Slovakia Food and Drink Report Q4 2012

While we expect Slovakia to post robust real GDP growth in 2012, we emphasise that economic activity isresting on shaky foundations. Household consumption continues to suffer, contracting by 0.1% year-onyear(y-o-y) in Q112. Unemployment remains high by historical standards, growing to 14.1% in Q112,with long-term unemployment becoming increasingly problematic. Of particular issue for theperformance of the food and drink market is the high level of youth unemployment, which removes thelarge base of aspirational consumers who would be receptive to marketing and advertising and who havealso the disposable incomes to spend on premium items.

Headline Industry Data (local currency)

2012 per capita food consumption = +1.89%; forecast compound annual growth rate (CAGR) to2016 = +3.47%

2012 alcoholic drinks sales = +3.33%; forecast CAGR to 2016 = +3. 64%

2012 soft drinks sales = +3.66%; forecast CAGR to 2016 = +3.25%

2012 mass grocery retail = +4.17%; forecast CAGR to 2016 = +5.42%

Key Company Trends

Price and Quality of Foodstuffs More Important than Brands: According to a survey carried out in May2012 by the European Commission’s Eurobarometer, Slovakians primarily seek price and quality whenpurchasing foodstuffs. Branding was seen as less important, with around 66% of Slovakians indicating itsimpact on the purchases.

UK’s Iceland Foods to Enter Slovakia: CEE Retail reported that UK’s Iceland Foods is consideringentry into the Slovakian market. Iceland, a frozen foods specialist, is expecting to open its first outlet inSlovakia in the course of late 2013 or early 2014, with a potential seen for as many as 100 stores acrossthe country, starting with larger cities.

Government Mulling over Introduction of Excise Tax on Wine: The government has recently indicatedthat financial support for the country’s viticulture is presently not possible, despite acknowledging theneed for such assistance. The authorities have also tabled the introduction of an excise tax on wines,which would be potentially returned to the growers through some form of state aid.

Risks To Outlook

Inflation Risks Slight: In addition to relatively strong rates of economic growth and a high degrees ofpolitical stability, we expect Slovak inflation to remain subdued over the long term. Despite slight upsiderisks posed by the adopted monetary policy from the European Central Bank in the medium term,particularly as Slovak real GDP is expected to outpace the eurozone average, we nevertheless expectupside inflationary pressure to remain somewhat subdued through the end of our forecast period.