Key challenges for food retailers are the increasingly competitive market environment and the very high wage pressure, which is diminishing profit margins.
- The food and beverage industry is one of the most important sectors of the Hungarian economy. It is the second-largest employer and the third-biggest producer in the manufacturing sector. Food export revenues are a significant contributor to Hungary´s overall trade surplus. Among the 500 highest-revenue businesses, every 10th is either a food manufacturer, wholesaler or retailer.
- The sector´s value added growth is expected to increase 2.5% in 2017 and 3.1% in 2018. Turnover is expected to increase about 3-4% annually over the next five years, on the back of increasing real wages and substantial VAT cuts for food products since 2016. However, increased excise duties and an extra tax on alcoholic drinks are having a negative effect on demand growth in the beverage segment.
- The food retail sector is increasingly competitive as discounters gain higher market share and market consolidation is expected to continue. A key challenge for retailers – small and large chains alike – is the very high wage pressure, which is diminishing profit margins.
- The average payment duration in the Hungarian food industry is 30-60 days. The number of protracted payments, non-payments and insolvency cases has remained stable over the last six months, and no increase is expected in the coming months. Our underwriting stance remains generally open, as food turnover is expected to increase further and business proftability remains adequate.
- Fraudulent events (mainly VAT-evasion with sugar or oil products) have been a major concern. However, the government has implemented measures to combat fraud opportunities, such as an Electronic Public Road Trade Control System or the mandatory linking of cash registers in stores and bars to the Tax Authority. Those measures have shown strong results so far, while the comprehensive VAT reduction on many food items since 2016 has significantly diminished the risk-reward ratio of fraudulent operations.