UK suppliers are reluctant to mine the gold in central Europe, in spite of a wider EU. Rod Addy reports on the opportunities
Prague’s bustling retail scene is a testament to what a difference just over a decade of free market growth can make. Gleaming monuments to capitalism have replaced the leaden communist architecture of old, and names like Tesco, Debenhams and Marks and Spencer now stand cheek by jowl with international and domestic retailers.
In a transformation mirrored in cities right across central Europe, the food and drink industry has been quick to stake its claim.Tesco made its Czech debut eight years ago in Prague, opening a flagship store there three years later (see page 36& 37).
It is now the second largest grocer in Hungary with a E970m turnover.
Suppliers also joined the gold rush and Walker’s Shortbread, Patak’s, Twinings, Mackays, Premier and Cadbury now export to central Europe. Yet, according to the strategic export marketing consultancy Food from Britain, many UK suppliers are still failing to capitalise on the opportunities.
The UK accounts for only 3% of food and drink imports to the Czech Republic and 1% of imports to Hungary. Food from Britain research highlights areas ripe for growth that have yet to be tapped - particularly by the smaller players.
Central Europe can also prove vital strategically to businesses that distribute across the continent, it suggests.
One key trend is convenience. Matthew Nash, head of new market development at FFB, says there is a highly receptive audience of consumers who are becoming as cash rich and time poor as some of their western European counterparts. This has stirred the beginnings of a convenience revolution in which ready meals is playing a major part, he says.
Retailers such as Belgian operator Delhaize have been leading the way in the Czech Republic with new ranges of ready meals for their chilled and freezer cabinets.
Another emerging category is ethnic foods, according to Nash. Hungarians and Czechs are receptive to Indian cuisine and accompaniments such as sauces and poppadoms.
He says: “We have found a distinct interest in international foods, although preference for local cuisine does remain strong.”
Chinese and Japanese food products are also proving popular, as well as Italian food,
a category that has been given a boost by the proliferation of Italian restaurants. However, the older members of the community are not so receptive to new shopping patterns and their traditional habits remain strong, says Nash.
“Many people know how to shop for fresh goods, but don’t have a sophisticated understanding of pre-packed versions.”
This preference for fresh food among the older consumers stems from the tradition of buying their food at street markets rather than hypermarkets.
And there is also a resistance to buying imported foods because they are suspicious of its origins.
“These shoppers are concerned about the processes and ingredients used in such foods and would prefer to maintain the strong tradition for locally sourced, fresh products,” says Nash.
Some retailers, such as Hypernova, have responded to this retreat to the familiar by re-designing food areas, especially fresh produce sections, to look like market stalls. Most major retailers also cater for more traditional consumers by allowing them to see how food is prepared. Instore bakeries and butchers’ meat preparation areas are commonly open to the view of passing customers either through open plan designs or glass screens.
The same cultural disposition is also fostering the growth of niche categories such as organic food, says Nash. Wander into Prague’s 90,000 sq ft Hypernova store in Pruhonice Cestlice and you’ll see areas devoted to organic food, such as meat and organic products, labelled Bio.
There is also a trend towards poultry and fish consumption and away from beef and pork because many national processors have gone out of business.
The cost of complying with EU processing regulations for red meat proved too much of a burden, while fish and poultry processing regulations were cheaper.
The suspicion of food processing, while not affecting the progress of hypermarkets across the region, has led to something of a backlash from shoppers who prefer to shop
in the smaller, domestic food retailers. Nash says: “Initially independent retailers dropped away rapidly. But research shows a marked increase in consumers who want to go back to bread from bakers, meat from butchers and cheese from cheese retailers, especially in Hungary.”
This indicates there are opportunities to supply smaller retailers. But suppliers have to be smart, not least because of inherent trading difficulties.
Czech retailers, for example, often demand much longer credit periods than those in the UK, says Nash. “Whereas most UK suppliers give retailers 30-40 days credit, distributors in central Europe are forced to wait between 90 and120 days for payment by retailers.”
Manufacturers must also be prepared for sizeable investments in their products to cover listings costs and to support their brands through their first year.
These costs include investment in promotional space. Sampling booths can be cheaper and are culturally one of the most popular forms of promotion.“A supplier
trying to get into one of the major retailers will probably have to pay the equivalent of between £60-£100 per sku per store,” says Nash. “If they want to get into, say, 36 hypermarkets, that is about £10,300 listing fees, plus marketing costs.
“You have to be thinking about costs of about £21,000 for the first year after launching a product.”
Gaining a listing is no guarantee that the retailer thinks the product will succeed in the long term, warns Nash: “Being accession year, distributors and retailers are being bombarded with new products. Retailers are listing products in the knowledge that they’ll probably disappear within a year.”
There are some categories that will be tougher to crack. Soft drinks and confectionery have reached saturation and exporters must identify gaps in the market.
But Nash believes there are still big gains to be made in Central Europe and not only in terms of distributing their goods throughout the region itself. Establishing a presence in a market could also provide a vital strategic hub from which to export across the whole of Europe.
Exporting to central Europe - how to avoid the pitfalls -
1 Approach an established medium-sized local distributor for your products. Small distributors won’t have the clout or the contacts, larger ones may not devote enough attention.
2 Be prepared for the long haul. After the initial contact, it can take a year to 18 months to establish a long-term product listing.
3 Local manufacturers are well established and can be receptive to having partners from overseas so they could expand their business.
4 Consider acquiring an existing local plant as an alternative to building your own or importing - that way you have easy access to customer base that is already well established.
5 You can apply for government grants to set up business in central Europe. Schemes are available for small to medium-sized enterprises as well as larger players.
6 When pursuing a listing, go for small pack sizes and make the unit price as low as possible so that trying out a new product will be relatively cheap for consumers.
Prague’s bustling retail scene is a testament to what a difference just over a decade of free market growth can make. Gleaming monuments to capitalism have replaced the leaden communist architecture of old, and names like Tesco, Debenhams and Marks and Spencer now stand cheek by jowl with international and domestic retailers.
In a transformation mirrored in cities right across central Europe, the food and drink industry has been quick to stake its claim.Tesco made its Czech debut eight years ago in Prague, opening a flagship store there three years later (see page 36& 37).
It is now the second largest grocer in Hungary with a E970m turnover.
Suppliers also joined the gold rush and Walker’s Shortbread, Patak’s, Twinings, Mackays, Premier and Cadbury now export to central Europe. Yet, according to the strategic export marketing consultancy Food from Britain, many UK suppliers are still failing to capitalise on the opportunities.
The UK accounts for only 3% of food and drink imports to the Czech Republic and 1% of imports to Hungary. Food from Britain research highlights areas ripe for growth that have yet to be tapped - particularly by the smaller players.
Central Europe can also prove vital strategically to businesses that distribute across the continent, it suggests.
One key trend is convenience. Matthew Nash, head of new market development at FFB, says there is a highly receptive audience of consumers who are becoming as cash rich and time poor as some of their western European counterparts. This has stirred the beginnings of a convenience revolution in which ready meals is playing a major part, he says.
Retailers such as Belgian operator Delhaize have been leading the way in the Czech Republic with new ranges of ready meals for their chilled and freezer cabinets.
Another emerging category is ethnic foods, according to Nash. Hungarians and Czechs are receptive to Indian cuisine and accompaniments such as sauces and poppadoms.
He says: “We have found a distinct interest in international foods, although preference for local cuisine does remain strong.”
Chinese and Japanese food products are also proving popular, as well as Italian food,
a category that has been given a boost by the proliferation of Italian restaurants. However, the older members of the community are not so receptive to new shopping patterns and their traditional habits remain strong, says Nash.
“Many people know how to shop for fresh goods, but don’t have a sophisticated understanding of pre-packed versions.”
This preference for fresh food among the older consumers stems from the tradition of buying their food at street markets rather than hypermarkets.
And there is also a resistance to buying imported foods because they are suspicious of its origins.
“These shoppers are concerned about the processes and ingredients used in such foods and would prefer to maintain the strong tradition for locally sourced, fresh products,” says Nash.
Some retailers, such as Hypernova, have responded to this retreat to the familiar by re-designing food areas, especially fresh produce sections, to look like market stalls. Most major retailers also cater for more traditional consumers by allowing them to see how food is prepared. Instore bakeries and butchers’ meat preparation areas are commonly open to the view of passing customers either through open plan designs or glass screens.
The same cultural disposition is also fostering the growth of niche categories such as organic food, says Nash. Wander into Prague’s 90,000 sq ft Hypernova store in Pruhonice Cestlice and you’ll see areas devoted to organic food, such as meat and organic products, labelled Bio.
There is also a trend towards poultry and fish consumption and away from beef and pork because many national processors have gone out of business.
The cost of complying with EU processing regulations for red meat proved too much of a burden, while fish and poultry processing regulations were cheaper.
The suspicion of food processing, while not affecting the progress of hypermarkets across the region, has led to something of a backlash from shoppers who prefer to shop
in the smaller, domestic food retailers. Nash says: “Initially independent retailers dropped away rapidly. But research shows a marked increase in consumers who want to go back to bread from bakers, meat from butchers and cheese from cheese retailers, especially in Hungary.”
This indicates there are opportunities to supply smaller retailers. But suppliers have to be smart, not least because of inherent trading difficulties.
Czech retailers, for example, often demand much longer credit periods than those in the UK, says Nash. “Whereas most UK suppliers give retailers 30-40 days credit, distributors in central Europe are forced to wait between 90 and120 days for payment by retailers.”
Manufacturers must also be prepared for sizeable investments in their products to cover listings costs and to support their brands through their first year.
These costs include investment in promotional space. Sampling booths can be cheaper and are culturally one of the most popular forms of promotion.“A supplier
trying to get into one of the major retailers will probably have to pay the equivalent of between £60-£100 per sku per store,” says Nash. “If they want to get into, say, 36 hypermarkets, that is about £10,300 listing fees, plus marketing costs.
“You have to be thinking about costs of about £21,000 for the first year after launching a product.”
Gaining a listing is no guarantee that the retailer thinks the product will succeed in the long term, warns Nash: “Being accession year, distributors and retailers are being bombarded with new products. Retailers are listing products in the knowledge that they’ll probably disappear within a year.”
There are some categories that will be tougher to crack. Soft drinks and confectionery have reached saturation and exporters must identify gaps in the market.
But Nash believes there are still big gains to be made in Central Europe and not only in terms of distributing their goods throughout the region itself. Establishing a presence in a market could also provide a vital strategic hub from which to export across the whole of Europe.
Exporting to central Europe - how to avoid the pitfalls -
1 Approach an established medium-sized local distributor for your products. Small distributors won’t have the clout or the contacts, larger ones may not devote enough attention.
2 Be prepared for the long haul. After the initial contact, it can take a year to 18 months to establish a long-term product listing.
3 Local manufacturers are well established and can be receptive to having partners from overseas so they could expand their business.
4 Consider acquiring an existing local plant as an alternative to building your own or importing - that way you have easy access to customer base that is already well established.
5 You can apply for government grants to set up business in central Europe. Schemes are available for small to medium-sized enterprises as well as larger players.
6 When pursuing a listing, go for small pack sizes and make the unit price as low as possible so that trying out a new product will be relatively cheap for consumers.
No comments yet