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Multinationals in Eastern Europe
(continued)


Hungary
The market situation in 1998: Hungary, with its 10.8 million population, consumed about 22,500 tons of roast coffee. The annual consumption per head is 2.06 kilos. This relatively modest consumption must be seen in the economic context of average monthly per capita income of $285; inflation running at 9.5%; real income rising at 3.6%.

Tchibo launched a company in Hungary in 1991, followed by the purchase of a factory site in 1992 at Budašrs, near Budapest - the present location of the Hungarian company. In the following year a factory was completed with a capacity of close to 8,500 tons. In 1997, following the merger with Eduscho, the two companies were reconstructed together. The year 1999 saw the introduction of "Tchibo Cappuccino." During 1998, Tchibo and Eduscho shifted 9,200 tons of roast beans, with a total value of 66 million DM ($32m), giving the group its 39% share of the Hungarian market by value.

Czech Republic
The market situation: the Czech roast coffee market is in a difficult situation. After a sales peak in 1994, and a period of stagnation from 1995 to 1997, the 1998 sales level declined by 25%; there was no improvement in 1999.

From Prague, a spokesman for Bal’rny Douwe Egberts commented on Market Trends in the Czech Republic: "While the roasted coffee market, which is very price-competitive, stays stable, there is some growth in sales of soluble coffee. The market splits between 15% for soluble, 85% for roast and ground.

"An average Czech drinks one cup of coffee a day and consumes 2.3 kg coffee annually. Four households out of five still prefer their coffee in the "Czech-Turkish" style - hot water just poured over ground coffee. In the cappuccino segment, consumption grew more than that of soluble coffee.

"The future of the coffee market depends largely on the growth in spending power and changes in drinking habits of the Czech population." Bal’rny Douwe Egberts (BDE) was established in 1992 and occupies a leading position in branded coffee and tea markets in the Czech Republic. A recent study prepared by Opinion Windows Agency indicates that Douwe Egberts is assessed the best brand for quality. In June 1999 the drive for quality was rewarded by the ISO 9001 certification.

In its Retail division and Coffee Systems division, the roast and ground category features the premium product "Kr‡lovsk‡ Extra Speci‡l," upper main stream coffee "Aroma," main stream coffee "Nase Standard Smes," and value for money coffee "Paloma na doma. "

In addition, the company markets three types of instant - Toccata, Boncafé, and Supra - and several types of instant specialties under the name Cappuccino, and the coffee creamer Lehk‡ & Krémov‡.

Douwe Egberts also occupies a strong position with its Pickwick tea brands, representing high quality black, green, flavored, and fruit teas. The tea line called Zlaty s‡lek is a local brand.

The company's Coffee Systems Division services the out-of-home sector, including offices and institutions. The division also sells and rents out coffee machine systems like the Cafitesse high speed coffee system based on liquid coffee concentrate. Another successful concept is Piazza d'Oro which provides quality espresso coffee.

Douwe Egberts - trading under the name of the parent company, Sara Lee Coffee & Tea of Chicago - could tell a similar story about its market position in Hungary.

Meanwhile, a press release from Tchibo commented on the Czech market: "Fierce competition raged in this country of 10 million population, particularly from aggressive price tactics from local suppliers. Although Tchibo did not enter this price war, the company was still able to preserve its role as a market leader. Volume was 24% of the market, or by value 28%."

Historically, in 1991 Tchibo entered into collaboration with the Czech coffee company of Bal’rny and established Tchibo Praha as a sales and marketing organization. In the following year, Tchibo bought a 32% stake in the Bal’rny company which later increased to 95%. In 1998, the group became more deeply involved in production and packing of instant coffee through a takeover of Jihlava.

Of course, as with all the neighboring Eastern European countries, there are big advantages in establishing local roasting and packaging operations, owing to the higher tariffs on imported products; companies which produce in local factories are not so highly taxed.

An interesting feature among all three main contenders in the Czech marketplace - Jacobs, Tchibo, and Douwe Egberts - is the low acceptance of international brands. Typically, in both the Czech and Slovak Republics, Jacobs' local brand called Dadak has a larger market share than its main international brands.

Likewise, the obsolete denominations used by Czech roasters in former times - for example, "Standard" and "Extra-Special" - are so deeply entrenched in people's minds that all the international companies include these denominations in their respective product range.

Slovak Republic
Market situation: During the past year, the coffee market in Slovakia with its 5.4 million inhabitants has remained relatively stable. During 1998, consumption totaled 9,200 tons, resulting in annual consumption per head of 1.89 kilos. Instant coffee and soluble specialties were sold in significant quantities.

Local suppliers dominate the market, thanks to protectionist measures taken by the government since 1995. But Tchibo and Eduscho still achieved a combined market share of 16%, making them the leaders of the non-Slovakian suppliers. The production sold came from the company's factories in Austria and the Czech Republic.

Tchibo Slovensko was established in 1992, as a subsidiary of Tchibo Prague. With the separation of the two countries, Tchibo Slovensko became an independent entity headquartered in Bratislava. As in other countries, from 1998, the operations of Tchibo Slovensko and Eduscho were merged together, operating under the same management from 1999.

The Austrian company of Julius Meinl - specializing in the higher-quality sector of coffee production - was well established in pre-war Czechoslovakia and Hungary with an up-market chain of retail stores.

Following the collapse of the Iron Curtain, Julius Meinl stores reappeared, while Julius Meinl also operated a roasting plant in Bratislava, the Slovak capital. With the company's other plants in Austria and at Bolzano in the Italian Tyrol, Meinl can supply a full range of quality Italian and Viennese-style coffees while also producing for the eastern countries.

However, the Hungarian retail outlets were sold last year as part of the Group's decision to move out of store operation. I asked Wolfgang Gampe, managing director of Meinl: "Does this mean you are less interested in Hungary and the Czech and Slovak Republics, because they cannot really afford your higher-cost products?"

Gampe replied: "Of course we are interested in these markets, because in a few years they will be in the EC. And I think a quality market is to be found in every country, including Hungary and the Czech and Slovak Republics. But the difference is that there's only a very small segment for high-quality coffee, and a big segment for other products. But it's a worthwhile market because our Julius Meinl brand is well known there and is very popular."

Poland
Market situation: Poland, with 12 million households and 38.7 million inhabitants, is historically seen as a tea-drinking country. Only after the collapse of communism did coffee become a popular drink. At that time, annual per capita consumption was around 2 kilos.

In 1998, a total of 63,690 tons of roast coffee was sold, representing about 75% of total consumption - the remainder being instant and instant specialties. Despite the intense competition from local and international suppliers, Tchibo was able to retain the leading market share of 20%.

Tchibo Warsaw was founded in 1992, and took the lead market position in the following year. Then in 1994 a production plant was built in Marki, near Warsaw, and production began. From 1995 deliveries were started to Russia. In 1999 the first coffee shops were opened in Warsaw and the Tchibo Cappuccino and Gala brands were introduced.

Tchibo Warsaw in 1998 sold to a total value of 241 million DM ($116m), of which 69 million ($33m) represented deliveries to Russia.

Poland's market leader in the soluble sector is Nestlé, with a 37% share of all pure soluble sales. Nescafé Classic is the most popular instant coffee, with a market share, according to A.C Nielsen, of 52% in the main stream segment. Nescafé Gold leads in the premium segment. In addition, a range of specialties is marketed, such as Nescafé au Lait or Café Amaretto.

Nestlé started its operations in Poland in 1993, with a mixture of Polish and international management. The lead position in instant coffee was gained within two years of the launch of Nescafé Classic.

In Warsaw, a company spokesman said: "The number of instant coffee drinkers is growing rapidly. Currently every second household buys instant coffee, and every third household chooses Nescafé. Coffee drinking is no longer regarded as a luxury, but as an everyday habit which Poles can easily afford. Instant coffee is cheaper per cup than roast and ground drunk Turkish style.

"Nescafé's composition has been carefully adjusted to reflect the tastes of Polish consumers who like their coffee to be rather strong. And we are investing heavily in our brand through advertising and sampling. Besides supporting the Classic range, we will soon also do much more for Nescafé Gold.

"Nescafé has been successful in attracting new consumers to the category. During the last two-year period, 1.6 million more Polish households started buying instant coffee.

"That explains the growth of smaller Nescafé sizes, like Classic 2gm (single cup sachets), or 22-gm and 75-gm softpacks. These are ideal for new consumers to start with, and try out the quality at an affordable price."

Nestlé claims similar market positions for the soluble sector in the other Central European countries under review. In the Kraft Jacobs Suchard group, Maxwell House is marketed in Poland as their principal instant product. In the out-of-home sector, the group is also targeting the rapidly expanding workplace sector, promoting the Jacobs Kršnung brand.

An in-depth market study and test market revealed that there are more than 200,000 potential workplace sites with low vending penetration and little structured competition. A KJS out-of-home team was specially recruited last year to cover the six largest Polish cities. The launch also features the Jacobs 100 series machines, which are either sold or leased. The range of products is provided through a national network of wholesalers.

Lavazza, the multinational Italian espresso company, regards Poland as one of its most important markets. Lavazza is the absolute leader in the food service sector "because other Italian competitors are not so strong there, and every gastronomy outlet wants to have Lavazza. If you go to Warsaw, you can see Lavazza everywhere."

This applies only to the foodservice sector. Lavazza is not involved at the retail level. In Hungary and the Czech Republic, Lavazza is working with distributors who are followed directly from Turin. Lavazza is not present in Slovakia.

Reg Butler is a freelance journalist who covers the tea, coffee, and tobacco industries for Lockwood Publications. He can be reached via email at: reg@dspetch.demon.co.uk.


Tea & Coffee - June/July 2000
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