Building Resilience

During Economic
Uncertainty in CEE
Justinas Liuima, Industrial Manager
Maryna Sheremet, Senior Analyst
Marija Milasevic, Senior Consultant
 2

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publication: October 2022

© Euromonitor International
BUILDING RESILIENCE DURING ECONOMIC UNCERTAINTY IN CEE 3

Regional
Presentations

Justinas Liuima Maryna Sheremet Marija Milasevic

Industrial Insights Senior Analyst Senior Consultant
Manager

Panel

Matias Hasselström Aleksandar Petrović Raimondas Žilėnas

Project Manager Market Intelligence Specialist Head of Marketplace
IKEA Retail Mercator-S PHH Group

© Euromonitor International
Contents

Economic overview
FMCG markets performance
Reshaping of retail channels
Economic Overview
 Inflation Rate in Selected Countries 2021-2023
18

16
Geopolitical and Supply Chain 14
Risks Challenge the Global 12

Economy 10

%
▪ 3.6-3.7 percentage points (p.p.) higher 8

annual inflation rates 6

▪ 0.7-0.8 p.p. lower real GDP growth 4

▪ Increased volatility in energy, 2

commodity markets
0
World Western Eastern Czech Lithuania Poland Romania
Europe Europe Republic

2021 2022 2023

Source: Euromonitor International from national statistics, Eurostat, IMF, OECD

Note: Turkey data excluded from Western Europe
© Euromonitor International
 Demand-Pull and Cost-Push Factors Are Driving Inflation

Consumer demand is expected to Labour costs growth will Russia’s invasion of Ukraine is
shift back from manufactured moderate, but downside risks adding huge pressure on energy
goods toward services over 2022 remain significant and other commodity prices

Real Growth in Eastern European

Growth in Quarterly Wage per Hour Global Commodity Price Indices
Consumer Expenditure by Category
2020-2022 2019-2023 (2010=100)
2022 Year-on-year % change
% annual growth 130
Hotels & Catering 15
Education 110
Transport
Housing 10 90
Leisure and Recreation 70
Clothing & Footwear
Health Gds & Medical… 5 50
Food & Non-Alc Bevs 2019 2020 2021 2022 2023
Miscs Gds & Servs
0 Commodity Fuel (Energy) Index
Communications
Q1 2020 Q4 2022 Metals Index
Household Gds & Servs
Czech Republic Lithuania Agricultural Raw Materials Index
Alc Bevs &Tobacco
Poland Romania Beverages Index
0 10 20 Slovakia Food Index
Note: excluding Belarus, Russia and Ukraine Source: Euromonitor International from national statistics, IMF, World Bank
© Euromonitor International
 ECONOMIC OVERVIEW

Inflation affects both manufacturers and

consumers
Rising input costs prompt businesses to adjust Inflation undermines consumer spending power
Monthly Producer Price Index (Manufacturing) Growth in Per Capita Consumer Expenditure
2019-2022 2019-2023
230
210 10
190
170 5

%, constant prices
2010=100

150
130 0
110
90 -5
70
50 -10
Apr 2019

Apr 2020

Apr 2021

Apr 2022
Jan 2019

Oct 2019
Jan 2020

Oct 2020
Jan 2021

Oct 2021
Jan 2022

Oct 2022
Jul 2019

Jul 2020

Jul 2021

Jul 2022 -15

Czech Lithuania Poland Romania Slovakia
Czech Republic Hungary Lithuania Republic

Poland Romania Slovakia 2019 2020 2021 2022 2023

Source: Euromonitor International from national statistics, IMF, World Bank

 ECONOMIC OVERVIEW

Global stagflation risk worsens economic outlook

Czech Republic Lithuania

5 1.91 2.3
10
Real GDP Growth, %

Real GDP Growth, %

Baseline 5 1.31
0 1.7
0.3 0
-2.68
-5
Global stagflation -5 -1.34
-6.25
-10 -10
2019 2020 2021 2022 2023 2019 2020 2021 2022 2023

Poland Romania
10 10
Real GDP Growth, %

Real GDP Growth, %

4.41 3.91
5 5
2.8 3.21
0 3.21 0 2.03
-0.93
-2.59
-5 -5
2019 2020 2021 2022 2023 2019 2020 2021 2022 2023
Source: Euromonitor International Macro Model
ECONOMIC OVERVIEW

Global business risks to watch in 2023

Risk Factor Description Short-term Impact Long-term Impact

War in Ukraine, rising tensions with China High High
adds to investors’ uncertainty and can disrupt
Geopolitical risks
global supply chains. Increased geopolitical
uncertainty also pressures energy sector.
Increased geopolitical uncertainty, punitive High Moderate
supply cuts from Russia and underinvestment
Energy prices
in energy sector contribute to the energy
price shocks.
Tight labour markets in the largest economies Moderate Moderate
Labour market inflate operating costs for manufacturers and
problems add to supply disruptions.

China’s zero-COVID policy and new variants of Moderate Low

COVID-19 pandemic COVID-19 can slow down economic growth
and cause temporary supply chain
disruptions.
FMCG Markets
Performance
 Inflationary pressure on retail prices Growing consumer price sensitivity

Supply chain disruptions Lifting COVID-19 restrictions

© Euromonitor International
FMCG MARKETS PERFORMANCE

Retail prices hike under inflationary pressures

Median price change per SKU over June 2022- September 2022

Poland Czech Republic

Fresh Food +8.8% +12.2%

Packaged Food +3.2% +1.4%

Hot Drinks +14.3% +2.9%

Soft Drinks +4.9% +1.3%

Beauty and Personal Care +1.5% +6.6%

Source: Euromonitor International Via Data, data updated on 22

September 2022. Note: Data cover only sales through e-commerce
channels

Source: euromonitor.com/article/understanding-inflation-at-the-breakfast-table
 14

European consumers become

more rational

23% 44%
Plan to increase on visiting discounters Like to find bargains

31% 30%
Choose quality over quantity Plan to increase on savings

Source: Euromonitor Voice of the Consumer: Lifestyles Survey, fielded January to February 2022
© Euromonitor International
 Non-essential goods with deepest decline in 2022

FMCG % value growth performance in CEE over 2021-2027, in constant value terms (inflation excluded)

10

5
Drinks Snacks
0 -0.5% - 4%
2021 2022 2023 2024 2025 2026 2027
-5

-10
% y-o-y growth

-15

-20
Accessories Electronics
-25 -12% -16%

-30

-35

-40
Non-Alcoholic Drinks Consumer Electronics Luxury Goods Snacks Personal Accessories
Luxury
Source: Euromonitor International – Packaged Food 2023, Non-Alcoholic Drinks 2023, -35%
Consumer Electronics 2023, Luxury Goods 2023, Personal Accessories 2023
Note: Data for years 2023-2027 is modelled
FMCG MARKETS PERFORMANCE

What happens on the shelf in 2022

Consumers show signs of downtrading:
Volatile SKU availability:
▪ Intensifying promo activities
Change in number of SKUs in online-retail in Czech Republic, Q4 2021 – Q3
2022 ▪ Private label with share gains
15%
▪ Volatile brand shares
10% % Market share of private label in FMCG categories in CEE
16
5% 14
% growth

12
0%

% market share
Q4 2021 Q1 2022 Q2 2022 Q3 2022 10

8
-5%
6

-10% 4

2
-15%
0
Packaged Food Soft Drinks Hot Drinks Beauty and Personal Care
Dairy Bottled Water Juice
Source: Euromonitor International Via Data, data updated on 22 September 2022
Note: Data cover only sales through e-commerce channels 2020 2021 2022
Source: Euromonitor International – Packaged Food 2023,
Non-Alcoholic Drinks 2023
FMCG MARKETS PERFORMANCE

Temporarily displaced people support consumption in hosting markets

Local markets performance in Staple Foods in 2022 in constant value

terms (inflation excluded)
9

Lithuania Latvia
8

6
Czech Republic
Top 10 countries accepting refugees from Ukraine in 2022:
% growth

5
(per 1000 population)
Czech Republic 38.1
4 Poland Slovakia
Estonia 35.2
Poland 33
3 Moldova 30
Bulgaria Lithuania 21.4
2 Latvia 18.8
Estonia
Slovakia 16
CEE average
1 Russia 13
Bulgaria 12.7
0 Germany 11
Source: Euromonitor International, Staple Foods 2023. Source: Euromonitor International from UNHCR
Reshaping of Retail Channels
 Factors Impacted Companies’
Performance in the Past 12 Months,
Almost 90% of global Globally 2022
companies suffer from rising Rising cost of raw materials

Transportation/shipping
cost of raw materials disruptions
Rising cost of
production/distribution

Inflation

Lack of availability of raw

materials/inputs
Changes in currency exchange
rates

Labor shortage

Changes in
taxation/regulations
0% 50% 100%
No impact Slight impact
Moderate impact Extensive impact
Source: Euromonitor Voice of the Industry: Retailing survey,
fielded January to February 2022
 20

Live poll

Which of the following actions has your company taken in

response to inflation?
© Euromonitor International
 21

Development opportunities lie in inflation challenges

Consumer focus Implement time Review assortment

and cost saving priorities
solutions
© Euromonitor International
 22

Grocery chains respond to

inflation-driven behavior

Lidl launches Lidl Plus mobile app, a digital

customer loyalty program that offers extra Carrefour unveils €30 shopping basket
shopping benefits in Spain

© Euromonitor International
 23

Buy now pay later

In first quarter 9% of all Allegro sales were

generated by buy now pay later, up by 440.5% H&M with Klarna partnership launch buy now
versus the comparative period pay later both online and in store

© Euromonitor International
 24

Impact of Trends on Global Retail in the Next Five Years,

2022/2027 Reinvention of last mile
Digitalisation (rise of e-commerce retail tech 93% operations is expected to
innovation) 88%
show the biggest increase
Channel shifts (cooking at-home versus eating 81%
on-the-go, buying online versus in store) 80%

More personalised shopper experience (use of 87%

data, creating more meaningful moments) 74% E-commerce performance
Emerging retail channels (social media, 85% slowdown:
livestreaming, voice commerce) 73%
CAGR CAGR
Reinvention of last mile operations (new 86% 21/26 22/27
collection options, leveraging assets in new ways) 70% constant constant*

Sustainability initiatives (Reducing environmental 75% Poland 9.1% 5.7%

impact, catering to conscious consumers) 59%
Czech
% industry professionals selected “moderate” or “strong” impact 8.8% 8.0%
Republic
2027 2022 *preliminary data

Source: Euromonitor International Voice of the Industry: Retailing survey (June 2022)
© Euromonitor International
 25

Click-and-collect becomes
must option

Uniqlo gives a discount when Delipop opens a multi-chain click-

collecting the order and-collect grocery location
© Euromonitor International
 2626

Retailers keep investing in

transformation

47% 35%
Shifting to or opening experiential
Devoting more space for digital
format
fulfillment operations

35% 34%
Integrating micro-fulfillment platform
Reducing in-store inventory for on-demand fulfillment

Source: Euromonitor International Voice of the Industry: Retailing survey (July 2022)
© Euromonitor International
 27

Sustainability remains long

term priority, while reducing
costs priority in 2022
Strategic Priority in the Next 12 Months Strategic Priority in the Next Five Years

Reduce operational costs Invest in sustainability

initiatives
Improve supply chain
resiliency Expand into new markets
Improve the customer
experience Invest in new technologies
Improve products and Consider strategic
features partnerships or acquisitions
Increase revenue in online Invest in new product
channels innovation
0% 20% 40% 60% 80% 0% 10% 20% 30% 40% 50%
© Euromonitor International Source: Euromonitor International Voice of the Industry: Retailing survey (July 2022)
 28

Definition of sustainability
has widened for businesses
during pandemic
Purchase of Second-
hand or Previously
Owned Products,
% of Respondents
30
25
20
15
10 Lithuanian unicorn Vinted aims to
Ikea launch Buyback & Resell
5 make second-hand products the first
program, contributing to
secondhand market development 0 choice of consumers
2019 2021 2022
© Euromonitor International Source: Euromonitor Voice of the Consumer: Lifestyles Survey, fielded January to February 2022
 29

Long term influence: rationality led

to efficiency

Turbulent times come together with opportunities to rethink strategy,

implement new solutions, review and improve processes for the long-
term goals.

© Euromonitor International
 30
VIRTUAL EVENT

Where retailers and brands see potential

for growth in new economic reality?

Marija Milaševič Matias Hasselström Aleksandar Petrović Raimondas Žilėnas

Senior Consultant Project Manager Market Intelligence Specialist Head of Marketplace
Euromonitor IKEA Retail Mercator-S PHH Group
International

© Euromonitor International
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