France Food and Drink Report Q4 2008

In BMIs most recent Business Environment Ranking table, France occupies fourth position out of seven markets surveyed in Western Europe, down from second in Q308. Despite boasting very high food and drink consumption per capita, France is not expected to experience a major growth in consumption over the forecast period - in comparison to some of its peers, namely Spain, which is now found in pole position. Additionally, Frances trade balance is expected to worsen significantly, as its agriculture and other food processing industries are negatively impacted by quotas and reforms imposed by the European Union (EU). The changes are happening against the backdrop of consumers struggling in the face of rising food prices, although the government has warned large mass grocery retail (MGR) operators against passing the commodity costs increase onto the customers.

In the meantime, the association of French brewers reported an 8.2% decline in Q108 beer consumption, in volume terms. This has been attributed to the introduction of a ban on smoking in public places, colder than normal weather, as well as a longer term trend, as younger consumers switch to other beverages.

Nevertheless, the more expensive premium beer segment, which offset the overall trend of decline in beer consumption, continues to attract attention and investment.

In other beverages segments, news has been mixed. For example, in July 2008, spirits major Pernod Ricard reported a 2.3% increase in revenues for the year ending June 30. The figures have been buoyed by an 8.7% organic increase in sales, but tempered by a large foreign exchange impact and a moderate group structure impact, following the disposal of several brands. Around the same time, French champagne firm Laurent-Perrier reported a 14.7% increase in its net income for the year to the end of March 2008. The strong rise came on the back of a 5.4% increase in sales, suggesting that the company's strategy of driving profits through improving its profit margins has been successful. Finally, following a 12-year ban, Austrian Red Bull GmbH has received a green light from French authorities to sell its controversial energy drink by the same name, heralding an increase in market shares of functional beverages.

The MGR sector is also poised for major changes, as the government considers reforms to the countrys retail laws, which are currently some of the most restrictive in Europe. Current legislation, designed to allow smaller independent shops to compete with the large retailers, effectively requires manufacturers of branded products to sell their goods at the same price to all retailers. Private label products are currently thriving, particularly in discount stores such as Lidl and Aldi, because these complicated regulations do not apply, making them much cheaper. The proposed 'Chatel bill would allow retailers to pass on discounts - given by suppliers after selling a certain quantity of theirs goods - to consumers, allowing large-scale retailers to lower their prices. Additionally, the new legislation proposes a relaxation on the opening of new large-scale outlets, which should go some way to reviving the flagging MGR sector, with hypermarkets in particular struggling over the past years, not just in France, but across Western Europe.