Slovakia Food and Drink Report Q1 2007

The big news this quarter in Slovakia's food and drink industry is the decision by the Slovakian Antimonopoly Office (PMU) to block British retailer Tesco from acquiring four Carrefour hypermarkets.

The decision was based on the concern that that this would give Tesco an overly powerful position in the country's mass grocery retail (MGR) sector, a decision Tesco had to wait over a year to receive. As a number of foreign retailers have headed for the exit, the Slovak MGR market has experienced rapid consolidation with the recent exit of Carrefour and Dutch company Ahold. Although the PMU is not meant to be a political agency, there is inevitably a political element to its rulings when it comes to gauging retailer's presence in the country, and the strength that these retailers hold in their dealings with suppliers, consumers and rivals.

From the point of view of foreign retailers, Slovakia has one of the least attractive relative growth scenarios for the MGR sector of any of the main Central and Eastern Europe (CEE) markets, which is why it lands in 13th place in our Business Environment Rankings (BER). Overall MGR sales are forecast to grow to reach US$3.36bn in 2011. Co-ops will experience the strongest growth within the MGR market of 33.9% to reach a value of US$1.22bn, representing a share of 36.3% of the overall market by 2011. Nevertheless, German hard-discount player Aldi will enter the market, with plans to open the first outlets in late 2008 or early 2009.

Meanwhile, the country's brewing industry also continues to consolidate, with SABMiller and Heineken controlling upward of 80% of the beer market. Domestic consumption continues to slump, as figures released by the country's Beer and Malt Producers' Association showed that beer sales in Slovakia fell again in 2006, by 4% compared to 2005, coming in at 3.8mn hectolitres (hl). Beer exports took a particularly hard hit, falling to 36,2000hl, down from 118,400 the year before. Local brewers blame this drastic fall in consumption levels to the high tax on beer, and the lower prices of beers produced in neighbouring countries.

However, it is not all grim news for Slovakia, as the economy continues to perform strongly. The Slovak economy surged forward last year growing by 9.5% in the fourth quarter of 2006. This brings total GDP growth in 2006 to 7.1%, the highest annual growth figure in the country's history and up from 6.0% in 2005, which will fuel greater consumer spending on food and drink products. Membership of the EU, and aspirations to join the eurozone later in the decade, ensure that Slovakia has a favourable environment for business.