Central and Eastern Europe: proceed with caution, 3i warns the food industry

In its latest thought leadership report, 3i, Europe's leading private equity and venture capital company, discusses the opportunities and threats for the food industry surrounding the emergence of Central and Eastern Europe.

Prospects are plentiful, but the food industry must approach with caution, warns 3i, as cultural and social differences mean the industry will have to adapt to be successful.

The Central European region contains 100 million consumers with rising incomes and an appetite for higher quality products.  Combine this with the lower wages prevalent throughout the region and it makes for a highly attractive market for retailers and manufacturers alike. 

Dr Patrick Dixon, one of Europe''s leading futurologists, is optimistic about the potential for food and drink companies in Central Europe, but he cautions companies to be aware of the long-term economic, social and political drivers affecting the region.  "It is a common mistake to group the Central and Eastern European countries together.  Each is radically different and any company wanting to succeed needs to fully understand the dynamics of each market and get under its skin," he comments. 

3i''s global head of food and drink, Keith Ellis agrees, "There is no doubt the region represents a first-class opportunity for European food and beverage producers, but for successful strategies, the devil will be in the detail, in terms of location, product, distribution and timing." 

One company that has grasped the opportunities offered by the region is Senoble, the leading French dairy group.  Senoble, which secured a capital injection from 3i in April 2004, is a good example of near-shoring.  The company recently acquired a factory in Slovakia to support its expansion into Germany as well as form the nucleus of potential growth within the Central European region.  CEO Mark Senoble says "3i showed real motivation to invest, an excellent knowledge of the sector and retail brands, plus a Europe-wide contact network."  Using these contacts, the company has subsequently identified a number of further potential targets across the region. 

So, while the scale of the challenge should not be underestimated, neither should the opportunity.  For food and drink companies, the region is virgin territory, economic growth rates are double the EU average and there are opportunities for consolidation, economies of scale and the sourcing of low-cost food products for local and Western markets.  As Patrick Dixon says, "If you get it right, you can become the biggest retailer in Poland, or the Ukraine, with a 20% market share." 

Other issues covered in the report are: 
. Customer loyalty schemes and the increasingly sophisticated use of customer data
. The healthy option as health and wellness move up consumers'' agendas
. Understanding and exploiting the supply chain is key to creating value