Accession to boost UK food trade
opportunities for British food and drink suppliers, both for
exporting their products and for establishing local production
facilities. But there are threats as well as opportunities, and
companies will have to be able to react quickly to likely changes
in price and costs, writes Chris Jones.
A recent report from food and grocery industry think tank the Institute of Grocery Distribution (IGD) suggests four areas where UK suppliers can increase their share of the €60 billion food and drink market in four of the central European countries (Poland, Hungary, Czech Republic and Slovakia) joining the European Union in May.
Firstly, the removal of duty rates on exports to central Europe will make exporting to the region much more attractive, according to the IGD. The report suggests that suppliers should renegotiate their distributor agreements in light of the duty reduction, reallocating the savings in key areas such as brand support through in-store tastings.
The reduction in cost could also allow brand owners to lower their prices, in turn promoting lower retail prices and stimulating brand growth, the report, entitled Central Europe and Russia: Assessing the Opportunities suggests.
In fact, pricing was another key area of change highlighted by the IGD report. "Prices in central Europe may rise following Single Market entry, meaning that suppliers and manufacturers will have to make strategic decisions as to where the region fits into their pricing strategies," the think tank said.
"Increased parallel trading by retailers (products being placed into circulation in one market then re-imported into a second without brand-owner authorisation) is also likely to affect pricing decisions."
With the potential increase in business to central Europe, suppliers, manufacturers and retailers also need to consider whether the structure of their trading teams reflects this change, the report continued. "The harmonisation of trade may remove the need for specialist central European teams, and therefore IGD believes that suppliers should consider including these within a wider European team."
But perhaps the biggest question for UK companies looking to increase their business in central Europe is whether to relocate production facilities there. "Central Europe is an attractive location in which to establish production, because of lower costs due to economic and social differences," the IGD report said.
"Furthermore, retailers rate local production highly, as they are always seeking to improve their trade with local players for cultural, economic and social reasons. As a result, local suppliers are increasingly being used to supply more than one market, although the number of operators currently able to supply on a pan-regional basis is low.
"For that reason, IGD considers that those suppliers that can guarantee region-wide supply are likely to be viewed even more favourably. In addition, there are significant opportunities for fresh food suppliers that can meet the quality requirements of international retailers."
