Reshuffle possible on the CEE confectionery market in 2010?

2010-01-13


The confectionery market does not appear to have been too badly affected by the economic downturn and continues to provide interesting opportunities for its main players – the ongoing pursuit of Cadbury by Kraft Foods being the best proof of this. For several years now, the confectionery market in CEE countries has demonstrated high levels of year-on-year growth, both in value and volume terms. Despite the crisis, there is undoubtedly still room for growth, although it is likely that 2010 will see the emergence of new leaders on this market.

CEE confectionery markets far from saturation
The confectionery market in Poland, according to several different estimates, was worth PLN 5.5-8.0bn (€1.35-1.97bn) after the first three quarters of 2009. For the whole of 2009, a year-on-year growth of 5-7% has been predicted. In the near future, we expect a process of market consolidation to take place, as the main confectionery producers appear to be preparing for acquisition. In turn, though figures for the whole of 2009 figures are not yet available, the Romanian confectionery market was valued at approximately RON 1.17bn (€318m) in 2008, an increase of 27.7% compared to 2007. In both Poland and Romania the confectionery market is still far from saturated. Poles consume 3.6 kg of chocolate annually per capita while Romanians consume 1.9 kg, according to Nielsen data. This is far below Western European figures, where per capita annual consumption is between nine and eleven kg, depending on country. As such, we believe there is much still to be gained on the Eastern Europe confectionery markets.
This is a view that is clearly shared by at least some of the main players on the market, such as the US giant Kraft Foods, which is currently trying to acquire another prominent player, Cadbury, the UK confectioner already well established in the Central Eastern European region, especially in Poland and Romania.
Despite having submitted an offer of £10.2bn, Cadbury has so far rebuffed the advances, considering Kraft’s proposal to be an attempt of a hostile takeover.


EU Commision approves the acquisition... with stipulations
As both Kraft and Cadbury have significant market shares on the chocolate markets of member countries of the European Economic Area (EEA), the potential acquisition requires the approval of the European Commission (EC). On 6 January 2010 the EC issued this approval based on the fulfilment of certain conditions, one of them being that Cadbury sells its chocolate-related operations in Poland and Romania. The decision is based calculations that reveal that any post-merger entity in Poland would have a combined market share of 59% of the chocolate market, which would endanger competition. The same situation would occur in Romania, where Kraft Foods, being a leader on the chocolate market, already controls over 25% with Cadbury accounting for a further 20%, according to the calculations. The combined market share of the two companies after such an acquisition would account for 45% of the chocolate market in Romania – above the 40% threshold stipulated in EU regulations.
In response to the announcement of the EU Commission’s conditional approval of the proposed takeover of Cadbury by Kraft, the board of Cadbury issued a statement in which it once again firmly rejected the Kraft offer and, furthermore, recommended that the company’s shareholders do the same. Marta Pakutycka of Cadbury Poland told Central Europe Retail Update that the company’s board remains focused on its prosperous businesses in Poland and Romania and has no intention of abandoning these.
It has been reported that the final decision on the acquisition of Kraft is to be made by Cadbury’s shareholders by 2 February 2010.


Jutrzenka also considers acquisitions
Cadbury, the owner of the prominent Polish chocolate brand Wedel, currently accounts for a 12.5% of the confectionery market in Poland. The company trails only Kraft Foods, which has a market share of 21.3%. The Polish confectioner Jutrzenka, with 10%, has the third-largest market share and is believed to be interested in acquiring Wedel. Such a takeover could represent a promising opportunity for Jutrzenka, as it would position the company as the leader in several subgroups of the confectionary market in Poland. Jan Kolanski, the president of Jutrzenka and its main shareholder, recently admitted in Parkiet that the acquisition of Cadbury is a development that must be considered. However, when asked by Central Europe Retail Update about Jutrzenka’s prospects, Ms Pokutycka of Cadbury refused to comment, as no specific offer had, thus far, been made.

Paulina Burzawa
Business Editor
PMR Publications
paulina.burzawa@pmrpublications.com