BMI Industry View
The Estonian retail sector remains positive and is planning further expansion of both ranges and premises during 2015, with mass grocery retail players being no exception. The country's economy has turned a corner and will post relatively strong real GDP growth over the next two years. Although Estonia's unemployment will fall at a slower rate, household incomes will continue to increase and this rising domestic demand will more than offset lower export growth, as relations with Russia remain strained.
Headline Industry Data
2014 per capita food consumption (local currency): +2.04%; forecast compound annual growth rate (CAGR) to 2018: +2.06%.
2014 alcoholic drinks sales (volume): -0.39%; forecast CAGR to 2018: +0.54%.
2014 soft drinks sales (volume): +2.69%; forecast CAGR to 2018: +1.05%.
2014 mass grocery retail sales (local currency): +4.50%; forecast CAGR to 2018: +4.55%.
Key Company Trends
HKScan Announces Major Production Investment In Rakvere: Rakvere brand owner HKScan announced on October 13 2014 that it was planning to invest EUR20mn in a new production facility in Rakvere, Estonia. The plans involve building a new 10,000 square metre production facility alongside its existing plant in Rakvere. The new plant will be equipped with advanced technology designed to deliver value-added products for growing product segments. The planned investment is geared particularly toward developing the offering of the new Group brand, Flodins.
Maxima Seeks Sector Dominance In Estonia: Maxima Group is planning to open up to 20 new stores in Estonia over the next three years and aims to be the country's market leader by 2016, said Maxima Eesti CEO Vaidotas Pacesa in September 2014. The announcement came at the ceremonial laying of the cornerstone of its new EUR30mn logistics centre, which is expected to be completed by the end of 2015. Pacesa went on to announce that the company would be opening its first Maxima XXX store in the country in 2015 and was looking to open another similar outlet the following year.
Ex ports Help Saku Brewery Post Record Sales By Volume: Saku Brewery reported record sales by volume of 104mn litres in 2013, composed of both locally produced and imported produce. Production volumes for the year also rose to record levels at 80mn litres of drinks across the entire Saku range. The company claims that half of its production is now destined for export markets, in destinations as varied as its Baltic neighbours and the Seychelles. Saku exports to 20 countries, including most recently the West African countries of Sierra Leone and Gambia (which took their first deliveries in September 2014).
Warm Summer Sees A Le Coq Achieve Record Sales: A long warm summer and increased sales on ships and in ports saw drinks producer A Le Coq achieve sales of more than 115mn litres in 2013. The biggest increase in sales was seen in its bottled water segment, which rose by 28%. Despite a 5% decline in the Estonian beer market, A Le Coq's beer sales increased by 4%. New markets in Armenia and Hungary saw the company's exports outside of the Baltic group increase by 12%. Denmark, Hungary, the Czech Republic, Ukraine, Greece and Azerbaijan are the company's largest export destinations.
Key Risks to Outlook
External Environment Continuing To Pose Downside Risks: While the domestic consumption outlook remains relatively bright, Estonia's exposure to the eurozone crisis could have a more pronounced effect on its economic growth, which would eventually trickle down to the consumer level. Inflationary pressure also poses risks to our current forecasts. Whilst remaining low, we forecast Estonia's consumer price inflation to rise to 1.5% in 2015, up from 0.7% in 2014. An unexpected increase in commodity prices would drive this figure further upward, constraining discretionary spending.