Grocery stores hold a unique position in any economy. Everybody needs to eat, and though there is no doubt a wide range of quality in the food and beverage market, at least supermarkets are always guaranteed at least some business. Because of this, the success or failure of grocery chains can be a strong indicator of the success or failure of an economy in general. In this week's Industry Insider, The Baltic Times takes a look at the strength of the grocery industry in general and the growing trend of organic food in the Baltics.
RIGA - Baltic groceries have come a long way since the fall of the Soviet Union. Though the current retail grocery situation is unique in each of the three countries, all still suffer the same general problems and have seen the same general trends.
The large open-air markets characteristic of decades gone by, naturally still play a large role in the food business, but the Baltics also seem to be taking surprisingly well to hypermarkets, supermarkets and the Western way of grocery shopping.
Two years ago, the Baltic International Centre for Economic Policy Studies (BICEPS) released the first, and so far only, all encompassing report on the state of groceries in the Baltics.
When it was released, the report got a considerable amount of coverage in local media for its claims that the grocery industry in the Baltics had generally reached Western European levels 's and had accelerated well beyond the other new EU member states.
"We have found that concentration levels are on par with many Western European countries and much higher than in most of Central and Eastern Europe. On the whole we see this as reflecting the advanced development of retailing in the Baltics as compared with other post-communist countries," the reports authors concluded.
But, the question is, has the grocery industry in the Baltics advanced too much? Is there any room left for new players, especially considering the relatively small size of the market?
In its annual food and drink report by country, Business Monitor International highlighted this as the main problem facing all three Baltic States.
"The perception that these small markets lacked room for new entrants, this is an area of increasing concern, not just for food and beverage producers," last years report on Latvia said.
The Estonian and Lithuanian reports drew the same conclusion about the food and beverage market 's that the industry is simply too strong and too small for a worthwhile investment from major international chains. The reports also found, however, that there is still some hope for growth despite the high levels of market saturation.
"Market barriers do exist... due to the country's small size and the fact that most large players already in the market have been able capture most of the key segments. There are still niches to play for, however, and consumers in the country can be won over to a new product or wooed by a new retailer with an attractive price proposition," the report on Estonia said.
Though this is undoubtedly a serious problem for the Baltic grocery industry, it still stands to be seen whether it can be considered the most pressing problem.
The Baltic States' sky high inflation has hit food products particularly hard. A study released earlier this year by the Estonian Institute of Economic Research found that the average price of a family food basket shot up by 12.5 percent last year 's with the price of dairy products, such as butter, rising by an astounding 35 percent. The study found that approximately one-third of food products now cost more in Tallinn than in Helsinki.
The research predicted that prices are due to increase even further this year. EKI Director Marje Josing said that consumers would be confronted with a hike in meat prices and this would have the worst effect on costs.
Prices in Lithuania were also considerably higher last year, amounting to about a 16 percent rise on food and beverage products. In Latvia, meanwhile, inflation has hit even higher levels than its Baltic neighbors have seen. Dairy saw the worst of the price rises, totaling as much as 40 percent for products such as cheese.
A survey conducted in Latvia by the GfK Baltic market research agency found that high inflation is primed to have a serious effect on the market. Not only did the survey find that 38 percent of Latvians are planning to buy cheaper products this year, surprisingly it also found that 26 percent of Latvians are actually planning on buying less food.
"People have started to pay increased attention to prices, and many of them, most probably, will revise their food product baskets and favorite brands, and demand for long-term household goods will go down," GfK Baltic director Iluta Skruzkalne said, commenting on the results of the survey.
Though it seems the Baltics have nearly caught up with Western Europe when it comes to the grocery industry, the market is now paying the price with high inflation and a crowded marketplace.
Market share of groceries in 2005*:
Estonia:
ETK group 's 25%
Rimi 's 25%
A Selver 's 8%
Soome SOK 's 8%
Latvia:
Rimi 's 22%
VP Market 's 21%
Mego 's 4%
Nelda 's 3%
Lithuania:
VP Market 's 38%
Iki 's 14%
Norfa 's 13%
Rimi 's 6%
* information from BICEPS report
