Slovenia Food and Drink Report Q4 2009

In BMI's Q409 Business Environment Ratings (BER) matrix for Central and Eastern Europe (CEE), Slovenia remains in fifth position - out of 14 key markets - to which it slipped from second in the previous quarter. The small size of its market and the economic downturn currently hampering faster inflation of the country's food consumption levels are some of the main reasons for the worsening of Slovenia's position in the table. However, despite the fall in overall food consumption values forecast in the short term, at EUR1,739 in 2008, per capita spending is the highest in the region, which should provide some respite to food and drink companies operating in the country.

In the shorter-term, however, due to external factors, we expect Slovenia to fall into its first recession in almost two decades. Private consumption is expected to contract and unemployment likely to rise, with modest recovery expected beyond 2009. Moreover, official sources recently indicated that the total value of agricultural products fell by 2% in May 2009 in relation to the previous month. Measured in annual terms, the drop was even more drastic, at just under 18%, as industrial production falters. Overall, however, longer-term potential in Slovenia remains considerable, given its advanced business climate and an excellent infrastructure.

While the negative effects of the current economic conditions cannot be understated, there is some positive news from the food and drink industry. For example, in June 2009, leading domestic poultry processing company Perutnina Ptuj inaugurated a new factory. The plant, which cost EUR6.5mn and represents one of the largest investments to date on a national scale, will be used to produce protein concentrate. The conglomerate plans on becoming one of the largest poultry players in Southern and Eastern Europe in the coming years, having also opened a factory in Bosnia in the course of 2008.

This focus on exports and foreign markets is mirrored in the Slovenian mass grocery retail (MGR) sector.

In July 2009, leading domestic MGR operator Mercator reported that it is to launch its first hypermarket in Albania as well as Bulgaria before the end of 2009. The company is also expected to enter Macedonia and Kosovo by 2012, while it already enjoys considerable presence elsewhere across the territories of former Yugoslavia. In fact, Mercator also recently assumed full control of M-Rodic - its Serbia-based supermarket subsidiary - after buying up the outstanding 12% stake of the retailer it did not already own.

However, Mercator's immediate future appears somewhat unsettled, after months of negotiations over the sale of some of the shares owned by majority investors, with Serbian Delta and Croatian Agrokor previously reported to be among interested parties.