Opportunities and threats of the Romanian FMCG market

2010-08-18

The Romanian FMCG market is facing difficulties – last year the sector declined by 11% in terms of volume. Futhermore, it is believed that the climax of the economic downturn will only reach Romania at the end of 2010 or the middle of next year. Therefore, it is anticipated that the situation within the sector will keep deteriorating. However, the Romanian FMCG market was undergoing a consolidation in the dairy, confectionery, meat and cosmetics segments, and the consolidation processes are expected to continua in H2 2010 and 2011. Therefore the market is likely to change its current face.

Trends on the Romanian FMCG market in times of crisis
Only six out of the 61 segments of the FMCG sector registered growth in volume last year in Romania. These being breakfast cereals, biscuits, milk, and whiskey, in the foodstuffs and beverages segment, and home storage products and tissues on the non-food product segment, according to a recent study released by the market research company MEMRB. The highest declines in the sales volume last year, of over 10% year on year, were registered by snacks (-11%), sour cream (-12.5%) and dairy-based deserts (-17%).
The Romanian FMCG sector overall shrank by 11% in volume in 2009 compared to the previous year, according to MEMRB. The sector is slated to stagnate or grow slightly in volume by 2-3% year on year in 2010. In terms of value, the FMCG market in Romania was estimated at over €22bn last year (excluding sales of cars, furniture and fuel) in 2009. The market is dominated by multinational companies, which together control over 50% of major segments such as tobacco, detergents, beer and soft sparkling drinks. In terms of value, beverages represented the largest category in the FMCG market, with €8.58bn in sales revenues in 2009, or 39%, according to estimates from Ziarul Financiar.

M&A in the Romanian FMCG sector in 2010
Three of the four major deals on the FMCG sector in Romania in H1 2010 were within the foodstuffs segment and one within the care products sector. Two of the main transactions in the first half of 2010, the purchase of Wella by Interbrands and the sale of the chocolate maker Kandia Excelent by Kraft Foods, are not expected to have a major effect on the market. The immediate result is expected to be the consolidation of these two markets, according to an analysis from Ernst & Young.
On the other hand, on the meat processing market, the joint venture Caroli-Campofrio is expected to create a new major market player able to pose more competition to the largest meat processor in Romania, Cris-Tim. The merger between Delaco and Bongrain is expected to positively influence the Romanian dairy market by adding more competition to this sector, according to the market research agency InterBiz. Bongrain is the fourth largest French company in the FMCG sector in Romania after dairies Danone, Lactalis and Yoplait.
One of the specific characteristics of the transactions in the first half of this year was the forced divestment, which was either pushed by regulators (in the case of Kandia) for compliance with competition-related legal provisions, or by the need to gain market share through consolidation on a fragmented market sector (the case of Caroli-Campofrio).

Major deals in the Romanian FMCG sector in H1 2010

• Meinl’s purchase back of Kandia-Excelent

The Austrian family Meinl, one of the former shareholders of the chocolate manufacturer Kandia-Excelent, who sold the business to Cadbury in 2007 for €100m, bought back a majority stake in Cadbury Romania through the investment fund Oryxa Capital, at the beginning of July 2010. The negotiations for the purchase of Cadbury Romania began in May 2010. The Meinl family bought back Cadbury Romania for some €30-40m, according to estimates from wall-street.ro business server.
The Romanian chocolate market was estimated in 2009 at €240m. The sale of Kandia-Excelent was imposed on Kraft Foods by the European Commission as a condition for the acquisition of the sweet producer Cadbury in January 2010. Kraft Foods would have had a share of 60-70% of the Romanian chocolate market if it had kept Cadbury’s Kandia-Excelent.
The Meinl family, owner of the coffee brand Julius Meinl, took over Kandia-Excelent with losses of €1.5m. In 2009, Kandia-Excelent posted sales revenues of €33.4m, according to the Romanian Trade Registry. Over the three years of Cadbury ownership, Kandia Excelent had a stagnant sales revenues, but was always in the red. Its total combined losses in 2007-2009 reached €8m.

• Delaco’s sale to Bongrain

The French group Bongrain, one of the largest players on the global dairy market, purchased 52% of the Romanian dairy Delaco in March 2010, a deal fully completed in July 2010, following the approval of the Romanian Competition Council. The value of the transaction was not disclosed by any of the parties.
Set up in 1996, Delaco had sales revenues of over €50m last year when it netted RON 7.3m (€1.7m).

• Caroli-Campofrio merger

The meat processors Caroli Foods Group and Campofrio Food Group announced their merger in March 2010, a transaction approved by the local Competition Council in June 2010. The process of the integration of the two companies is slated to take 12 months. The new company’s name is planned to be eventually Caroli Foods Group, which is expected to be the largest meat processor in Romania, with a market share of over 16% and sales revenues of over €120m. The processed meat market in Romania is estimated at some €1bn.

The largest meat processors in Romania by sales revenues, 2008-2009

Company	Sales revenues (€ m)		Net profit (€ m)		Number of employees		Main shareholder
	2008	2009	2008	2009	2008
Transavia	95.0	95.7	4.4**	4.1**	1,274		Ioan Popa
Unicarm	108.2	90.0-95.0***	1.7	N/A	1,383		Vasile Lucut
Cris-Tim	91.2	86.0	8.7****	N/A	1,942		Timis family
Aldis Calarasi	91.7	N/A	1.6	N/A	1,345		George Naghi
Elit Cugir	87.8	70.0-82.0*	7.5	N/A	1,297		Dorin Mateiu
Agricola Bacau	73.2	72.0	-2.8	0.1	2,021		N/A
Caroli Foods	68.6	N/A	1,2	N/A	1,341		El Solh family
Angst	60.6	52.1	0.3	0.002	872		Minea and Angst families
Scandia Sibiu	53.7	50.0*	6.5	N/A	803		Elga Comert, Spot Industrial
Tabco-Campofrio*****	32.5	27.1	0.7	0.03	656		Campofrio Food Group

*Ziarul Financiar estimate based on companies’ data
**gross profit, Transavia includes in its 2008 the results of the company Avicola Brasov
*** In 2009, the producer entered the dairy, ice-cream and bakery markets ****EBITDA, Cris-Tim’s consolidated business reached €120m in 2008
*****At the beginning of 2010, the company was taken over by Caroli Foods Group.
Source: companies’ data, Ministry of Finance 2010

The Spanish meat processor Campofrio Food Group paid €12.3m and gave up control of its stake in the Romanian branch Tabco-Campofrio for 49% in Caroli Foods Group, according to data submitted by Campofrio Food Group to the National Securities Commission in Madrid. Campofrio Food Group in Romania posted sales revenues of €10.6m in H1 2010, a drop 14.1% compared to the same period last year. In January-June 2010, the firm’s of losses went up to €3.15m from €788,000 in the same period a year before.

• Wella - from P&G to Interbrands

Interbrands Marketing & Distributions took over the care product maker Wella Romania in March this year from the consumer goods manufacturer Procter & Gamble. The deal was approved in July 2010 by the local Competition Council. None of the parties disclosed the value of the transaction.
Interbrands Marketing & Distribution has distributed the P&G products for 17 years. Wella Romania registered sales of €12m in 2008 when it employed 70 people, according to the latest data available. In 2008, Wella Romania accounted for 4% of P&G’s consolidated sales revenues in Romania. Interbrands entered Romanian market in 1993 at the same time as P&G.


Top FMCG distribution companies in Romania by sales revenues, 2009

Company	Sales revenues (€ m)		Net profit (€ m)		Number of employees		Main shareholder
	2008	2009	2008	2009	2008	2009
Interbrands M&D	1,168*	1,133*	-1.9	0.5	2,269	1,917	Sarkis Group
Top Brands Distribution	314.4	308	1.7	N/A	417	N/A	Wael El Ghadban, Wassila El Taher
Astral Impex	172	N/A	0.4	N/A	650	N/A	Ioan Adrian Cuc, Floare Cuc
Aquila Group**	171	177	0.14	N/A	2,276	N/A	Catalin Vasile, Alin Dociu
Simba Invest	115.7	135.2	1.9	3.3	300	329	Sorin Gavrila, Cristinel Lungu
Macromex	120.9	117	3.3	2.5	N/A	500	Dan Minulescu
Whiteland Imp.Exp.	101.9	88	0.5	0.5	428	450	James Kodor, Lavinia Yassien
Agroalim Distribution	62.7	N/A	-0.3	N/A	453	N/A	Smithfield
Elgeka Ferfelis Romania	69.3	70.7	-2	N/A	433	N/A	Elgeka
Lekkerland Convenience	58	42	-2.6	N/A	212	158	Lekkerland

*the value of sales intermediated by the company
**including the companies Aquila Part Prod Com and Seca Distribution
Source: Ministry of Finance, companies’ data, 2010

Forecasts for 2011: more transactions on FMCG market
The climax of the financial crisis will be reached in Romania at the end of this year or the middle of next year in the context of a slumbering economy, according to the consultancy AT Kearney. Nevertheless, some FMCG sectors in the country remain attractive for investments.
The second half of 2010 and 2011 are expected to see more consolidation on the Romanian FMCG market, particularly in the dairy and meat sectors. Ernst & Young expects particularly strategic investors as well as investment funds to make purchases on the FMCG market in Romania in H2 2010. Although, at the same time, FMCG companies facing financial difficulties are expected to sign more merger deals in 2010. The market researcher InterBiz expects another two or three major deals on the Romanian FMCG market in H2 2010. InterBiz forecast that the most attractive for investors in 2011 will be the beverage and foodstuffs sectors, particularly dairy, bakery, meat and natural water makers. German and Austrian investors are expected by InterBiz to boost their presence on the Romanian FMCG market in 2011.

Marius Dragomir
PMR Romanian Correspondent