FMCG landscape in SEE: Consumer health segment set for strongest growth

By Giedrius Daujotas,
Analytics Manager at Euromonitor International

Southeastern Europe (SEE) is becoming more attractive for consumer goods companies. While growth in the historic 2011-2016 period in SEE was hampered by the macroeconomic headwinds – especially in Slovenia, Serbia, and Croatia, where it averaged less than 1% in annual real terms over the last five years, it is expected to recover during 2016-2021, and the consumer market is set to benefit from stronger growth momentum. This profile presents a number of developments in consumer markets across SEE countries as well as its retail environment.

When thinking of SEE’s consumer markets, Romania and Bulgaria usually get the most attention, as these two are the largest market sizes for many goods, and have been targeted by international companies first for expansion. Romania, for example, has a very competitive retail landscape, with the presence of major international chains – Kaufland, Lidl, Carrefour and Auchan. The Balkan states, however, offer much potential that should not be overlooked. Market size for packaged food and other consumer goods in Serbia and Croatia is in fact even leading Bulgaria currently.

the seven countries researched by Euromonitor International is packaged food, worth 22.3 billion U.S. dollars. This market has grown steadily and is set to continue enjoying a 4% growth in the 2016-2021 period, which looks very healthy as compared to the flatter western European markets. Alcoholic Drinks is the second largest market, worth 6.5 billion U.S. dollars, followed by soft Drinks and Beauty and Personal Care.

Consumer Health, in the meantime, is set to record the largest growth during 2016-2021 at 6% annual growth. The industry includes many over the counter medications and nutritional supplements, which have enjoyed fast growth globally recently, and is also performing well in SEE region. Remarkably, Consumer Health is a strong performer in slower growth environment, as well as higher growth environment.

In terms of companies, we have selected Packaged Foods as industry to preview, as it tends to have a good mix of local and international companies, showing consumer preferences.

Romania and Bulgaria have a stronger share of multinationals- Mondelez Inc., Lactalis group, Unilever and Danone have a strong presence. The rest of the markets are more fragmented, with strong presence of Agrokor across Balkan countries.

While there is some homegenuity among SEE markets, the route to market is very different depending on which country you are targeting. If you take a dairy sector as an example and look where people go to do their daily grocery shopping several things emerge. Serbia for example is still very fragmented from the retail perspective and small independent grocers account for the majority of retail sales. Slovenia, on the other hand, has the strongest modern grocery channel among all countries, with supermarket/hypermarkets and discounters together accounting for the vast majority of retail sales. In Romania – Hypermarkets are the dominant channel, thanks to strong expansion by international chains such as Auchan, and the independent small groceries segment is shrinking fast.

Modern grocery expansion is a trend to watch in the region, especially in countries outside of Romania and Slovenia where there is less presence of the chains.

There expansion of modern grocery also brings a consolidation in the retailing industry, which is likely to continue. The clear trend is that largest retailers are capturing more market, with the exception of Slovenia, where retail is already very consolidated, and there is preference for alternative channels. The share of top 5 companies has been rising fast in Romania, Croatia and Bulgaria.

Internet retailing has been one of the great growth stories in FMCG market globally. Its influence is multi-fold, on one-hand, it has made market entry easier for international companies, especially those that are not big enough to have direct presence in the country, with cross-country retailers like Amazon making it easier to bring products to many markets at once. There are less logistical headaches and less marketing expenses fighting for the shelf space.

Romania and Slovenia lead the SEE region in terms of internet retailing development, with 3.2% of total retail sales online, for both countries and per household spend of 141 euro and 240 euro, respectively. This is still comparatively low in global context, so we can expect internet retailing to outpace store-based retailer growth. In the UK, for example, internet retailing accounted for 15% of all retail sales, and in France – 7.5%, yet at the same time, only 3% in Italy. The proportion of internet retailing is set to gradually increase in all SEE countries, in Romania, for example, internet retailing is expected to account for 6% of total sales in 2021.

The consumer goods outlook is generally pointing towards a stronger growth mode, as disposable incomes are set to grow in the region, providing a growth window for many local and international companies.

Among the headwinds to look after is the population decline, as all countries in the region with the exception of Slovenia and Macedonia are expected to see a decline in population 2016-2021. The demographic change is most noticeable in Bulgaria where population is expected to decline by 3.5% until 2021.

The demographic development can spur consolidation in the retail environment, especially in markets that have over-expanded, prompting stores closures to maxime footfall in existing stores. Croatia and Slovenia had the highest grocery retail space per capita in 2016, 532m2 and 492m2 per 1,000 people, respectively. This puts them in similar range to Germany and Finland, in terms of retail space per capita. Interestingly, Romania, despite the strong presence of international retail chains, still shows room for grow with 245m2 per capita. The retail consolidation could in turn benefi t the expansion of internet retailers even more.

As more global FMCG companies are coming to the SEE region, consumers will be looking for variety and local brands stand to benefi t here, as they have brand loyalties established from childhood. Despite the presence of private label products, the branding will remain one of the strongest growth drivers.