Poland Food and Drink Report Q2 2012

Poland's strong domestic demand story continues to look solid and we expect Poland's status as regional outperformer will continue to attract investment into the country over the next five years.

That said, economic growth is expected to slow in 2012 and Poland's austere 2012 budget will be a drag on domestic demand.

The government is attempting to reduce the public debt after the public debt load came within a hair's breadth of the constitutionally mandated 55% of GDP debt ceiling in.

In addition, a eurozone recession will weaken demand for Polish exports, which is also expected to dampen economic growth and put downwards pressure on demand during the year ahead.

Headline Industry Data ..

2012 per capita food consumption growth in local currency = 5.3%; forecast compound annual growth to 2016 = 5.7%.

.. 2012 beer volume sales = 1.7%; forecast compound annual growth to 2016 = 2.4%.

.. 2012 mass grocery retail sales growth in local currency = 9.0%; forecast compound annual growth to 2016 = 8.7%.

Key Industry Trends Tie Up Between Russian Standard And CEDC Could Create Regional Vodka Giant – In February 2012, Russian-based vodka producer Russian Standard made an offer to Poland-based Central European Distribution Corp (CEDC) that could see it take a 32.99% stake in the business.

CEDC is under pressure due to concerns over its large debt pile, with US$207mn of its debt due in 2013.

Russian Standard currently owns 9.9% of the business and is also an important debt holder.

The proposed deal would see Russian Standard exchange US$103mn of CEDC debt for common stock at a price of US$7 per share.

This would give it a 25% stake in the business and the second part of the deal would see it increase its stake to 32.99% by buying stock.

Jerónimo Martins Still Dynamic In Poland, But Signs Of Slight Slowdown In Growth – Polish retailer Jerónimo Martins continues to be buoyed by the success of its Polish discount division, with the firm recording total sales growth of 13% during 2011 to reach EUR9.8bn.

During the year sales at its Polish Biedronka division increased by 20% and the firm now operates 1,873 outlets in the country.

Over the past five years, Biedronka's top line has grown at a compound annual rate in excess of 30%, while nearly 750 new stores have been launched.

This suggests that the firm's rate of growth in 2011 represents something of a slowdown, coming in at 20%.

With the company now much bigger, it will of course be hard for it to maintain its rate of expansion in percentage terms.

However, this slight slowdown in growth could perhaps be linked to deterioration in consumer sentiment on the back of ongoing eurozone troubles and a step up in competitive activity, with a number of rivals including Tesco, Aldi and Lidl now also investing heavily.

Risks To Outlook Contagion in banking sector – We have previously highlighted the strong foreign ownership of Polish banking sector assets as a potential contagion channel for the eurozone crisis.

Although the ECB's LTRO facility has reduced the likelihood of an immediate European credit crunch, the banking system remains vulnerable to a significant worsening of the eurozone crisis.