for the MGR sector is forecast to grow by 145.68% to US$9.82bn between 2004 and 2010. Supermarkets will still account for the majority (87.8%) of total sector sales by 2010, with sales forecast to grow by 162.42% from 2004 to reach US$8.63bn.

There has been a remarkable lack of change in the lower end of BMI's business environment rankings over the past 1 2months. In Q306, Ukraine continues to occupy the lowest position with a composite score of just 27 fuelled by particularly low scores on per capita consumer spend and barriers to entry. Meanwhile, Slovakia and Croatia have chopped and changed places between 12^th and 13^th position, just ahead of the Ukraine, for some time now. This quarter Slovakia slips to the penultimate position and Croatia climbs up to 12^th place.

In the food and drink sectors, per-capita food consumption expenditure will increase by 20.63% between 2004 and 2010 to US$533.73bn. However, despite this overall increase, expenditure on food as a percentage of GDP will fall by 17.73% to 4.82%, as consumers become more price conscious and retailers increase competition to keep up with the new demands for high quality at lower prices.

New product development opportunities lie in the growing importance of snacking for increasingly busy Croatians. Research indicates that consumers are increasingly 'grazing' throughout the day i.e. snacking and eating small meals more regularly than the typical three meals a day. According to Datamonitor, the market for savoury snacks in Croatia increased between 2000 and 2005, growing at a compound annual growth rate of 6.2%. The leading company in the savoury snacks market in 2005 was PepsiCo, Inc. followed by regional leader Star Foods S.A. and then Procter & Gamble in third place.