Serbia Food and Drink Report Q4 2009

In BMI's Food and Drink Business Environment Ratings (BER) for Q409, Serbia continued to improve its position in the Central and Eastern Europe matrix. Having been ranked last and then 11th out of 14 key markets in the previous two quarters respectively, Serbia is now placed a much more favourable 9th. One of the main reasons for this is actually the more dramatic worsening of the scores for the Baltic states, Bulgaria and Ukraine, which are expected to be more severely impacted by the economic crisis.

Of course, Serbia cannot avoid the fallout from the financial difficulties. Therefore, we expect the value of food consumption to contract in the course of 2009 and 2010, partly due to stagnating and even falling retail prices, before returning to growth in 2013. Overall, however, through to 2013, we expect food consumption to post a growth of 6.74% in local currency terms, to RSD662bn (US$9.87bn), which is still double that of the considerably more developed Slovenia, for example. In the same period, food consumption as a percentage of GDP will fall from 23.9% in 2008 to the forecast 18.6% in 2013, as more money is spent on non-essential items and services, rather than basic foodstuffs. However, calculations are somewhat distorted by the wide extent of grey economy, which is not counted towards official GDP figures and which continues to drag down Serbia's overall BER matrix score.

In the meantime, flagging market performance seems to be taking its toll on some of the region's major players. In June 2009, industry press revealed that Belgian brewing behemoth Anheuser-Busch InBev (A-B InBev) is looking for interested parties to buy its CEE operations, spanning 11 breweries across Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Romania and Serbia. Interest has reportedly been expressed by a number of private equity firms, including TPG and KKR, as well as Cinven and Warburg Pincus. Although the region accounted for close to 14% of AB InBev's revenue in 2008, its contribution to EBIDTA was underwhelming at just over 7%. Conditions for brewers have steadily worsened in 2009 - severe economic stress has forced a sharp alteration in consumer spending, which continues to profoundly affect the non-essential beverage category. What is more, with populations declining or remaining flat in many of the region's markets, the long-term demographic outlook does not favour brewers, particularly those that are not market leaders.

Still, some local players seem willing to take the risk, despite the difficult economic conditions.

Beogradska Industrija Piva (BIP), 51% owned by a Swedish-Lithuanian consortium, recently launched the lightest beer on the Serbian market. The 4.2% abv. Ledeno pivo is targeting summer drinkers in the country. Much will hinge on the weather as well as Ledeno's marketing success, given the fact that the planned investment in BIP has had to be postponed due to economic adversity. While BIP can take some hope from the privatisation requirement imposed on the new owners - that a certain amount of investment must be made in the 2009-2010 period - Serbia is unlikely to be the priority market for the consortium, possibly prompting some ownership changes