Patient wait for accession pay-off
The accession of 10 new EU states in May has created growth opportunities for alcohol companies. However, Ben Cooper found that the benefits of accession are likely to be seen more in the medium and long term.
This May saw a major event in the history of the European Union, with the accession of 10 new countries. However, while the prospect of economic growth, the abolition of import duties and rising disposable income should provide growth opportunities for alcoholic drinks producers, the benefits are likely to be felt more in the medium and long term, rather than immediately.
While the accession of 10 states at once is unprecedented in the history of the EU, this is slightly misleading in terms of any overall immediate effect on the economic balance of the EU. Although accession added around 80m to the population of the EU, bringing it close to 460m, the new members only represent around 5% of the total GDP of the enlarged EU.
Purchasing power, as represented by GDP per capita, is also fairly restricted. Only the Mediterranean islands of Malta and Cyprus and Slovenia have per capita GDP anywhere near the average of the existing 15 members of €24,300.
That said, there are some huge drinks markets to be exploited, particularly in the former Eastern Bloc "vodka belt" countries. As by some way the largest of the 10 new countries - 38m out of 80m - and the most powerful economy, Poland will be the highest priority for most multinationals looking to capitalise on EU enlargement, and this is as true for the alcohol sector as for any other.
Underlining Poland's significance to international spirits companies, it accounts for more than half of the total spirits consumption of the 10 new members. Industry analyst, Canadean, puts the total spirits market in Poland at around 234m litres. Total spirits consumption of all 10 new EU members is somewhere in the region of 464m litres. There are a number of other large spirits markets among the former Eastern Bloc states, notably the Czech Republic, Hungary, Slovakia, Lithuania and Latvia.
The significant potential of the former Eastern Bloc countries has also been recognised by international brewing groups which are more established in the former Eastern Bloc countries, notably in Poland and the Czech Republic, than international spirits groups. Chiefly this has been achieved through the acquisition of local brewers.
In terms of volume, Poland is the largest beer market among the 10 new countries with total consumption of 29.5m hectolitres. However, the high per capita consumption in the Czech Republic is underlined by the fact that it is the second largest beer market with 16.3m hectolitres, although its population is only just over a quarter of the size of Poland's.
Given the low penetration of global spirits groups, it has been suggested that the onus is more on the more firmly embedded brewers in the area of corporate responsibility and the promotion of self-regulation. It has been observed that the culture of corporate social responsibility and self-regulation is not as well developed in these countries as in most of the 15 existing EU member states. The presence of marketing practices which would fall below standards set in some of the existing 15 countries combined with high per capita consumption could potentially set back the industry in its struggle to promote self-regulation.
In the alcohol debate - whether at national or EU level - the drinks industry is acutely aware of the image it projects through its commercial activities. Of particular concern to the drinks industry are the countries where there are relatively lax alcohol regulations, particularly when that is combined with high or rising per capita consumption.
For that matter, the addition of a number of countries from the "vodka belt" has pushed up average per capita consumption within the EU. That very fact alone makes the job of the alcohol industry lobby more difficult in its discussions with politicians, officials and health experts within the EU. This is why groups such as the advertising industry's self-regulatory organisation, EASA, and the drinks industry's Amsterdam Group have already been active in the new member states in encouraging socially responsible business practices.
Arguably, the possible impact on the alcohol debate could be one of the more immediate effects of EU enlargement on the wider European drinks industry. Certainly the major commercial benefits are expected to be felt more in the long term.
In fact, arguably the most immediate impact on the wider EU alcohol market caused by enlargement has been the effect on Finnish and Danish excise duties prompted by the accession of Estonia which has significantly lower excise duties than Finland or Denmark. In response, both Finland and Denmark cut their excise taxes this year and Sweden could well be forced to follow suit in 2005.
The impact of EU enlargement on the European drinks industry is the subject of this month's just-drinks management briefing. As well as analysis of the issues surrounding EU accession as they relate to the alcohol industry, the report also includes profiles on the alcohol markets in all 10 accession countries.
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