Central Europe - Part Two

HP Hobby Program

Because the Slovenes have always been able to travel the world relatively easily, the consumer is fairly well-educated in the keeping of pets. Capitalising on this factor, HP Hobby Program introduced the concept of the pet centre to the Slovenian market in 1975. HP Hobby Program thus also acts as: Wholesaler, Importer and supplier.

On the basis of category management, with its own private label program, they are supplying the supermarkets and hypermarkets (such as Mercator, InterSpar, etc.).

pet shops (50 in total) under its own brand name as well as under the hard franchise concept Tukano Pet & Garden;

import and quarantine of tropical and marine fish and birds.

This total concept has led to a market share of 60% within the Slovenian market.

Soon after its start, the company expanded to Slovenia, Croatia, Bosnia and Srbia and at present, the company has 85 employees and its own hard franchise concept has made it clear that it sees the advantages of EU membership and is also hard at work to launch its Pet Center and Tukano Pet & garden concepts in a 700-km radius around Slovenia, in precisely those regions where Slovenia has a rich history of experience in terms of culture and language.

Slovenia

Beaphar Polska and Pets 22

Beaphar Polska, the subsidiary of the Dutch company Beaphar bv, is the exclusive importer and distributor of pet preparations such as vitamin and mineral food supplements as well as pet cosmetics, disinfectants and insecticide products. With the aid of five sales representatives, Beaphar Polska covers the entire country. They deliver directly to the largest shops (more than 100 m2 surface area; some 39 total in Poland) as well as to wholesalers.

Pets 22 is the exclusive importer and distributor of the U.S.-based Nutro dry pet food in Poland. Their distribution system is similar to that of Beaphar Polska ?five sales representatives working in the field.

After Poland entry into the EU, Beaphar Polska no longer expects to be subject to import taxes on the more medical products such as the flea repellants from Europe; the result of this will be a decrease in the pricing of these products in the shops. On the other hand, they do expect to experience more direct competition from distributors from Germany such as Gimborn and Trixie.

Poland

Miro Plus

Although Miro Plus is a medium-sized distributor in Poland, it offers a substantial

range of products under its own label. There are some 100 of these private label products as well as some Western European products that Miro Plus supplies to the French retail chain Leclerc which has already gained a good foothold in the Polish market.As a result of Poland's upcoming EU membership, Miro Plus expects that the competition will increase, primarily from Western manufacturers who will start supplying the larger retail outlets directly. In anticipation of this added competition, Miro Plus opened a subsidiary in Krakow 2 years ago and one in Warsaw last year. The dynamic turnover experienced by the subsidiary in Warsaw in particular surpassed all of their expectations. Additional subsidiaries

in the western region of Poland are planned. Thanks to strategic partnerships such as that with Trixie, Miro Plus believes that it is truly ready for the future.

Poland

The border of Poland

Provimi petfood CZ

100 km to the northeast of Prague stands one of the most modern pet food plants in Europe. Fully automated, operational seven days per week, 24 hours per day, and with only 9 employees,

it produces 1000 tonnes per week, based on the individual specifications

provided by the customer with respect to formula, packaging, etc. In addition to the 9 employees involved in production, there are naturally also professional staff members active in R&D, quality control and the like. But does the ambition stop here?No, the ambition goes further. After all, the share of the market in Central Europe occupied by private labels in the pet food segment will also grow to reach the level attained in Western Europe. Countries such as Russia are being considered for their enormous growth potential. According to sources within Provimi petfood CZ, many new super/hypermarkets will be established

in 2004 in the vicinity of Moscow alone. And of course these outlets will also sell pet food under a private label! This means that new plants are in the works.

Czech Republic

Fressnapf

Because the borders will not officially be open prior to May 2004, it remains a challenge to keep shops well stocked. And although this has been fairly successful, Fressnapf is still not completely prepared to sell the entire assortment it would like to be selling because in some cases, it is extremely difficult to obtain the necessary certificates. For this reason, Fressnapf is eagerly looking forward to May of 2004 so that it may offer the full range. Even though Fressnapf was the first and, up to the present, the only pet shop chain, the hypermarkets in particular are perceived to be a competitor which will be unusually strong in the sale of pet food under private labels and/or will offer Masterfood products at extremely low prices. On the other hand, it is Fressnapf strategy to intentionally choose locations in the direct vicinity of hypermarkets because these stores generate a great deal of traffic.

In Hungary, Fressnapf focuses primarily on the upper end of the middle class, and for this reason its range offers, in addition to a limited number of top brands, an extensive selection of products priced in an average range, including its house brand.

Naturally it is also important that the growth in the number of pets per household continues to rise in Hungary. Fressnapf thus also hopes that the good (independent) pet shops will increasingly specialise in the sale of livestock.

In addition to its activities as a chain of shops, Fressnapf is also considering expanding its business to also function as Cash & Carry operation/distributor for the local pet shops.

Hungary

Tropical

Tropical believes that the Polish retail market will follow in the footsteps of the so-called "French model" in combination

with the smaller speciality shops located around these hyper/supermarkets.

Due to this shopping model, it is Tropical's firm belief that it is only those food products from a manufacturer's standard line that may be found on the shelves of large supermarkets. These companies' premium and professional lines of foods and other products will only be sold via specialized

shops. In addition to the quality products, Tropical is happy to offer support to the specialized retail shop with good training programmes and effective merchandising.Tropical also expects that Poland's entry into the EU will mean that the manufacturers will supply the larger retail chains directly, and that in the near future the margins will be under significant pressure.

Poland

Aquael

Because commercial companies were forbidden in the late 1980s, Janusz Jankiewicz (director) started his company from the proverbial garage. Ultimately he was permitted to hire two retirees who would help him with production. When the Berlin Wall fell in 1989, Janusz was also already prepared

to make the leap to setting up a professional company. Now, 14 years later, Aquael has some 250 employees who produce innovative and high quality aquarium products for a very attractive price. In addition to the products produced under their own label which have achieved a great deal of market coverage within the pet retail business in Central Europe, they also manufacture private label products. The company's recent history has been marked by an incredible growth in sales and a great improvement in the quality of management, production and product-design. In 2002, Aquael opened a modern manufacturing plant in Suwalki, which contributed to a strengthening of the company's position, both domestically and internationally. These days, it is the largest Polish manufacturer of aquarium and pond accessories, and the quality of its products

wins new customers for the company every month.Thanks to Poland's entry into the EU and the import and export environment which will have been made more efficient, Aquael's ambition is to expand its export activities and to obtain coverage in all of the Western European countries as well as to further develop its activities to include the Ukraine, Russia and Baltic States. After all, they speak one another's language and the culture is comparable to that in Poland.

Poland

Premium Plus s.r.o.

Even though Slovakia is a small country, it is one of the countries with a very high average income. Due in part to this factor, keeping pets has been a popular hobby there for many years. Together with his brother, Tomas Gorcs started a small pet shop in Bratislava years ago. This establishment

quickly became a success, and soon the brothers expanded

into the wholesale sector which now sells primarily the Eukanuba line of products. In 2006, construction on the motorway to Vienna, a mere 60 km away, will be completed,

and a TGV/ICE line will also be ready, connecting Bratislava directly to Vienna. The future of Premium Plus is thus looking bright.Slovakia

Slovenia

Alpha-Vet Ltd

With its own nationwide distribution network and substantial professional background (thanks to its own treatment

centre), Alpha-Vet Ltd is the largest pharmaceutical and pet food distributor in Hungary One of the determining factors in its successful level of sales is its delivery system. Purchase orders are received by the customer order department by phone, and the orders are delivered the very next day. There is also the possibility of placing orders via the Internet.Alpha-Vet's most important partners are the specialty pet shops, veterinarians

selling pet food, and breeders. In the last couple of years the grocery segment has grown stronger, leading to a decrease in the number of the pet shops. The company assumes that ultimately only 400 to 500 pet shops will be left in Hungary within the next five to ten years. For the long-term, Alpha-Vet is focusing on the specialty channel. In preparation for this, a completely new 2000 m2 warehouse is currently being built.

Hungary

Tuptus

Tuptus is also one of the medium-sized distributors in Poland. Just like its colleagues,

Tuptus realises that the position

of the traditional wholesaler will be subjected to pressure and that great shifts are to be expected in the pet retail landscape in Poland. Naturally the large pet retail chains will become established there as well, and the big question within this framework is when Fressnapf will enter the market. However

when the major pet retail chains do arrive, Tuptus believes that there will still be sufficient room in the market for the more specialised pet retail outlets carrying livestock. Tuptus is not sitting back and waiting for this to happen, but instead is hard at work to launch a franchise concept. Tuptus is targeting this concept primarily

to the suburbs of the cities with a high population density.

Poland

Placek

For many years, Placek has been the trendsetting pet distributor in the Czech Republic. As one would expect, the pet industry in the Czech Republic is characterised by various distinct differences

between those industries in the other countries, but there are also many similarities. Just as elsewhere, the question of what the distributor's added value is applies here as well. What position will private labels occupy? Plack expects that in the very short term, pet products' share of turnover in the supermarket channel will be larger than that observed in the pet speciality

shop channel. The DIY chains are also expected to grab a share of the pet market. However, concrete developments with regard to pet speciality chain(s) are not really known. Plack recognizes all of these developments and is of course seriously considering its imminent future. Issues such as higher sales attained with fewer products, expanding private label activities, and forward or backward integration are all current topics. Regardless of all of this, Plack' aim will remain to deliver a full range of brands to the pet shops. The future of pet shops is to specialize in livestock and specialized pet products.

Czech Republic

Tesco

The 15,000 m2 Tesco hypermarket in Budapest is the largest hypermarket in Europe. However, the turnover of pet products there only constitutes 1% of the total Tesco turnover in Hungary. In spite of this seemingly low figure, according to its own study this turnover contributes to the company achieving

a 6.8% market share of the total turnover of pet products in Hungary. Tesco's average gross margin on pet products is 8% which lies below its average yet this number is attributed to the oppressive effect of the Masterfood

products within this segment. It is Tesco Hungary's ambition to ultimately have approximately 100 stores throughout Hungary, thus this also includes precisely those smaller super/hypermarkets in the smaller cities which vary in size from 3000 to 12,000 m2. The idea of offering a limited range at petrol stations is also being considered. According to Tesco, the challenge present in the Hungarian market is that the consumer is not accustomed to keeping pets, and that he or she requires a great deal of educating in order to understand how pets should be kept. This past year Tesco has discovered that when a great deal of promotional activities are undertaken to promote pet products, this has very little effect on the turnover; the consumer's perception of the products was that they were too expensive, in spite of all of the promotion. Tesco does not see Fressnapf as a competitor by any stretch of the imagination,

and thus also follows its own strategy completely in this segment. Modifications in the assortment may also be expected for next year. The range will be expanded to include private label products from the current standard line and Standard Plus line to the Super Premium line. A line of snacks, dog food and accessories will also be introduced. Tesco's strategy also focuses on doing business with "local" manufacturers.

Hungary

  Source: PETS International Magazine