East European bakery growth catches investors' eyes
Rising incomes have meant East European consumers are more able, and more willing, to indulge in expensive and premium goods. Meanwhile, busier lifestyles have spurred demand for bakery and snack products that can be eaten on the go. Inflation has also had an effect on the market.
Capexit, an Austrian private equity company, has just completed its first big deal in South Eastern Europe by acquiring 100 per cent of the Serbian bakery Bread & Co.
"The food and beverage sector has a high growth potential in the region," said Christian Wimmer, CEO and partner of Capexit. "With Bread & Co, we are introducing a high-quality supplier demanded heavily in these countries."
The bakery sector in Eastern Europe was valued at €18,905m in 2006, rising to €20,708.5m in 2007, according to Euromonitor. The value is expected to rise further, with predictions for 2008 estimated at €22,724m.
In 2013, the global market intelligence group says the market will be worth as much as €26,603m. This is an increase of 17 per cent over a five-year period.
Meanwhile, the value of the sweet and savoury snacks market, covering products such as fruit snacks, crisps, popcorn and nuts, is predicted to increase from € 3,841m in 2006 to €4,974 in 2008. It is expected to reach €7,088m in 2013, representing a massive increase of 43 per cent over five years.
Changing economy spurs growth
Sangeetha Srinivasan, industry manager for Frost & Sullivan, told BakeryandSnacks.com: "Eastern Europe (EE) continues to present potential opportunities for bakery manufacturers. A number of countries in EE are witnessing strong growth in the bakery sector. This is mainly attributed to evolving economic conditions that have given people access to a number of luxury and indulgence products such as cakes, pastries and specialty cookies."
There is particular demand for premium bakery products in Eastern Europe, with the sector dominated by artisan bakers coupled with an increasing demand for speciality breads, such as breads with seeds, whole grain and rye, she said. Turkey ranks first in per capita consumption of bread globally.
Meanwhile, consumption of packaged and industrial bakery products is low in most East European countries. However, as lifestyles become busier, and with more and more women working, demand for ready-to-eat baked products is on the rise, said Srinivasan.
Meanwhile, Euromonitor says this has also led to a greater variety of flavours appearing on the market and increasing importance being placed on convenient packaging over the last five years.
Consumers have also displayed a tendency to opt for well-known premium crisps products, such as Lay's and Estrella. This has caused a decline in the share of crisps brands from local companies, which "often suffer from the fluctuating quality of their offerings".
In a 2005 report on growth of food markets in Eastern Europe conducted by private equity and venture capital company 3i, the group said while the area has a lot of potential for growth, the food industry should be cautious when investing in developments there.The report said that, because of cultural and social differences, the industry has to adapt to achieve success there. Furthermore, companies have to be aware that there are a lot of differences between East European countries, said the report, and what works in one country may not work in another.
Keith Ellis, global head of food and drink at 3i, said: "There is no doubt the region represents a first-class opportunity for European food and beverage producers, but for successful strategies, the devil will be in the detail, in terms of location, product, distribution and timing."