French dairy giant Lactalis has enhanced its position in the growing cheese market of the Czech Republic by signing a deal to buy local firm Promil.
Promil, which raked in sales of around €30m last year, is number two on the Czech dairy market for grated cheese and cheese slices, although its total market share was under one per cent in 2004.
"This investment will help establish our presence in a country where we have no local subsidiaries, and in central Europe generally," Lactalis said in a statement, adding it wanted to build up connections with its existing operations in Poland.
The takeover, completed for an undisclosed fee, is another example of how dairy firms view Eastern Europe as a strongly emerging market for their products.
Lactalis set up a branch in Prague in May 2004, which it now also uses to service markets in Slovakia and Hungary.
Lactalis already had 60 products on sale in the Czech Republic last year, including its flagship President brand, according to a recent report on the Czech dairy market by research group Euromonitor International.
It said cheese was an area ripe for investment.
The report predicts cheese retail sales in the Czech Republic will grow by 10,000 tonnes to nearly 98,000 tonnes by 2010, with only flavoured dairy drinks expected to grow faster in the dairy sector.
Cheese market value is expected to grow a little faster than volume, at a rate of nearly 20 per cent from CK14m (€493,000) to CK16.67m, suggesting a move into the Czech market could benefit profit margins as Czechs trade up for pricier products.
Euromonitor says quality has become increasingly important on the Czech cheese market, and has greatly improved in the last few years. Czech consumers, it adds, are very demanding: "The have many [cheeses] to choose from. They do not come back to products they were not satisfied with."
The threat from private label, however, could help to hold down prices in processed cheese.
Private label has a 16 per cent share of the Czech Republic's food market, according to AC Nielsen.
"Customers will still buy anything, as long as it is cheap. An environment like this holds great potential for private label products, which are not perceived as second-rate goods any more," says Euromonitor in its report, though adding that brands may combat this with higher marketing spend.
The battle between locally produced cheese and imports is also expected to hot up over the next few years.
Local cheeses were still cheaper than imported ones in 2005, according to Euromonitor, but imports rose by almost a third in 2004, on the back of the Czech Republic's entry into the European Union.
The country's top cheese producer, Madeta, is still Czech-owned, though second and third places on the market are occupied by French-owned subsidiaries.
The market for cheese in the Czech Republic remains fairly small compared to richer countries like the UK, where cheese sales were around £1.89bn (€2.7bn) in 2004, according to another market research group, Mintel.