Research and Markets: In Late 2008, Lithuanian Spirits Manufacturer Vilniaus Degtine AB Announced That It Will Stop Production at Two of Its Plants from the Start of 2009

This Lithuania Food Drink Report provides independent forecasts and competitive intelligence on Lithuania’s food and drink industry.

In comparison to the start of 2008, when it was ranked third in the Food and Drink Business Environment Ratings table for the 14 key markets in Central and Eastern Europe (CEE), Lithuania’s country’s ranking has worsened due to the negative food and drink trade balance, corruption and well as more recent economic considerations. A new centre-right government was approved in late 2008, facing a particularly tough challenge going into 2009 to prevent an economically and politically damaging fiscal crisis from unfolding. The small overall population size will continue to act as a further deterrent to food and drink industry investment into the country.

Moreover, the fact that Lithuania’s mass grocery retail (MGR) industry is dominated by few companies, means that price-competition – in addition to the contraction of consumer purchasing power – will threaten food and beverages value growth over the coming years. The local manufacturing industry will also encounter challenging times ahead, as export demand slows in line with the economic slow-down across Europe as a whole, although the situation in general will remain much more positive than in neighbouring Latvia. Despite our downward revision, Lithuanian economic growth is still expected to outpace its regional peers over the course of 2008-2009. In the meantime, foreign companies are likely to rationalise their investment, as illustrated by the decisions by German MGR operators Aldi and Lidl not to become involved in the Baltics. Still, other retailers were posting strong sales growth throughout 2008, indicating the importance of marketing and market penetration.

In terms of the country’s food industry developments, there have been few, although most have had crossborder significance. In mid-2008, Lithuania’s largest agricultural and investment company, Agrowill Group AB, acquired Estonia’s Plva Agro, one of the biggest and most efficient dairy farms in that country. Around the same time, US food conglomerate Kraft Foods divested of its Nordic and Baltic salted snack operations, instead choosing to focus on core brands in the coffee, chocolate and dairy segments, aiming to capitalise on the shift towards premium products. In late 2008, as part of its Baltics and Nordic region expansion, Dutch ingredients distributor Barentz Europe opened a new office in Latvia, which will also provide services to Lithuania and Estonia.

In the alcoholic drinks segment, the increase in the excise duty – coupled with adverse economic conditions – have begun to have a negative industry-wide effect. In late 2008, Lithuanian spirits manufacturer Vilniaus Degtine AB announced that it will stop production at two of its plants from the start of 2009, while also increasing prices. However, other producers, namely the Latvian subsidiary of Estonian Liviko – Lio Liviko SIA (previously trading as L.I.O.N. & Ko) – posted an 18% year-on-year (y-o-y) increase in unaudited consolidated sales revenue for the first nine months of 2008. The company reportedly enjoyed a strong performance of premium beverages, boding well for the future of quality alcoholic brands in the face of the worsening economic climate.

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