Tetra Pak to benefit from retail growth in EU25
European food and beverage packaging sector. However, with
accession just around the corner a series of new challenges are
about to present themselves. We spoke to a leading company
executive to find out just what's in store.
Tetra Pak already boasts an unparalleled footprint within the region, butwith enlargement just around the corner certain aspects of the food industryare expected to undergo some major changes.
Many of those changes have been taking place over the course of the lastseven years, as each of the 10 States has geared up for entry into the EU.However, when accession finally does take place on 1 May next year, furtherchanges will be on the cards as compliance with EU food safety regulationsbecomes obligatory.
"Potentially accession offers our company huge scope for further expansion,"said Tetra Pak marketing director Anders Lindgren, who represents thecompany's interests within the region. "However, it is not as straight forwardas just moving in and producing more packaging. The market is complex andthere are defining characteristics for the various countries that make upthe region.
"Although labour costs are around 25 per cent of what they are in westernEurope this benefit is often outweighed by the fact that productivity issubstantially lower. This is one of the major challenges for Tetra Pak inthe region, without an improvement in productivity the cost advantage cannot be leveraged.
"However, as quality rapidly improves in every aspect of the region's food industry, western European food manufacturers are going to find it an increasingly difficult battle to try and compete with eastern European food manufacturers in terms of price.
"In the immediate period after accession there probably won't be asignificant impact on our business operations. As it stands the hard workhas already been done for many food-related businesses there. As far asTetra Pak is concerned, we were already working to standards that hadpreviously been achieved in western Europe.
"However, as an ongoing process we will be there to offer our support tofood and beverage producers throughout the region, helping them to meet newEU regulations on issues such as labelling, packaging safety and evenhelping companies to focus on expanding into the western European market."
Obviously the development of the eastern European market for packaged foodsis still lagging many western European countries, but in turn thismeans that coupled with high levels of GDP growth, the potential isenormous.
"If you, for example, consider the out-of-home market - hotels, restaurants,etc - there are large differences in consumption. In the UK the out-of-home sectorfor food and beverage purchases accounts for 40 per cent of the total, whereas inthe CEE region this figure stands at around 10 per cent. This presents a largebig opportunities for packages and products adapted for this market.
"During the early '90s we saw the rise of larger supermarket andhypermarket chains, which has further picked up speed over the last fewyears. This development will cause a big leap in the demand for packagedfood and beverages, and also have a major impact on the purchasing andconsumption behaviour of Eastern European consumers."
However, Lindgren also pointed out that, alongside all the progress, thereis also a great deal of polarisation. The contrast in food and beverageconsumption between urban and rural areas is vast, and although hypermarketsare becoming a way of life for many city dwellers, many people in thecountryside still rely on markets and small corner shops as their primarysource of purchases. But in turn, modern trade in the form of discount chainsand smaller supermarket chains [superettes] are now starting to penetratethe smaller towns, a factor that will dramatically change the retail structure inthese countries.
"Obviously milk cartoning remains the mainstay of our business within theregion, but it should be pointed out that throughout there isstill a great deal of unprocessed milk which is simply sold out of urns incountry markets. In Poland, for example, it is estimated that some 40 - 45 percent of milk consumed in the market is unprocessed."
The share of Tetra Pak's packaging between the main categories [dairy and juice] is presently contrasted in its western and eastern Europe markets. In the west, the share of dairy packaging is higher, and in turn we canexpect this share to increase in the CEE region over time.
The type of packaged food and beverages that appear on shop shelves alsolooks set to change, as Lindgren explained.
"We will expect to see a higherlevel of diversification, both of packaging and of products. We can alsoexpect an increase in retail brands, which have had explosive growth inmany western European countries. In the UK, for example, around 80 per cent of alljuices sold in cartons are retail brands, meaning that the brand owner is the retailer.
"I would imagine that the competition between strong eastern European brandsand western European brands will intensify. Western brands will bechallenged into extending their reach within the region in a battle againststrong existing eastern European brand. On the other hand this will probably spellthe end for many third and fourth level brands throughout the region."
