In stark contrast to its stagnant Western European counterpart, the refrigeration systems industry in Central and Eastern Europe (CEE) enjoys an abundance of opportunities to exploit the untapped potential, according to a new study from Frost & Sullivan, an international market consultancy.
The unsatisfied demand inherent in the CEE refrigeration systems market can be filled by new investors intent on accelerating the pace of market expansion by throwing a lifeline to the U.S. $422 million industry, the research firm said. The spearheading forces behind market penetration, led by Linde, are firmly in Western European hands.
Market conditions will be changed drastically by the key national markets’ upcoming accession to the EU and the privatization of state-owned enterprises, expected to breathe new life into this undeveloped sector and providing more fertile ground for market development.
With EU accession on the horizon, Eastern Europe will attract greater external investor backing, resulting in increasingly bustling food stores and retail outlets, according to Frost & Sullivan. This trend, it says, bodes well for the future of the CEE refrigeration systems market, whose fortunes are intricately linked to the performance of food, beverage, and retail markets.
Frost & Sullivan is confident that the total CEE refrigeration systems market will reach unit sales of 1.022 million, equating to revenues worth $768 million, by the end of the forecast period in 2009.
According to the research firm, the lackluster CEE retail sector has been galvanized by the arrival of Western European supermarket chains. The most active retail networks in the Eastern European markets are Tesco, Auchan, Ahold, Geant Metro, and Carrefour.
Beatrice Nae, industry analyst at Frost & Sullivan, reiterates that the current lack of local investors, coupled with the restrictive number of new customer groups considerably inhibit growth prospects in the CEE refrigeration systems market.
"However, privatization programs vary across the individual accession countries and Eastern European authorities anticipate the influx of foreign investment deriving from private capital and the EU. Local initiatives are being restrained by banking systems in dire need of restructuring and the limited number of financial possibilities for public and private enterprises," Ms. Nae said.
The robust second hand market in CEE is a crucial factor behind the sluggish sales of new equipment. However, the number of second hand units sold is recording a decline in countries such as Poland, where average prices have recently seen a decrease, the firm said.
In an effort to comply with EU regulations, larger enterprises involved in food production and storage are replacing their facilities, which had previously operated on outdated technologies. Moreover, companies are realizing the importance of upgrading equipment to enhance business opportunities, according to Frost & Sullivan.
As uncertainty still prevails in the marketplace and many companies are hesitant about entering the less developed regions, Frost & Sullivan believes that the supply structure is likely to change over the forecast period. Manufacturers are also introducing new pricing policies and revising their approach, which is likely to alter their positions in the marketplace. Against a backdrop of increasing competition, market leaders’ core strategies revolve around the introduction of cheaper products and aggressive pricing policies.
Growth in the supermarket and hypermarket chains stimulates every product sector in the refrigeration market, including compressors and condensers, which find application in display cabinets, the firm said. An upswing in the retail market will also reportedly have a favorable impact on the transport refrigeration market, as retail holdings like Geronimo and Tesco have stared to purchase trailers and trucks equipped with refrigeration systems.
Previously almost non-existent, the display cabinet market displays the fastest growth across the CEE refrigeration systems, boosted by the expansion of cold chains, according to Frost & Sullivan.
The share of the compressors markets is expected to decline from 21.2 percent to 19.1 percent over the forecast period due to decreases in average prices. Meanwhile, the condensers and evaporators market should slightly increase from 2.7 percent to 3 percent, thriving on the potential exhibited by the food and beverage sectors, which require new installations of condensers and evaporators.
The limited number of customer groups in the transport refrigeration systems segment will keep sales at a static level, with the slim prospect of a marginal increase. However, the transport refrigeration sector exhibits vast pockets of growth and, through external investment, could potentially flourish in the future. Accounting over 80 percent of total sales, Thermo King is the undisputed leader in the CEE transport refrigeration systems market.
Claiming the number one spot in Frost & Sullivan’s analysis of national market is Poland, the region’s clear star performer. "The Czech Republic and Hungary are very similar markets with predicted stable growth, while Slovakia and Bulgaria are the smallest regions with minimal growth opportunities. Slovenia is regarded by many in the refrigeration industry as a mature market since the standard of living in this country is almost as high as in Western Europe, but Croatia still requires a substantial cash injection. Investors may be attracted to the region by its booming tourism industry," said Ms. Nae.
Ms. Nae concludes that demand for new and better quality products, especially for commercial and industrial use, has significantly risen since the food industry was forced to update its production and storage facilities in accordance with EU regulations. Meat producers, breweries, and other manufacturers have to adopt Western European requirements in preparation for accession and with the long-term aim of winning a loyal customer base in Western European markets.
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