We expect the Czech consumer sector to remain challenging owing to the ongoing weakness of the economy, and as the government's commitment to fiscal consolidation measures will restrain household and public consumption in 2013. Real GDP readings from Q412 confirm that the Czech Republic remains mired in recession, with economic activity contracting by 1.7% year-on-year, representing the fourth consecutive quarter of economic contraction to date. Czech household consumption remains stubbornly weak as government austerity measures erode disposable income and keep unemployment persistently high. Household consumption in 2012 is believed to have experienced its worst contraction in real terms since 1992. Despite this relatively bleak picture, we see a number of signals that align with our expectations for economic growth to stage a recovery this year. Domestic confidence has shown signs of improvement in recent months, with the consumer confidence indicator rising to -22.3 in February, from -26.3 in November 2012.
Headline Industry Data
- 2013 per capita food consumption (local currency) = 0.8%; compound annual growth rate (CAGR) to 2017 = +1.6%
- 2013 beer volume sales = -0.1%; CAGR to 2017 = +0.02%
- 2013 confectionery volume sales = +2.6%; CAGR to 2017 = +3.1%
- 2013 mass grocery retail sales (local currency) = 3.1%; CAGR to 2017 = +5.5%
Key Company Trends
Agrofert Acquires Lieken from Barilla: In February 2013, Czech group Agrofert Holding entered into an agreement with Italian food company Barilla to acquire its interests in German bakery group Lieken. Agrofert is a diversified chemicals, agriculture and food group with strong positions in Central and Eastern Europe. Agrofert already has a sizeable presence in the bakery business in the Czech Republic, Slovakia and Hungary, and this acquisition will allow Agrofert to enter the German market. In April, Agrofert said that once the deal is approved by the EU, it plans to use Lieken to launch its own product ranges, including ham, milk and butter, in the German market.
Hame Reports Strong Increase in Sales: In February 2013, Hame, the largest canned food group in the Czech Republic, reported that its 2012 sales increased by 10.5% year-on-year to CZK5.8bn. While sales in its home market were weak, dropping by 5% year-on-year, sales of its foreign subsidiaries performed very well. Hame Group has production facilities in seven factories in the Czech Republic, as well as one factory in Russia and one in Romania. The Czech factories accounted for 48% of group sales in 2012, with the group manufacturing more than 90,000 tonnes of food in 2012.
Key Risks To Outlook
Debt Crisis: A more pronounced slowdown in eurozone economic growth - in particular in Germany - would have a negative effect on the Czech Republic's economic growth trajectory. Owing to the high degree of trade integration with Germany, the Czech Republic's economic recovery remains highly dependent on external demand remaining relatively receptive to Czech exports.