Slovakia Food & Drink Report Q1 2008

Despite being a relatively low-growth market, Slovakia's food and drink industry continues to attract investments. In October, Senoble, France's leading producer of private label dairy products for retailers, announced its acquisition of its Slovakian counterpart, Gemerska Mliekaren. Located in the south of the country, Gemerska Mliekaren has a staff of 85, collects around 65mn litres of milk annually, and was expecting 2007 turnover to reach EUR23mn (US$33.2mn). Senoble is already present in Slovakia as the country's leading yoghurt producer. Following this acquisition, it will also be the leading milk and butter producer. The value of the transaction was not disclosed, and must pass regulatory approval before the deal is complete. Earlier, Coca-Cola Beverages Slovakia had announced that it has increased the production of its Bonaqua spring water, spending around SKK500mn (US$20.3mn) on a new production line. The new line is based at the company's plant in Luka, in the Trnava region, and will have a production capacity of 300,000 bottles per hour. Coca-Cola Beverages Slovakia was established in 1993 under Coca-Cola Amatil Slovakia and became a member of the Coca-Cola Hellenic Bottling Company in 2007. Clearly the company has recognised the potential of Slovakia's soft drinks market which has grown considerably in recent years, with changing consumption patterns increasing the scope for premium and functional drinks in coming years.

The Slovak food and drink market has developed and matured rapidly following the liberalisation of the economy that occurred after political reforms in 1998. EU accession has seen a wholesale restructuring and consolidation of the food industry from the agricultural to the food-processing sector and this process is still underway. As a small market in close proximity to large food exporting countries such as the Czech Republic, Poland and Germany, Slovakia struggles to maintain its domestic food industry against the tide of often-cheaper imports from other recent EU entrants. Another weakness is that in Slovakia, per-capita food consumption is lower than in other Central European markets, restricting growth in the overall food and drink industry.

However, despite these drawbacks and a comparatively low growth forecast, there are nevertheless some growth opportunities available as consumers see a steady rise in their disposable incomes. In fact the Slovak economy remains the fastest growing in central Europe, with real GDP growth coming in at an impressive 9.0% y-o-y in the first quarter of 2007. Apart from the manufacturing industry, also underlining the strong Slovak economic performance is steady and robust private consumption growth, which expanded in real terms by 6.5% y-o-y in Q107, down just slightly from the 6.6% y-o-y growth figure recorded over the same period a year earlier. The economic picture certainly looks healthy and our view is that there are few risks to the growth outlook over the short term. What this means for the food and drink industry is that despite being a relatively low growth market, there are still opportunities available if you know where to look.