Significant increase in supply, heavy price sensitivity, sluggish e-commerce
Date: October 17, 2005
The fourth edition of PricewaterhouseCoopers' Retail & Consumer study titled, "From Beijing to Budapest: Winning Brands, Winning Formats" provides a broad picture of the economic, social and cultural backgrounds of 20 transitional economies in Asia, Central and Eastern Europe and highlights the challenges and opportunities for retail and consumer goods companies wishing to invest in these markets. Achieving a presence in transitional markets is challenging and only those companies that develop new products and new formats tuned to the quickly evolving tastes of customers in these regions will be successful.
Twenty countries with the highest growth potentials from Beijing to Budapest are included in the report: China, India, Indonesia, Korea (South), Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam, Bulgaria, Czech Republic, Hungary, Lithuania, Poland, Romania, Russia, Slovak Republic, Slovenia and Turkey.
Seven countries - China, India, Vietnam, Turkey, Russia, Romania and Bulgaria - offer the most promise for retail and consumer companies looking to invest in transitional economies. It is the first time that Russia, Romania and Bulgaria made the list of top transitional economies.
GDP growth rate was up in 2004 over 2003 in all countries covered by the report, except for India, Russia and Thailand. Hungary had the lowest growth rate in 2004 with 4.2%, just topped by the Czech Republic with 4.4%.
Overall, employment figures are fairly positive. The unemployment rate was slightly down in 12 countries in 2004 over 2003, four countries had a small increase in unemployment (Indonesia, Philippines, South Korea, and Hungary). Even though wage rates in Hungary are still the fifth lowest in the EU, purchasing power is on the rise as a direct result of increasing nominal wages. In 1998 it was at half of the average for the existing 15 EU member states, in 2002 it reached 54% and is expected to surpass 60% by the end of 2005.
Market polarization is a general trend between discount and upscale stores across both Asia and Central and Eastern Europe.
Major Retail & Consumer Performance Trends in Hungary
According to the report, Hungary is one of the most successful economies in Central Europe, exhibiting high real growth and declining inflation. While macroeconomic indicators are improving slower in Hungary than in neighbouring countries joining the EU, performances remain good compared to current EU trends.
There have been marked shifts in consumer spending in the relatively short period from 2000-03, illustrating the dynamic nature of Hungary's retail and consumer environment. In particular, there was a decline (from 34.9% to 30.5%) in the proportion spent on food and non-alcoholic beverages. An increase in spending on transport (from 8.8% to 10.4%) largely the result of increased expenditure on motor vehicles, also occurred during this period.
The electronics sector accounted for 36% of Hungary's exports in 2003, employing over 70,000 people. The country as attracted significant investment from sizeable electronics companies, such as GE and Electrolux due to skilled labour at a reasonable cost, the receptive attitudes of both the national and local governments, a good communications network, particularly with Western Europe and low corporate tax at 16%. The trend is likely to lead to the production of higher value-added products that require more sophisticated skills while production of simpler products is likely to migrate eastwards.
A significant increase in retail turnover in Hungary was seen in 2004 as a direct result of an increase in wages and purchasing power, despite the slowing growth rate of total retail sales that same year. The trend towards shopping in larger outlets continued in 2004, with hypermarkets accounting for 22% of all FMCG spending. In food retailing, the share of hypermarkets is even higher at 26% primarily the result of the spread of hypermarkets in smaller country towns. The five largest food retailers controlled 48% of the market in 2001, and 51% in 2002 and this figure is expected to grow as signs show that sector consolidation could be on the way.
Rising affluence has affected how and when people purchase goods and the channels they use to make their purchases. An increasing number of stores offer extended opening hours and late night shopping is now the norm with shopping centres, malls and hypermarkets open seven days a week.
Trends show increased spending on household equipment in retail outlets devoted to home and garden, and appliance sales, in particular Praktiker, OBI (Tengelman) and BRICO store, together with KIKA and IKEA for furniture. However, the home appliance and consumer electronics market has seen price deflation in 2003 since Electroworld opened two outlets in Budapest. In 2004, another Metro company, Saturn opened in the Hungarian consumer electronics market, further strengthening competition.
Electronic commerce is still in its infancy as far as both B2B and B2C are concerned. Internet access has increased by 20%, but penetration is lower then in the Central and Eastern European region.
Despite its development, the Hungarian market is still extremely price sensitive, with other customer satisfaction measures assuming less importance, creating opportunities for hard discounters in particular. Consumer brand awareness (loyalty) still falls behind the average level for Western countries and is even lower than the average for the Central and Eastern European region due to heavy price sensitivity.
ENDS
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