BMI View: A series of planned austerity measures and high unemployment will continue to weigh on domestic demand in Serbia during 2015. The austerity measures entail reducing the size of the public sector (which accounts for close to one-fifth of the workforce), together with public sector wage and pension cuts, which will severely reduce disposable income and weigh on households' consumption sentiment. A sputtering recovery in the eurozone, and a looming recession in Russia will suppress exports, prompting us to forecast economic contraction for Serbia for 2015 of 0. 4 %. We are forecasting overall household consumption to contract by 1.0% in 2015 and also forecast total food consumption in Serbia to expand by only a modest 1.1% in local currency terms over the same period.
Headline Industry Data (local currency):
Total food consumption growth year-on-year (y-o-y) in 2015: +1.1%; compound annual growth rate (CAGR) to 2019: +1.9%.
Alcoholic drinks sales growth (y-o-y) in 2015: +1.1%; CAGR to 2019: +1.9%.
Soft drinks sales growth (y-o-y) in 2015: +1.8%; CAGR to 2019: +8.4%.
Total mass grocery sales growth (y-o-y) in 2015: +2.8%; CAGR to 2019: +4.7%.
Key Industry Trends And Developments
Delhaize Reaffirms Commitment To Its Serbian Business : As Delhaize Group moves closer to the end of its Serbian business reorganisation and rebrand, it confirmed that it has no plans to withdraw from the country. Despite Serbia's challenging economic environment, the company sees it as a key market, opening nine new stores there in 2014, together with a new EUR50mn distribution centre. Work to modernise its retail network will continue during 2015, including the completion of the renovation and rebranding of the Mini Maxi stores into the Shop & Go format.
Ferrero Buys Land For Hazelnut Plantation: Italian confectionery company Ferrero purchased around 700 hectares of agricultural land in Serbia, in April 2015, to set up its own hazelnut tree plantation. The move is part of Ferrero's plan to lower dependence on third-party hazelnut suppliers. The company's Serbian subsidiary, Agriser, successfully bid for 699.5ha of arable land and accompanying objects in the municipality of Sombor in northern Serbia during an auction organised by the Serbian Privatization Agency.
Mid Europa Partners Pay EUR575mn For Danube Foods Group: The Mid Europa Partners' (MEP) move to secure a controlling stake in Danube Foods Group (DFG) was finalised at the end of April 2015. The acquisition brings with it some of Serbia's most recognisable food brands and subsidiaries, including Imlek (dairy), Knajaz Milos (mineral water) and Bambi (confectionery). The businesses will be grouped together as a new holding company called Moji Brendovi and MEP said that it planned to invest EUR100mn into the business over the next three to five years.
Coca-Cola To End Fresh & Co Production In Subotica: The Coca-Cola Company announced in January 2015 that it was to end production of its Fresh & Co range of juices in Subotica by the end of the year. The company is investing EUR3.8mn into a state-of-the-art juice production plant in Belgrade which will, when completed, incorporate its current Subotica operations. The investment will also introduce a new line in its Belgrade factory producing cardboard aseptic packaging in 0.5 and 1.5 litre sizes.
Atlantic Group Acquisition Of Foodland Approved: European Supermarket Magazine reported in January 2015 that Serbia's Competition Protection Commission had approved the acquisition of Serbia's Foodland by Croatia's Atlantic Group. The acquisition was agreed by the two companies in November 2014 and includes Foodland's Belgrade operations, as well as its manufacturing facilities in the Kopaonik Mountain region.
Risks To Outlook
It is possible that inflation remains elevated for longer than we currently expect, further eroding households' purchasing power, while the government's efforts to improve investment and boost jobs take longer to bear fruition. In this case, we would revise down our forecast for private consumption over our forecast horizon.