BID PoloniaConfiteria

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Market Research Eastern Europe

Confectionery and milling

in Poland


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Proexport Colombia

Equipo de Trabajo

Direcci n de Informaci n Comercial

Jorge Luis Guti rrez Director

Fernando Pi eros Subdirector Proyectos Especiales

Bibiana Guti rrez Analista de Inteligencia de Mercados

[email protected]

www.proexport.gov.co

www.proexport.com.co

Calle 28 No. 13 15, Piso 35

Tel: (571) 5600100

Fax: (571) 5600118

Bogot , Colombia

GRUPO CONSULTOR

EUNITE, Nederland

Todos los derechos reservados. Ni la totalidad ni parte de este documento puedereproducirse o transmitirse por ning n procedimiento electr nico o mec nico, incluyendo

fotocopias, impresi n o grabaci n.


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Estimado Empresario:

La b squeda de acuerdos comerciales que nos permitan como pa s ampliar losescenarios y mercados de exportaci n, nos reta como PROEXPORT a apoyar enforma directa a los empresarios en sus iniciativas exportadoras, ofreciendoservicios dentro de un modelo del gesti n comercial y compartiendo unconocimiento m s detallado sobre los mercados y sus oportunidades.

Para lograr lo anterior, PROEXPORT, con inversi n de recursos propios y decooperaci n t cnica no-reembolsables del BID-FOMIN, emprendi una labor de

recolecci n y an lisis de informaci n de primera mano en los principales mercadosde inter s a trav s de la contrataci n de consultor as internacionalesespecializadas en investigaciones de mercados. Los resultados de estos trabajospermitieron analizar y conocer la din mica comercial de los sectores en los cualesexiste un potencial para nuestras exportaciones, as como detallar aspectos decompetitividad, informaci n valiosa para la orientaci n de las iniciativasexportadoras de nuestros empresarios.

La informaci n que contiene este estudio, sobre la din mica del sector, lademanda y consumo, la situaci n competitiva de los productos, estructura ycaracter sticas de la comercializaci n y log stica de acceso al mercado, es unacontribuci n e invitaci n a profundizar y conocer aspectos que nos permitanavanzar en la realizaci n de negocios en escenarios internacionales.

Cordialmente,

Luis Guillermo Plata P.Presidente PROEXPORT


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Contents

1. Introduction ..................................................................................................71.1 Introduction............................................................................................................ 71.2 Methodology.......................................................................................................... 7

2. General sector data......................................................................................92.1 Current market developments within the specified sector..................................... 92.2 Sector s participation in total GDP...................................... ................................... 92.3 Sector s participation in employment......................................... .......................... 102.4 Developments in production................................................................................ 112.5 Available data about the sub-sectors .................................................................. 222.6 Recommendations...............................................................................................22

3. Market composition and characteristics..................................................233.1 Market size ..........................................................................................................233.2. Confectionery market segmentation.......................................... ........................... 253.3. Analysis of the apparent consumption dynamics ................................................283.4. Governmental plans and programs .....................................................................283.5. Demand in the market .........................................................................................29

4. Competition analysis .................................................................................334.1 Main trademarks available in the market.............................................................334.2 Features of the commercialized products............................................................ 364.3 Marketing and advertising strategies................................................................... 374.4 Participation in the market and segments that are served ..................................444.5 Quality of the product ..........................................................................................484.6 Expansion plans ..................................................................................................494.7 Pricing strategy.................................................................................................... 50

4.8 Segmentation of enterprises by sectors and its categorization ...........................514.9 Recommendations...............................................................................................575. Distribution channels.................................................................................59

5.1 Retail structure .................................................................................................... 595.2 Confectionery products most frequently sold in groceries................................... 655.3 Recommendations...............................................................................................67

6. Commercial Access Guide ........................................................................696.1 Preferential tariffs ................................................................................................696.2 Tariffs imposed on major competitors ................................................................. 706.3 Norms of origin .................................................................................................... 726.4 Barriers ................................................................................................................736.5 Licenses .............................................................................................................. 74

6.6 Quotas................................................................................................................. 746.7 Approvals & 6.8 Technical standards .................................................................. 756.9 Packaging............................................................................................................806.10 Required documentation for import .....................................................................846.11 Import modalities or regimes involved in the process....................... ................... 926.12 Requirements for import of samples and accompanied luggage ........................ 936.13 Website links to rules and regulations................................................................. 936.14 Flow chart of the process and related costs ........................................................946.15 Recommendations............................. ......................................... ......................... 95

Proexport Colombia 5


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Market Researches in Eastern Europe

7. Physical Access .........................................................................................977.1 Available transportation infrastructure ................................................................. 977.2 Identification of ports, airports, roads border passes railways,

waterways.................................. ........................................... ............................. 1067.3 Description of status, operation, security, costs, distances, transportation

arrangements and intercommunity customs............................. ......................... 1077.4 Identification of other handling and distribution infrastructure ...........................1097.5 Identification of carriers that transport goods imported from Colombia .............1117.6 International Freight or Transportation Costs .................................................... 1127.7 Physical distribution services address book......................................................117

8. Recommendations to the exporter .........................................................121Annexes...........................................................................................................123

Annex 1: Health inspection application form ................................... .......................... 123 Annex 2: Certificate of origin form A....................................... ................................... 127 Annex 3: DV1 Form .................................... ......................................... ...................... 128 Annex 4: Single Administrative Document (SAD).............................. ........................ 130

6 Proexport Colombia


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1. Introduction

1.1 Introduction

This report aims at providing Colombian exporters with a comprehensive guide ofthe Polish confectionery market. The main goal of the report is to identify exportopportunities for Colombian entrepreneurs in Poland. Civilization proximity,similar structures of democratic institutions, comparable level of reformsconveyed in the regions, close relations between EU and South America,cultural, tradition and religion similarity, should additionally encourage both sidesto cooperate successfully. The report focuses on the analysis of theconfectionery and milling sector, the various trademarks performing in the Polishmarket, competition description and profile of tendencies in the market.

1.2 Methodology

Information for the research was gathered by means of official information, suchas the Ministry of Agriculture and Rural Development, Ministry of Finance,Ministry of Infrastructure, Central Statistical Office, Agricultural Market Agency,Foreign Trade Database, studies, publications, databases, branch magazines,internet sites of branch organizations, internet sites of companies present on themarket and different field research.

The data presented here has attempted to create a very diverse picture of thePolish confectionery market. One must be aware that the confectionery sector isnot one of the most important branches of Polish agriculture. Official sourcessuch as the Central Statistical Office or Ministry of Finance provide limited andgeneral information concerning this market.

More detailed information is presented by professional reports, like for examplethe analysis prepared by Boss Economic Information or Poradnik Handlowca(Trader Guide ). However, this information is usually based on estimations andknowledge of professionals active in the certain market. Where possible, thisreport combines data from both nationwide institutions and professional

organizations, sometimes showing the difference in figures given by these twosources.

The biggest effort was made to provide as much information as possible,however, some requested information was neither possible to gather or estimate.

The appropriate data is given in percentage, values in EURO or rating numbers.The current exchange rate for 8 th of August 2005 was 1 = 4 PLN. All the graphs



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and tables presented are based on several, comparable sources and preparedfor the purpose of this report. It is worth to state that certain data requested fromparticular companies, such as pricing strategies, companies development plans,are very hard to acquire, as entrepreneurs perceive it as merchant, official secret.

All the latest available data, possible to access freely and not interfering Polishcompanies policies are however used and presented in this report.



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2. General sector data

2.1 Current market developments within the specified sector

According to the General Statistic Office (GUS), 19.516 entities operate in thesector of the manufacturing of food products and beverages. There are nospecific data about companies that manufacture only confectionery and millingproducts

Table 2.1.1 Economic entities by ownership sectors, sections and divisions

Total Public PrivateManufacturing 206826 876 205950

Manufacturing of foodproducts and beverages

19516 87 19429

Source: Central Statistical Office (GUS), 2003

The industry is strongly dominated by private capital. Many previously state-owned companies were taken over by private entrepreneurs.

According to BOSS 1 there are about 900 entities in the Polish chocolate andsugar industry sector. The majority are medium size companies with 10 to 50employees or smaller ones that employ less than 10 employees. Although thereare only about 120 companies, that employ more than 50 employees, thesecompanies dominate the Polish market. According to the Association of PolishProducers of Chocolates and Sugar Confectionery POLBISCO, that associates30 leading companies from this branch, the companies stated above produceabout 45% of the total production and employ 12.000 people, which amounts toone-third of all employees employed in this sector. According to estimations byBOSS in 2001, 70%, of the market is controlled by six big internationalcompanies. The 15 biggest producers controlled approximately 88-90% of themarket.

2.2 Sectors participation in total GDP

Data on Poland s GDP are presented in Table 2.2.1. and Table 2.2.2.

Table 2.2.1 GDP in Poland 2002-2004 (current prices million EUR)

2002 2003 2004GDP195278,1 203730,6 220914,5

Source: Central Statistical Office (GUS)

Proexport Colombia

1 Boss Economic Information9


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Table 2.2.2 Dynamic of GDP growth in Poland 2002-2004 (annual average prices fromprevious year)

2002 2003 2004GDP

101,4 103,8 105,3Source: Central Statistical Office (GUS)

The sector of chocolate and sugar confectionary as such is not detailed innational accounts. The only information on general participation in GDP ofmanufacturing of food products and beverages sector is given by the statisticaloffice. The share of the manufacturing of food products and beverages sector intotal GDP amounted to 27773,95 mln in 2001 and 25279,65 mln in 2002.

Table 2.2.3 Share of manufacturing of food product and beverages in manufacturing

1995 2000 2001 2002 1995 2002

In million EUR In percentTotal 65334,325 129745,725 130700,325 130354,65 100% 100%Manufacturing 55325,925 112353,325 111118,825 109431,775 84,7 84

Manufactureof foodproducts andbeverages

13786,75 25150,275 27773,95 25279,65 21,1 19,4


2.3 Sector s participation in employment

The sector of chocolate and sugar confectionery as such is not detailed instatistic data concerning employment in manufacturing elaborated by the CentralStatistical Office (GUS). There is however general information available aboutthe number of employees in the sector of food and beverage production, whichalso includes the sector of confectionery and milling. The changes of methods ofproduction and privatisation of big state-owned companies in the ninieties havehad a big impact on the decreasing number of employed persons in the sector ofmanufacturing of food production and beverages as a whole. The samedevelopment occurred in the sector of confectionery and milling. During the lastfew years the slightly decreasing trend in employment in this sector continued,this time mainly due to the modernisation of methods of production andreorganisation of management in the biggest companies operating in that sector.

General figures concerning employment in manufacturing sector in Poland aregiven in table 2.3.1.



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Confectionery and milling in Poland

Table 2.3.1 Employed persons as of 31 December (in thous.)

1995 2001 2002 2003SpecificationIn thousands

Manufacturing 3103,5 2732,9 2486,0 2872,1

Manufacturingof foodproductionandbeverages

524,3 492,2 464,2 459,2


Table 2.3.2 presents the average gross wages in manufacturing .

Table 2.3.2 Average monthly gross wages and salaries in industries by sections anddivisions

1995 2001 2002 2003Specificationin EUR

Manufacturing 439,1075 466,6275 477,88 495,1825

Manufacturing offood production andbeverages

401,1275 431,26 435,3325 449,26


2.4 Developments in production

The confectionery industry in Poland has been developing continuously since theearly 1990s. The general growth characterising the confectionery industry isattributable to economic factors (although slowly the real consumption ofconfectionery products is growing) and sociological phenomena (sweets are

purchased even by the less affluent families, which can be seen as a way ofcompensating for their inability to buy expensive durable goods). Theconsumption of confectionery products is also undoubtedly stimulated bypromotion campaigns organised by the largest suppliers of these articles, asevidenced by the fact that they ranked high among big spenders on advertising.



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Table 2.4.1 Industrial production in national economy

1995 2000 2001 2002 1995 2002

Specification In mln EUR In percent

Manufacturing 55325,9 112353,4 111118,8 109431,7 100 100Manufacture of

food products

and beverages

13786,7 25150,2 27773,9 25279,6 21,1 19,4


The table 2.4.2 presents the production of pastry, cakes, biscuits, wafers inperiod 1995-2002. The current data are not available yet.

Table 2.4.2 Production of pastry, cakes, biscuits, wafers

Years 1995 1996 1997 1998 1999 2000 2001 2002In thousand oftons

118 101 122 125 120 134 138,8 145


The table 2.4.3 presents the value of sold production of pastry, cakes, biscuits,wafers, chocolate and sugar confectionery in period 2000-2002.

Table 2.4.3 Value of sold production of confectionery industry (in mln )

Production 2000 2001 2002

Pastry, cakes,biscuits, wafers 99,3 139,8 108,0Chocolate andsugar confectionery

data notavailable

219,4 254,5Total - 359,3 362,5Source: Central Statistical Office (GUS)

2.5. Sales-, import- and export activities

In 1999, Polish exports of sugar confectionary not containing cocoa decreaseddue to the economic crisis in Russia. As a consequence Polish producers lostcontact with Russian wholesales and distributors. Even today export to Russia isstill below the potential because this country is still perceived as a risky and a nottransparent partner. Moreover, due to the introduction of customs duties on semi-finished products and ready-made goods by Russia in 2000, the Russian marketbecame practically closed to producers operating in Poland and this countryceased to be the launching pad for the food manufacturing concerns in theirexpansion to the East.



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Although losing part of the Russian market, since 2000 the Polish export andpositive trade balance of sugar confectionery (including white chocolate) notcontaining cocoa have been raising appropriately (from 46966,25 thousandsin 2000 to 88302,25 thousands in 2003 and from 4774,25 thousands to

33479,5 thousands in 2003). In 2004 export raised by 17,1% compared to figuresfrom 2003, whilst import decreased by 0,1%. It has been caused by raising theexport to the European Union. Polish products are exported mainly to Germany,Czech Republic, Netherlands and Lithuania. The imported products come fromGermany, Italy, Netherlands and Spain.

Table 2.5.1 Foreign trade of sugar confectionery (including white chocolate) notcontaining cocoa in period 1999-2003 in thous. EUR

47303,75

42998,5

-4305,2

5

42192

46966,25

4774,25

40648,25

48902,5

8254,25

47703

64450,75

16747,75

54822,75

88302,25

33479,5

-10000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

value in thous.EUR

1999 2000 2001 2002 2003years

Foreign trade of sugar confecionery (including white chocolate) not containingcocoa in period 1999-2003 in thous. EUR

importexportbalance


Export of chocolate and other food products containing cocoa has grown sincethe early nineties. The balance of foreign trade in this sector is positive. In 1998

Polish export totaled 102770,25 thousands EUR and in 2003 raised to 171484,5thousands EUR. At the same time the Polish import raised from 42535 thousandsto 77285,25 thousands EUR. Hence, Polish trade balance in this sector remainsat the same level. The figures from 2004 show a faster growth of export for about48,3 % compared to the same period in 2003. The import has increased 21,8%,compared to the same period in 2003 .



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Table 2.5.2 Foreign trade of chocolate and other food products containing cocoa in period1999-2003 in thous. EUR

Foreign trade of chocolate and other food

products containing cocoa in period 1999-2003in thous. EUR

1 0 2 7 7 0

, 2 5

1 5 1 4 8 5

, 2 5

1 5 6 4 1 8

, 2 5

1 5 9 1 9 7

, 5

1 7 1 4 8 4

, 5

6 0 2 3 5

, 2 5

1 0 2 6 3 3

, 2 5

8 6 5 2 4

, 5

4 2 5 3 5

4 8 8 5 2 6 7

3 1 5

, 5

7 7 2 8 5

, 2 5

7

2 6 7 3

9 4 2 0 6

8 9 1 0 2

, 7 5

0

20000

40000

6000080000

100000

120000

140000

160000

180000

200000

1999 2000 2001 2002 2003

years

valuesinthous.EUR

importexportbalance


Detailed data on the total Polish export and import during 2004 are presented inTable 2.5.3. and Table 2.5.4.

Table 2.5.3 Export in period January - December 2004

TOTAL IN THE EU

Sugar confectionery(including white

chocolate) not containingcocoa

In tons 36838 22486

I-XII 2003=100 102,9 100,0

In thous. PLN 383571,2 243575,3

I-XII 2003=100 108,6 106,9

In thous. USD 103714 65806

I-XII 2003=100 114,6 112,6



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TOTAL IN THE EU

In thous. EUR 83959 53251

I-XII 2003=100 104,7 102,8

Chocolate and other foodpreparations containingcocoa

In tons 97395 71473

I-XII 2003=100 172,3 198,8

In thous. PLN 1084558,5 775054,4

I-XII 2003=100 158,1 181,7

In thous. USD 297427 211971

I-XII 2003=100 169,7 194,5

In thous. EUR 239593 170801I-XII 2003=100 153,9 176,4

Bread, pastry, cakes,biscuits, wafers, etc

In tons 124198 96723

I-XII 2003=100 146,3 152,2

In thous. PLN 1064438,5 823908,5

I-XII 2003=100 162,8 170,7

In thous. USD 289866 223524

I-XII 2003=100 173,0 180,7

In thous. EUR 234470 181020

I-XII 2003=100 158,0 165,2


Table 2.5.4 Import in period January-December 2004

Total IN THE EU

Sugar confectionery(including whitechocolate) non

containing cocoa

In tons 21397 18514

I-XII 2003=100 98,7 95,2

In thous. PLN 220805,4 196110,8

I-XII 2003=100 100,7 102,2


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Total IN THE EU

In thous. USD 59883 53081

I-XII 2003=100 106,6 108,0

In thous. EUR 48534 43042I-XII 2003=100 97,3 98,6

Chocolate and other foodpreparations containingcocoa

In tons 32066 30972

I-XII 2003=100 118,3 117,9

In thous. PLN 403683,3 389843,6

I-XII 2003=100 130,6 130,9

In thous. USD 111492 107673I-XII 2003=100 141,0 141,3


I-XII 2003=100 128,2 128,5

Bread, pastry, cakes,biscuits, wafers, etc

In tons 39292 34503

I-XII 2003=100 148,9 155,3

In thous. PLN 301470,4 260108,8

I-XII 2003=100 184,1 202,2

In thous. USD 82294 71000

I-XII 2003=100 195,9 215,3


I-XII 2003=100 179,3 196,9


The tables 2.5.5 - 2.5.10 present main directions of Polish export and import of

chocolate, sugar confectionery, cakes and wafers.



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Table 2.5.5 Exports of sugar confectionery (including white chocolate), in period January -December 2004 major countries where Poland exports its sugar confectionery

In thous. EUR In thous. USD

Sugar confectionery(including white chocolate) 88302,1 90540

Germany 18302 18911Czech Republic 7552 7756Netherlands 7079 7264Lithuania 6830 7017Russian Federation 5445 5577Ukraine 4655 4774Canada 3452 3547Hungary 2898 2973Italy 2564 2632

Romania 2504 2560Saudi Arabia 2441 2496USA 1802 1843UK 1651 1689France 1587 1629Latvia 1543 1587Denmark 1530 1568

Australia 1499 1537Source: Central Statistical Office (GUS)

Table 2.5.6 Import of sugar confectionery (including white chocolate), in period January -December 2004 major countries exporting to Poland

In thous. EUR In thous. USDSugar confectionery(including white chocolate)

54820 56165

Germany 16462 16804Italy 65934 6411Netherlands 5934 6089Spain 5294 5404Czech Republic 4120 4239Belgium 2725 2806USA 2416 2490UK 1861 1902Indonesia 1466 1506Hungary 1409 1448Ireland 1070 1102Turkey 936 965Slovakia 863 886



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In thous. EUR In thous. USDFrance 770 786China 674 692Switzerland 493 505

Austria 362 371Source: Central Statistical Office (GUS)

Table 2.5.7 Exports of chocolate and other food preparations containing cocoa, in periodJanuary - December 2004 major countries where Poland exports its chocolates and otherfood preparations containing cocoa


Chocolates and otherfood preparationscontaining cocoa

171485 175292

Germany 27589 28146

Russian Federation 19910 20381

Czech Republic 16030 16361

Hungary 13986 14293

UK 11174 11426

USA 8995 9189

Lithuania 8559 8739

Ukraine 6928 7087

Sweden 6619 6754

Denmark 6427 6578

Netherlands 4642 4776

Croatia 3777 3884

Romania 3188 3252

Israel 2560 2623

Slovenia 2489 2548



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Canada 2227 2276

Serbia and Montenegro 2156 2201


Table 2.5.8 Import of chocolate and other food preparations containing cocoa, in periodJanuary - December 2004 major countries exporting to Poland


Chocolates and otherfood preparationscontaining cocoa

77278 79079

Germany 38419 39301Slovakia 12183 12471


Hungary 3516 3596

Italy 3503 3581


France 2447 2491

Switzerland 2140 2191

Denmark 1814 1859

Finland 1710 1746

Belgium 1378 1407

Austria 997 1026

UK 586 601

Turkey 520 533

Slovenia 352 363

Ireland 243 247

Sweden 213 219



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Table 2.5.9 Export of bread, pastry, cakes, biscuits, wafers, in period January - December2004 major countries where Poland exports its bread, pastry, cakes, biscuit, wafers.


Bread, pastry, cakes,biscuits, wafers 163431 167540Germany 25685 26309

Hungary 25012 25602


Lithuania 9035 9261

Slovakia 8817 9058

Romania 7259 7422Russian Federation 6969 7149

USA 5761 5905

Slovenia 4507 4619

France 3179 3262


Denmark 2775 2847

UK 2663 2737

Latvia 2611 2680

Switzerland 2560 2624

Sweden 2386 2448

Saudi Arabia 2306 2362




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Table 2.5.10 Import of bread, pastry, cakes, biscuits, wafers, in period January - December2004 major countries exporting to Poland


Bread, pastry, cakes,biscuits, wafers

40939 42010

Germany 12144 12425

Bulgaria 7442 7675



Italy 2972 3025

Hungary 2166 2230

UK 1538 1582

Denmark 878 902

Romania 853 875

Sweden 676 696

Austria 566 580

Belgium 435 444

France 433 442

Slovakia 360 369

Israel 206 211

Lithuania 165 169

Viet Nam 107 111


For several years Germany has been the leader among the chocolate and sugarconfectionery exporters and importers. The market of the Czech Republic andthe Russian Federation is also vital for Polish manufacturers of chocolate andsugar confectionery.



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2.5 Available data about the sub-sectors

There are three distinctive segments in the confectionery market in Poland.

These are: the premium segment, medium-priced segment and the low-pricedsegment.

The premium segment consists of the most expensive products, usually importedfrom Germany or Switzerland. There are also Polish producers who offerexpensive products like Wedel and Solidarno . A well-established foreigntrademark for example is Lindt. The box of pralines (approximately 200g) costsmore than 7,50, and chocolate table (100g) from 1,25 to 2,00.

The medium-priced segment is dominated by big international companies anddomestic firms, which often emerged from former state-owned companies. The

price for a box of pralines is about 2,50-7,50 and for chocolate tablets 0,50-0,75.

The low-priced segment is represented by private labels of the biggest super-and hypermarkets. The chocolate tablets costs less than 0,50 while a box ofchocolates can cost up to 2,50. For more detailed information concerningprices of different kinds of confectionery products, please see chapter 4.7.

2.6 Recommendations

This chapter provides the reader with the basic information on the chocolate andsugar confectionery sector in Poland. Since the beginning of the nineties theproduction (in the food industry) has been increasing and the employment israther stable. Polish confectionery gains recognition on the European markets asbeing of high quality and good price. Prospects for the market s development aregood since the average Pole eats relatively small amounts of chocolate, candiesand cookies as compared with the level of consumption in the European Union.



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3. Market composition and characteristics

3.1 Market size

The Polish confectionery market growth is detailed by the Central Statistic Office(GUS) only for the years 2001 and 2002, earlier data are not available. Morespecific information is available on the value of the the market of food productand beverages as a whole.

Table 3.1.1 presents the information about value of the confectionary market forthe past two years. The data indicates that the production has been stable duringthat period. According to the Ministry of Agriculture and Rural Developmentduring the last past years 2002-2004 the production of confectionery has beengrowing, but official data is not available for now.

Table 3.1.1 Value of sold production of confectionary industry in million EUR in period2001-2002

0

200

400

600

800

1000

1200

1400

1600

production in mln EUR

2000 2001 2002

years

Value of sold production of confectioneryindustry in EUR

Pastry, cakes,biscuits, wafers

Chocolate andsugar confectionerydata not availableTotal -

Source: Central Statistic Office



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Table 3.1.2 below presents the value of manufacturing of food product andbeverages in the whole manufacturing in the period 1995-2002 in million EUR.The presented data indicates that the production of food product raisedsignificantly in period 1995-2000, since 2000 the production is stable and

practically on the same level.


0

20000

40000

60000

80000 100000

120000

140000

productioninmlnEU

1995 2000 2001 2002

years

Share of manufacturing of food product andbeverages in manufacturing

Total

Manufacturing

Manufcture of foodproducts andbeverages

Source:Central Statistic Office

Table 3.1.3 presents the percentages of production of food products andbeverages in manufacturing. According to the data, the percentages ofproduction of food products and beverages in manufacturing slightly decreasedfrom 84,7% to 84%.



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Source: Central Statistical Office

84,70%

21,10%

84,00%

19,40%

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

1995 2002

years

Share of manfacturing of foodproduct and beverages in

manufacturing

Manufacturing

Manufcture of food products andbeverages

3.2. Confectionery market segmentation

Consumer basket of food products and beverages in 2003 had a value of 10 486 852 500. The confectionery products share was 9,55%, so it was worth 1 001 395 000. According to the ACNielsen 2 research, the total volume of salesin the confectionery market, for the period August 2003 July 2004, reached96,7 thousand tones. Comparing to the same period one year ago, it has grown10,2 thousand of tones, which amounts to almost 12%.

The different sorts of confectionery goods and their share in the whole segmentof sweet products are listed in the table below.


2 ACNielsen Market research, information and analysis agency


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Table 3.2.1 Main segments in the Polish confectionery market

CONFECTIONERY MARKET MAIN SEGMENTS

SALES VALUEin thousand

EURVALUESHARE (%)

Confectionery products 1 001 395 9,55

Sweet biscuits, cookiesand wafers 296 152 30

Chocolate tablets 186 497 19

Candies and lollipops 163 902 16

Pralines 149 162 15

Bars 130 247 13

Pastilles 23 325 2Chocolate spread 19 753 2

Halva 16 307 2

Filled croissants 11 963 1

Sesame 4 085 0

Source: ACNielsen, data for 2003

The value of the chocolate market was estimated at 425 mln in 2003. Thehigher cost of sugar and better consumers moods caused higher spending.Chocolate bars and wafers were worth 214 mln .

Chart 3.2.2 Kinds of chocolate products and their share in whole segment of chocolateconfectionery

36.50%

18.40%

19%

17.70%

8.50%

36.10%

23.10%

18.30%

15.70%

6.90%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Chocolate tables

Chocolate bars

Pralines

Chocolate wafers

Dragees

VIII 2003 - VII 2004

VIII 2002 - VII 2003

SSource: AC Nielsen, data for period August 2002 July 2004



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According to the latest research by ACNielsen, Poles spend more and more onconfectionery goods every year. The value of sales of chocolate goods willincrease 10% every year (it does not include bulk products). This is mainlygenerated by chocolate bars and tablets. Chocolate tablets generate almost 40%

of the turnover in the chocolate sector. They are very popular, due to their wideaccessibility. Poles the most often choose plain milk or dessert chocolateboards(should this not say bars) of 100 g weight. Most popular among filledchocolates are the strawberry flavorred ones.

Segmentation of chocolates: solid : milk, dessert, bitter with nuts, delicacies, raisins with filling: strawberry, blackcurrant, yoghurt, cherry, raspberry, kiwi, orange,

pistachio, coconut, almond, toffee, coffee and hazelnut.

Table 3.2.3 Kinds of candies and their share in whole segment of candies market

CANDIES AND LOLLIPOPS MARKET SHARES (%)

Volume Value Quantity(packages)

2002 2003 2002 2003 2002 2003

Lollipops 8 8 11 11 32 32

Candies > 51g 62 63 41 41 24 24

Candies < 50g 30 29 48 48 44 44Source: ACNielsen

Kinds of candies flavors: fruit: lemon, orange, strawberry, blackberry, apple, cherry, grapefruit, lime herbal, vitamin, healing mint toffee, coffee, chocolate sour and fizzy sugar free

Table 3.2.4 Kinds of candies and their sales value and volume

KINDS OF CANDIES AND THEIR SALES VALUE AND VOLUMESALES VALUE

mln EUR /%SALES VOLUME

mln kg/%

All 173/100 27,9/100

Solid caramels 73/42 13,2/47

Sweet dragees 52/30 6,4/23



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KINDS OF CANDIES AND THEIR SALES VALUE AND VOLUME

SALES VALUEmln EUR /%

SALES VOLUMEmln kg/%

Filled candies 18/10 3,2/11Jellies 12/7 2,2/8

Toffee, milk candies 9/5 1,7/6

Chewy candies 9/5 1,3/5Source: MEMRB, data for period November 2003 October 2004

In 2004, the sales of packed candies rose dynamically. Despite the increase inthe sugar price, the sales went up and its value in the period December 2003 November 2004 amounted to more than 214 mln. Candies generate 25% of thetotal sales of sweets, which has grown 24% in 2004.

3.3. Analysis of the apparent consumption dynamics

Table 3.3.1 Polish apparent consumption in euros, 2003

Confectionery Milling

Production 439.673.000 275.899.000+ Import 138.379.000 66.571.000

- Export 323.552.000 234.470.000

= Apparent Consumption 254.500.000 108.000.000

Source: Boss Rolnictwo

Poland is quite a large confectionery and milling producer and quite a substantialpart of that production is therefore exported to third countries, mainly in theEuropean Union. Part of the domestic consumption relies on the import ofconfectionery and milling products as well. This usually concerns either cheaperimports of confectionery from mainly Asia or very well known brands that are notbeing produced within Poland.

3.4. Governmental plans and programs

Poland, as a member of the European Union, has access to many communityprograms, which derive advantages for the Polish trade and production market.The best examples are the PHARE programs, realized mostly by the Polish

Agency for Enterprise Development. Due to EU membership, in November 30 th of2004 the Polish government formed in a specific strategy for cooperation withnon-European developing countries, for all sectors. However, there are noavailable documents or information about specific plans or programs for theconfectionery and milling market.



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All the general projects are conveyed through the Ministry of Economy andLabour. Especially worth mentioning is the program of Economical Promotion ofPoland, which is inclined to promote Polish expansion to foreign markets and atthe same time create a bigger absorption of foreign investments, with emphasis

on Direct Foreign Investment. Also worth mentioning is the decision made on 1 st of May 2004 by the Minister of Agriculture and Rural Development to embark on a new Program, Try Fine Foodto replace the hitherto program Polish Fine Food. The main objective of theprogram is to inform consumers of high quality food products. The program isvoluntary and open to each entrepreneur from the European Union. The logo isassigned only to those products which comply with the criteria established by theScientific Council for Food Product Quality.

The Try Fine Food logo helps the consumer to choose the most suitableproducts. Simultaneously, the objective of the Community food policy is beingpursued, i.e. expanding the range of diverse products of high quality on theCommon Market. The logo s aim is also to enhance consumer confidence in thefood product through information on its quality. It is only food producers that havea right to submit applications for Try Fine Food logo and the application is free ofcharge.

The program covers the following groups of products:1) meat and meat products2) eggs and egg products3) milk and milk products4) fruit and vegetables (including potatoes), mushrooms and preparations thereof

5) cereals and preparations thereof, including bakery goods6) fish, seafood and preparations thereof7) non-alcoholic beverages8) mineral waters9) honey10) sugar confectionary and cakes11) herbs and spices12) consumer fats and oils13) mixed and highly processed products based on the above mentioned rawmaterials

The products that are awarded the Try Fine Food logo are inspected by theScientific Committee for Food Product Quality through numerous independentcontrol bodies. For detailed information, see website www.minrol.gov.pl .

3.5. Demand in the market

Income of the population determines the demand for food and are a derivative ofthe growth in GDP, which increased by 3,7% in 2003 compared to 2002. The



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total food consumption rose by 2,5%, the average remuneration in the enterprisesector increased in real terms by 2% as well as the average old-age anddisability pensions from the non-agricultural social insurance system by 4,1%.The consumption of particular products fluctuated depending on their prices.

The most popular confectionery product is the chocolate tablet. 83% of Polesconsumes it at least once a month. 40% of this group eats chocolate at leastonce a week. About 2/3 of questioned Poles buy cookies or cakes once a monthor more frequently (61,8%) and 26,7 % buy them at least once a week.

Table 3.5.1 Consumption of confectionery products

PERCENTAGE OF CONSUMPTION OF THE FOLLOWING PRODUCTS

Once a month At least once a week

Chocolate tablets 83,1 40,1Packed biscuits 61,8 26,7

Chocolate bars 59,4 53,4

Chocolate wafers 58 47,3

Packed chocolate goods 50,4 5,8

Solid caramels 46,9 15

Pralines 34,9 13,9

Chocolate spread 26,7 35,6

Dragees and pastilles 24,6 20,8

Source: AC Nielsen, 2004

Research by SMG KRC 3 has shown that approximately 63% of consumersbetween 20 - 40 years of age reach for a candy at least once a month. Aresearch of retail panel by ACNielsen has shown that hard caramels make upabout 40% of total sales of candies (the value of sales in this category is almost

172,75 mln). Most consumers favor fruity flavor candy (51% of total sales).

The consumption of confectionery products in Poland reached a level of about8,8 kg per capita, which means that it was 2,5 times lower than the averageconsumption in the EU countries (about 22 kg). However, thanks to its largepopulation Poland is now one of Europe s largest markets in terms of the overallvalue of sales of confectionery goods. The Polish market of confectionery goodsis 5,5 times smaller than the German market and 3 times smaller than the French

3 Market and public opinion research institute



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market, which is proportionally to the per capita incomes and expenditures inthese countries.

3.6 Recommendations

It is very attractive for foreign enterprises to enter the Polish market. The foodmarket in Poland is still in progress of forming its balance and stable condition.The coming years will be the best period to invest in Poland, because now, as amember of European Union, Poland is a reliable partner and a firmly developingcountry, which has already reached a sustainable level of welfare.



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4. Competition analysis

4.1 Main trademarks available in the market

The Polish confectionery market is highly congested. There are enormousnumbers of trademarks being sold on the market. The competition is tight, hencethe market is not an easy one. The most popular brands are active in thefollowing segments: chocolate tables, bars, wafers, packed products and biscuits.

Despite the fact that Wedel, the best known Polish trademark, is now owned byCadbury, people are used to the brand and are very loyal. The favouritechocolate brands are presented in the table below.

Table 4.1.1 The most popular chocolate brands and their market share:

MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGCHOCOLATE CONSUMPTION (%)

Wedel 39,2

Alpen Gold 25,5

Milka 21,1

Goplana 17,0

Wawel 6,2

Terravita 4,6Fazer 1,7

Kinder Chocolate 1,7

Nestl 1,3

Baron 1,2

Mieszko 0,9

Nussbeisser 0,8

Nesquik - Nestl 0,6

Cadbury 0,5

Lindt 0,5

Inda 0,5

Alpen Si 0,3

Toblerone 0,2

Other 1,4Source: SMG/KRC, data TGI for period July 2003 - June 2004



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The sector of chocolate bars and wafers has reached its maturity. All the worldbest-known trademarks are present on the market and hence, the competition isstrong. This sector is very dynamic with the 20% growth in 2004. As much as60% of people interviewed by SMG/KRC declare consumption of chocolate bars.

For the past few years brands that gained the biggest popularity haven t changedtheir positions. Those are: Snickers, Mars (both produced by Masterfoods), Lion(Nestle) and 3 Bit (Kraft Foods). Slightly less, but still impressing is 58%CONSUMING consumption of the chocolate wafers. They prefer Grze ki(Kaliszanka), Prince Polo (Kraft Foods) and Princessa (Nestle).

Table 4.1.2 The most popular chocolate bars brands and their market share

MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGCHOCOLATE BARS CONSUMPTION (%)

Snickers 28,2

Mars 15,3Pawe ek 14,1

Lion 12,7

3 Bit 11,6

Twix 8,7

Milky Way 6,3

Bounty 5

Bajeczny 4,7

Alibi 2,6Source: SMG/KRC, TGI, 2004

Table 4.1.3 The most popular chocolate wafers brands and their market share

MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGCHOCOLATE WAFERS CONSUMPTION (%)

Grze ki 43,9

Prince Polo 28,1

Princessa 26,0

Kit Kat 4,4Kinder Bueno 3,8

WW 3,6

Teatralny 2,8

Knoppers 2,9Source: SMG/KRC, TGI, 2004



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Polish consumers find chocolate packed products very tasty and they are used tothe traditional Polish sweets. The most frequently chosen is Ptasie Mleczko,which is a mousse, appearing in vanilla, chocolate and caramel flavor, coveredin chocolate. The candy assortment called Mieszanka Wedlowska, a Wedel

specialty, is also very popular.Table 4.1.4 The most popular chocolate packed brands and their market share

MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGCHOCOLATE PACKED PRODUCTS CONSUMPTION (%)

Ptasie Mleczko - Wedel 20,9

Mieszanka Wedlowskie Igraszki - Wedel 11,5

Ptasie mleczko Goplana 10,8

Toffifee 7,5

Merci 7,4

Micha ki Wawel 6,4

Galaretka w czekoladzie Jutrzenka 5,9

Micha ki z Hanki 5,7

Rafaello Ferrero 5,4

Kinder niespodzianka Ferrero 4,4

Ptasie mleczko Otmuch w 4,3

Mieszanka Krakowska Wawel 4,3

Traviata Alpen Gold 4

Mieszanka Teatralna Goplana 3,9Source: SMG/KRC, TGI, 2004

The market is becoming attractive because consumers buy more of the mostexpensive and most processed cookies, which have also the fastest growingprices. The market is expanding dynamically. Delicje, jellies covered in chocolate,are the most frequently chosen biscuits. Crunchy cookies, Pieguski, with piecesof chocolate and delicacies and Jezyki, with caramel and chocolate, are the mostpopular brands among their kinds.

Table 4.1.5 The most popular packed biscuits brands and their market share

MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGPACKED BISCUITS (%)

Delicje - Wedel 35,1

Pieguski - Wedel 13,9

Wafle Familijne Jutrzenka 8,5

Jezyki Jutrzenka 8



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MOST FREQUENTLY CHOSEN BRANDS AMONG PEOPLE CONSUMINGPACKED BISCUITS (%)

Pierniczki Alpejskie Wedel 7,5

Petitki LU 4,9Pierniki Toru skie Kopernik 4,9

Delicje Duo Wedel 4,1

Pierniki w czekoladzie Bahlsen 3,7

Kruche Goplana 3,3

AHA- Sezamki 3,3

Kokosowe Lajkonik 3,1Source: SMG/KRC, TGI, 2004

The information about the most popular trademarks among candies arepresented in chapter 5.2., with the most frequently sold products.

4.2 Features of the commercialized products

Packaging is a factor that helps when choosing a product. That is why producerspay attention to the design as possible. It appears in various colors, shapes,sizes and materials. The attention of the customers is lured by marketing tricks.Young people are very open to new products. Children can be easily attracted bycolorful pictures. Colorhas a big influence on the purchase decisions. Red

increases the interest and causes the need for impulse buying. Blue and greenis fresh so is usually used for the mint sweets. Black, silver, golden and purpleare colors that indicate luxury, so they are usually designed in elegant package,especially in case of the boxed chocolates or premium segment chocolate tables.

The packaging needs to fulfill certain requirements and must contain followinginformation, given in the Polish language, while being distributed throughoutPoland:

name of the product (product named chocolate must contain at least 45%of cocoa)

ingredients, in order of decreasing quantity expiry date name of the producer, country of the product origin, and (if relevant) name

of the distributor, address and contact details, for the customer ability togather more information or complain about the product

netto weight (without packaging) or number of pieces in the package storing conditions bar code



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pictures on the packaging must be relevant to the product ingredients, forexample if the filling has its taste thanks to strawberry synthetic, and not tonatural aroma/flavor, there cannot be real strawberry fruit images on thepackaging

as from November 2005 it must contain information about substances thatmay cause allergy it is not necessary to list nutrition information, however it is recommended,

for the increase of trust in the product

If the product packaging is smaller than 10 cm2 the following information need tobe indicated:

name of the product expiry date netto weight (without packaging) or number of pieces in the package

More specific requirements regarding packaging are listed in Regulation ofMinistry of Agriculture and Development of Rural Area on labeling of foodproducts, dated on 16 th of December. For more information concerning legalcriteria for packaging, please see chapter 6.9. For examples of products andpackaging, we refer to the annexes. For prices of products, we refer to paragraph4.7.

4.3 Marketing and advertising strategies

Producers use different kinds of advertisement to draw attention to their products.The competition is severe, so expenditures on promotion and marketing are high.Brand imaging is increasingly important. Each producer is trying to create theirown unique image. One differs from another with the target group. Producerswork hard to maintain their position at any price and they keep introducing newproducts.

Interesting findings are presented by PENTOR 4 , which presents what ways ofpromotion are the most influential and best to inform customers about newproducts. Main advertising activities which have the biggest influence on thecustomers are presented in the chart below.


4 Opinion and Market Research Institute


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Chart 4.3.1 Most efficient types of advertising and promotion

77

59

32

31

26

7

5

3

0 10 20 30 40 50 60 70 80 90

Loyalty programs

Coupons in the magazines

Lotteries, competition

Recommendation by the salesperson

Product free sample

Presentation of the product in the POPs

Pricing promotion

TV, radio, press, billboards

Source: Institute for Opinion and Market Research PENTOR-Pozna , October 2004

The confectionery market requires high expenditures on advertising becausePoles are disloyal consumers. Advertisements can boost the sales even 20-30%.Marketing expenditures reach more than 5% of sales value in case of largeproducers and 1-2% for small companies. As competition grows, spendings onmarketing will continue to rise.

Table 4.3.2 TV advertising expenditures in the confectionery sector

TOTAL TV ADVERTISING EXPENDITURES (EUR)

All 111 035 262

Ferrero 25 416 049

Cadbury Wedel 19 457 841

Masterfoods Polska 10 137 967

Kraft Foods 10 011 753

Storck Polska 9 685 539

Danone 7 874 400

Nestle Polska 7 063 192

Wawel Krak w 3 789 079Wrigley's 3 070 127

Perfetti Van Melle Polska 2 142 495

Jutrzenka Bydgoszcz 1 876 194

Leaf Poland 1 826 296

Kaliszanka 1 542 385



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TOTAL TV ADVERTISING EXPENDITURES (EUR)

ZPC Mieszko 1 279 693

Chipita 1 078 556

SPPS Solidarno 948 709Lindt and Sprungli 871 586

Haribo 722 741

Odra Brzeg 676 087

ZPC Lider Artur 658 946

Greenvita Ltd. 509 181

Kr ger Polska 316 767

Other producers 79 677Source: TNS OBOP (monitoring TV) for the period January 2004 December 2004

Table 4.3.3 Advertising expenditures in the trade press in the confectionery sector

TOTAL ADVERTISING EXPENDITURES IN THE TRADEPRESS (EUR)

All 1 624 158

Solidarno 193 535

Wawel 158 670

Ferrero 155 509

Cadbury 143 949

Eurovita 143 149Fazer 119 051

Haribo 109 176

Mieszko 92 589

Nestle 85 935

Kaliszanka 67 180

Odra 48 660

Jutrzenka 46 268

Lu Polska 44 056Milano 33 898

Kruger 31 724

Other producers 146 807Source: Monitoring Trade Press 2004



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The TV commercial expenditures in the segment of chocolate, which include:chocolate tablets, pralines, bars, wafers and chocolate spread, have increased incomparison with 2003 as 7,25 mln more was spent. The main players in themarket have increased their marketing budgets. This trend is followed by

domestic manufacturers: Wawel, Kaliszanka and Solidarno .Table 4.3.4 TV commercial expenditures in chocolate sector

TV COMMERCIAL EXPENDITURES IN THE CHOCOLATESECTOR (mln EUR)

2003 2004

66,3 74

Ferrero 14,1 18,25

Wedel/Cadbury Poland 17,2 18,07

Masterfoods Polska 5,48 9,13

Kraft Foods 9,29 7,83

Nestl /Goplana 4,98 6,95

Storck Polska 3,57 3,1

Wawel Krak w 1,31 2,67

Stollwerck Polska 3,48 2,18

Kaliszanka Sp. z o.o. 0,69 1,55

SPPS Solidarno 0,09 0,95Source: TNS OBOP monitoring TV

Table 4.3.5 TV advertising expenditures of candies

TV ADVERTISING EXPENDITURES IN THE CANDIESSEGMENT AND THE ANNUAL GROWTH IN

COMPARISON WITH 2003 (mln EUR / %)

All 23,33 -30,1

Ferrero 6,38 -13,1

Storck 5,26 -15,0

Wrigley s 3,07 -38,8

Perfetti Van Melle 2,14 -21,1

Cadbury Poland 1,4 -69,1

Wawel Krak w 1,12 -34,5

Masterfoods 1,01 +5,9

Leaf Poland 0,75 +100

ZPC Mieszko 0,74 -35,2Source: TNS OBOP (monitoring TV) for the period January 2004 December 2004



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According to Expert Monitor 5 data, the highest expenditures in the chocolatesector are directed to chocolate bars and wafers. Four top advertisers are:Masterfoods, Ferrero, Nestle and Kraft Foods. Each of them spends more andmore every year to maintain its position in the market. Every year the strategy is

the same - to promote well-known brands. If producers promote a limited numberof brands, there is usually one chosen, which is supported more than the others.

A good example of focus on solely the main brands is Kraft Foods. For 3Bitadvertising in 2003 it spent 2,75 mln and in 2004 it switched to invest more inPrince Polo. The expenditure on the mentioned brand has risen from 1 mln to 3mln.

The strategy of Masterfoods is to support three best-sellers equally: Snickers,Mars and Twix. Nestle invests in Princessa, Lion and Kit Kat. Ferrero s productline Kinder expands and earns new consumers, not only children but also adults.The advertisement cost of this line reached as much as 1,75 mln, which istwice as much as in 2003. Domestic producer Kaliszanka also strongly supportsits Grze ki.

The marketing expenditures in total for the chocolate wafers and bars in 2004 areestimated to reach about 31,95 mln. The highest campaign expenses weremade by the following producers: Masterfoods 9,3 mln, Ferrero - 7,925mln, Nestle 7,2 mln and Kraft Foods 4,65 mln (according to ExpertMonitor). Detailed data is only available for 2003, as presented below.

Table 4.3.6 TV advertising expenditures of chocolate bars and wafers

TV ADVERTISING EXPENDITURES IN THE CHOCOLATEBARS AND WAFERS SEGMENT (mln EUR)

Chocolate bars 18,07

Masterfoods 5,47

Ferrero 5,05

Kraft Foods 2,76

Nestle 2,25

Danone 1,97

Wawel 0,56

Chocolate wafers 4,58Nestle 2,72

Kraft Foods 1,01

Kaliszanka 0,69

Source: TNS OBOP (monitoring TV) for the period January 2003 December 2003

Proexport Colombia

5 Media Tracking and Advertisement Monitoring Agency41


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GRP is the Gross Rating Point, the criterion for the pressure of publicity. It isidentified with the sum of the number of times that 1% of the target group is beingreached or contacts with the target groups are established.

GRP = Frequency x Reach = OTS x Coverage

Chart 4.3.7 The most effective advertising campaigns in the trade press - GRP

0

100

200

300

400

500

600

700

800

GRP

WawelSolidarnoscFazer EurovitaOdraHariboMieszkoCadbury WedelNestleFerreroKaliszankaLeaf JutrzenkaIDC PoloniaMilanoKruger Lu PolskaVan MelleMasterfoodsStorck

OY PandaBahlsenSource: SMG/KRC, RMT, 2004

OTS is Opportunity To See. This is the number of times the target audience isexposed to the advertisement and has an average contact with theadvertisement.

OTS=GRP / Reach, Coverage



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Chart 4.3.8 The most effective advertising campaigns in the trade press OTS 1+

0

10

20

30

40

50

60

70

80

OTS 1+

SolidarnoscHariboFazer MieszkoNestleWawelEurovitaKaliszankaCadbury WedelOdraLu PolskaIDC PoloniaVan MelleKruger StorckLeaf FerreroMasterfoodsJutrzenkaMilanoOY PandaBahlsen

Source: SMG/KRC, RMT, 2004

The campaigns primary medium is television. Confectionery commercials areaired on TVP1, TVP2, TVN, Polsat, TVN7, TV4, MTV and TVP3, which are themost popular channels in Poland. The advertising clips made for the purposes ofthe campaigns, promote brands and focus on the most important aspects of

sweet products. The knowledge of brand names increases with morecommercials aired on TV.

The evaluation of the effectiveness of campaigns is prepared by market researchinstitutes and thanks to that the market learns which campaigns are the mostefficient. It is easy to notice that new products are very much advertised.Television is the main channel of informing about the unique news in the portfolioof the producer. With the frequent promotional campaigns current interest in theproduct is built. Additional advertising activities are sampling and pricepromotions in the market chains. Promotions for the shops are usually gifts, freeproducts and samples.



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4.4 Participation in the market and segments that are served

The chocolate market was worth 215,25 mln in the period July 2003 June2004. The following players were present in the market in the above indicated

period.Table 4.4.1 Chocolate producers and their market share

PRODUCERS OF CHOCOLATE AND THEIR MARKET SHARE (%)


SALES VOLUMEmln Kg/%

All 215,25 34

Wedel 28,5 28,5

Stollwerck 17,1 17,5

KJS 16,3 14,5

Goplana 8,0 8,6

Privete labels 3,3 6,9

Terravita 6,6 6,9

Ferrero 7,2 3,3

Wawel 3,0 3,3

Other producers 10,0 10,5Source: MEMRB, data for period July 2003 June 2004

The sector of pralines was worth 148,12 mln. Wedel has the biggest marketshare, as presented in the table below.

Table 4.4.2 Pralines producers and their market share:

PRODUCERS OF PRALINES AND THEIR MARKET SHARE (%)

SALES VALUEmln EUR/%


All 148,12 16,6

Wedel/Cadburys 31,2 39,9

Storck 16,8 12,4

Ferrero 13,0 6,7

Solidarnosc 5,5 5,7

Goplana/Nestle 5,3 3,7

Wawel 4,2 4,7

KJS/Stollw/Olza 3,9 2,3



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PRODUCERS OF PRALINES AND THEIR MARKET SHARE (%)

SALES VALUE SALES VOLUME


mln EUR/% mln Kg/%

Jutrzenka 2,6 4,1

Mieszko 2,6 2,6

Mauxion 2,3 2,2

Vobro 2,0 1,7

Private Label 1,8 5,3

Other 8,8 8,7Source: MEMRB, data for period November 2003 October 2004

The market of chocolate bars and wafers was worth 213,12 mln. The main

players in the market are: Masterfoods, Goplana/Nestle and Kraft Foods. Theirsand other players market shares are presented in the table below.

Table 4.4.3 Chocolate bars and wafers producers and their market share

PRODUCERS OF CHOCOLATE BARS AND WAFERS AND THEIR MARKETSHARE (%)

SALES VALUEmln EUR/%

All 213,12

Masterfoods 23,5

Goplana/Nestle 22,9KJS/Stollwerck/Olza 17,7

Kaliszanka 10,3

Wedel/Cadburys 9,1

Ferrero 6,0

Wawel 4,1

Skawa 1,1

Jutrzenka 0,9

Mieszko 0,5Other producers 3,8Source: MEMRB, data for period November 2003 - October 2004

Candies market was worth 174,5 mln. Main players in terms of volume soldwere Goplana, Leaf, Van Melle and Storck. Their market shares are presented inthe table below.


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Table 4.4.4 Candies producers and their market share

PRODUCERS OF PACKED CANDIES AND THEIR MARKET SHARE (%)


SALESVOLUMEmln Kg/%

All 174,5 27 818

Goplana 9,6 14,7

Leaf 7,9 12,2

Van Melle 18,5 11,5Storck 12,9 10,9

Skawa 4,5 8,5

Mieszko Racib rz 3,5 4,8

Ferrero 10,1 3,7

Jutrzenka 2,6 3,5

Odra Brzeg 1,7 2,9Other producers 4,2 27,1

Source: MEMRB, data for period January 2004 December 2004

Hard candies are substantial part of the segment of all candies. They are verypopular in Poland and there is number of producers present on the market. Theirmarket shares are presented in the table below.

Table 4.4.5 Hard candies producers and their market share:

PRODUCERS OF HARD CANDIES WITHOUT FILLING AND THEIRMARKET SHARE (%)



All 72,6 13,2

Goplana 16,5 24,6

Storck 16,2 12,1

Wedel/Leaf 13,4 20,1

Warner Lambert 12,2 4,8

Van Melle 11,1 7,5

Wrigley's 10,7 3,2



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PRODUCERS OF HARD CANDIES WITHOUT FILLING AND THEIRMARKET SHARE (%)

SALES VALUE SALES VOLUME


mln EUR /% mln Kg/%

Odra Brzeg 3,6 5,6

Mayora 3,4 1,7

Mieszko Racib rz 2,6 4,1

Other producers 10,1 16,3Source: MEMRB, data for period November 2003 - October 2004

Sweet dragees and pastilles are becoming more popular every day. The biggestmarket share in terms of value have two producers: Van Melle and Ferrero. Butvolume-wise, the Polish producer Skawa plays the key role in the market. Themarket shares are presented in the table below.

Table 4.4.6 Sweet dragees and pastilles producers and their market share:

PRODUCERS OF SWEET DRAGEES AND PASTILLES AND THEIRMARKET SHARE (%)



All 51,9 6,4

Van Melle 40,9 28,7

Ferrero 32,8 15,7

Skawa 14,8 36,3

Master Foods 4,3 3,8

Jutrzenka 2,9 5,6


The market of cakes and cookies is worth 377,5 mln. The main player in themarket is LU Polska with more than one fourth of the market, in terms of valueand also of volume. All of the players are presented in the table below.


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Table 4.4.7. Cakes and cookies producers and their market share:

PRODUCERS OF CAKES AND COOKIES AND THEIR MARKET SHARE (%)

SALES VALUE

mln EUR/%

SALES VOLUME

mln Kg/%All 377,5 83,6

LU 27,2 26,0

Goplana/Nestle 9,2 6,3

Bahlsen/Lajkonik 8,9 10,3

Kaliszanka 8,0 6,5

Olza/KJS 7,8 5,5

Jutrzenka 7,3 8,3

Private Label 3,3 6,0

Wedel/Cadbury`s 2,7 2,0

Chipita 2,5 2,4

Skawa 2,2 2,8

Solidarnosc 1,8 1,9

Ferrero 1,8 1,0


4.5 Quality of the product

Quality of confectionery products is determined by ingredients, size, packaging,texture, flavor and color. These features are described below for chocolateproducts, cookies and candies.

The most popular among consumers are chocolates in tablets. The most popularare 100g, but they are also produced in following sizes: 70 g, 125 g, 180 g, 250g, 300g. Chocolates are also sold as pralines, so called boxed chocolates. Theyoccur in different sizes 100 500 g. The chocolate tablet is usually wrapped intinfoil and then in paper. Box of chocolates are made of cardboard paper or metaltin. Packaging is usually in the shape of box, heart, candy or coffer and iscolorful, which is to draw attention of potential customers. The name of the brandand logo are situated horizontally in most cases, so it is easier to display on theshelf. Boxes are designed to be stylish and elegant. There is usually a picture ofpralines shapes, flowers, views, occasional pictures like First Holly Communion,Christmas, Easter or Valentines. Pralines in box are sold in the same kind orvarieties. Available flavors of solid chocolates are: milk, bitter and dessert.Chocolate with delicacies: nuts, raisins and different types of filling: strawberry,



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blackcurrant, yoghurt, cherry, raspberry, kiwi, orange, pistachio, coconut, almond,toffee, coffee, hazelnut and alcohol.

Chocolate wafers and bars are sold in sizes: 23 g 60 g. Popular are XL

weights, usually of 100 g (in case of bars) and 60 g (wafers) . On the other hand,sales of light, crunchy bars is rising dynamically, which is main trend in themarket. Bars and wafers are impulse purchases and colors used for thepackaging are to draw attention and cause hunger. The colors are very warm andinstant: red, yellow, orange, brown. Beside chocolate (milk and white), the baroften contains wafer, caramel, peanuts, different delicacies or biscuit.

Cookies occur in various shapes, sizes and flavors. There are several types ofcookies on the market: biscuits, sponge cakes, crunchy cookies, cream-filledbiscuits, gingerbread. The most popular in Poland are Delicje, jellies on thebiscuit, covered with chocolate. They are sold in different sizes. Desired weightcan be bought after asking the sales assistant in the shop.

Candies are sold as hard caramels, solid or with filling, sweet dragees, jellies,toffee, coffee and milk candies, chewies and lollipops. The most popular flavorsare fruit: lemon, orange, strawberry, blackberry, apple, cherry, grapefruit, lime.More popular become herbal, vitamin, mint candies and sugarfree ones. Latelylaunched, sour and fizzy candies are perceived as very attractive by children.They are usually sold in bags 50 g, 100g, 125 g, 150 g and in the paper or foliowraping of 20 - 50g. It is also possible to buy them in the desired amount withhelp of sales assistant in the shop.

4.6 Expansion plans

Every year there is a set number of new products introduced to the market. Themain trend on the Polish market is the launch of new products that are attractiveto children. A healthy lifestyle is becoming more and more a way of life for thePoles. This generates the need for the fresh, herbal and sugarfree sweets.

Expansion plans of each company are confidential. However, the main trends inthe market indicate the direction companies are going to follow. The market iscongested so it is likely to happen that small local companies will merge andconsolidate to gather a bigger market share. Jutrzenka has bought the Goplanaplant and brand from Nestle, which is, after Wedel, the second best-known Polish

trademark among confectionery products. The products of Goplana andJutrzenka are complimentary, so the merged company will play an important roleon the confectionery market in each segment. It has already benefited from thesynergy effect.

The market of confectionery products is rising about 10% a year. It is going togrow continuosly, since Pole consumption of chocolate products and cookies isstill much lower than that of the average EU citizen.



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4.7 Pricing strategy

For consumers, price seems to be the most decisive factor, while quality andbrand are less often taken into account. The market is not a homogenous one

and experts divide it into three segments: 1) luxury products, with high prices,from such companies as Dove and Lindt; 2) the crowded middle with, Milka,Terravita, Wedel s Jedyna; and 3) the cheapest, products from several smallregional Polish manufacturers and hypermarkets private labels. The pricecompetition is very severe.

Table 4.7.1 Prices of confectionery products in hypermarkets

PRICES OF CHOCOLATE PRODUCTS (EUR) IN DIVISION INTO PRICESEGMENTS

Product level High Middle Low

Chocolate slabsLindt, Wedel

Maestria Milka, Alpen Gold Private labelPrice / 100g 1-1,5 0,5-0,75 0,25-0,5

Box ofchocolates

Lindt, Wedel Serce Wedel Pasjonata,Merci Mieszko

Price / 200g 7,5-12,5 2,5-7,5 0,75-2,5

Candies Nestle Quality Street Nimm2, Fruittella Leaf HOPS, GoplanaBrando

Price / 150g 1-2,5 0,5-1 0,25-0,5

Lollipops - Chupa Chups,

Alpen LiebePrivate label

Price / piece - 0,125-0,25 less than 0,125

Chocolate wafer Princessa, PrincePolo Wawel Private label

Price / 100g 0,5-0,75 0,25-0,5 0,125-0,25

WafersLoacker Buon

Giorno, Wedel TorcikWedlowski

Wedel, LU Mieszko, Wawel,Jutrzenka

Price / kg 7,5-12,5 3-7,5 2-3

Chocolate bar Snickers, Alibi, Milky Way, Pawe ek, Lion,3Bit Private label

Price / 100g 0,5-1 0,25-0,5

Cookies Je yki, Delicje Pieguski, Hit Jutrzenka,Solidarno

Price / kg 5-7,5 3-5 1,5-3Source: individual elaboration in the hypermarkets



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There is a huge increase in the number of hypermarkets private labels products. Although the main criterion of choosing sweets is still the price factor, peoplemore often reach for the better quality products. The brands are very important,which is a matter of good marketing and information strategy. In this market

children s preferences are substantial. Very often they are the decision makersand hence have a big influence on the purchases.

4.8 Segmentation of enterprises by sectors and itscategorization

Privatization of Polish companies and Greenfield investments have led to thedomination of foreign manufacturers on the Polish market. The process startedwith the privatization of Wedel, Poland's largest confectionery factory. LaterNestle bought the second biggest plant, Goplana in Pozna . In 1992 Mars Inc.

spent 100 million on constructing a factory. In 1994 Cadbury opened a factorynear Wroc aw and Stollwerck opened one near Pozna . The State Treasury soldthe Olza factory in Cieszyn to KJS (Kraft Foods) and Gda sk's Ba tyk to Fazer.

Few Polish factories were able to withstand such competition. Those whichsurvived hold strong positions on regional markets or manufacture nicheproducts. The four most important of them are Jutrzenka, Mieszko and Wawel, allquoted on the Warsaw Stock Exchange, and Greenvita.

Most important players in the chocolate confectionery market

Cadbury Wedel Sp. z o.o.

Location: WarsawBeginning of activity: 1851 (Wedel), 1999 (Cadbury Wedel)Number of employees: 1250Turnover: 128 886 500Website: www.cadburywedel.pl

When the Wedel chocolate factory was sold to Cadbury Schwepps in 1998, thiscaused a great sensation. Wedel is a symbol of delicious treats and nearlysacred national treasure. Poles have been consuming Wedel products since1851.

Before World War II, Wedel had shops in London and Paris. Since 1991 thecompany was gradually bought out by PepsiCo. But PepsiCo decided to sell onefactory to the Finnish company Leaf and then the chocolate factory to Britain sCadbury and the cookie factory to France s Group Danone (that owns LUPolska). The company made the decision despite the fact that those plants wereprofitable. The production of sweets is not PepsiCo s specialty and the companyneeded to focus on producing soft drinks and salty snacks in Poland.



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Cadbury has not yet achieved success in Poland, despite an investment of 40 million in its own chocolate factory. Poles don t like the British chocolate asmuch as those from Wedel. As a result, in 1998 Cadbury owend less than 3% of

the chocolate market, while Wedel had 24%. The takeover of the plant and to theuse of Wedel s name enabled Cadbury a great expansion.

Portfolio: all types and flavors of chocolate tablets; pralines: Pasjonaty Deserowe,Pasjonaty Mleczne, Serce, Chopin, S odkie Serduszka, Avanti, Maestria andBary ki; bars and wafers: Rekord, Pawe ek, Bajeczny, WW, Smyk and Pierrot;packed choolate products: Wedlowskie Ptasie Mleczko, TorcikWedlowski andMieszanka Wedlowska.

Kraft Foods Polska S.A.

Location: WarsawBeginning of activity: 2004Number of employees: 700Turnover: EUR 180 407 500

Kraft is part of the world leading producer of food products, Kraft Foods. InPoland it has been operating since 1992. It bought Olza in 1999 and Stollwerck in2002. It owns the following brands: Milka, Prince Polo, 3Bit, Alpen Gold,Nussbeisser, Maxi, Mleczna Kraina and B bolada; pralines: Verdi and Traviata

Nestle Polska S.A.

Location: WarsawBeginning of activity: 1993Number of employees: 2000Turnover: EUR 387 642 500Website: www.nestle.pl

Nestle operates on the Polish market since 1993. It has taken over Goplana,after Wedel, the best known Polish brand. However, in 2004 it has decided to sellGoplana to Jutrzenka and focus on strategic brands, which are: Crunch,Smarties, Classic; bars and wafers: Princessa, Lion, Kit Kat, Nesquik, Cini-Minisand Chocapic.

Masterfoods Polska Sp. z o.o.

Location: SochaczewBeginning of activity: 1991Number of employees: 1290Turnover: EUR 278 447 500Website: www.masterfoods.pl



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Masterfoods is less known on the chocolate market, but it is the unquestionedleader in the chocolate bar segment with its Snickers and Mars bars. It has builtits own sweets and pet food factory 50 km from Warsaw. Its portfolio consists of:

bars and wafers: Snickers, Mars, Milky Way, Twix, Bounty, Dove, No name;dragees: M&Ms, Skittles and Starburst; chocolate spreads: Snickers and MilkyWay.

Fabryka Pieczywa Cukierniczego Kaliszanka Sp. z o.o.

Location: KaliszBeginning of activity: 1892Number of employees: 510Turnover: EUR 34 129 000Website: www.kaliszanka.com.pl

Kaliszanka owns the best known wafers brand in Poland: Grze ki and biscuits:BeBe, Petit Beure, Ma lane

Zak ady Przemys u Cukierniczego SKAWA S.A.

Location: WadowiceBeginning of activity: n.a.Number of employees: 1038Turnover: EUR 26 500Website: www.skawa.com.pl

It produces wafers: Elitesse and dragees: Korsarz.

Zak ady Przemys u Cukierniczego Wawel S.A.

Location: Krak wBeginning of activity: 1926Number of employees: 982Turnover: EUR 35 644 250Website: www.wawel.com.pl

It produces solid and filled chocolate tablets, light chocolates; pralines: Kasztanki,

Malagi, Tiki Taki, Micha ki Zamkowe and Bu awka; chocolate bars: Danusia,Maciek.

Przedsi borstwo Cukiernicze JUTRZENKA S.A.

Location: PoznaBeginning of activity: 1922Number of employees: n.a.



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Turnover: EUR 45 500 000Website: www.jutrzenka.com.pl

Its target are consumers who have a lower dan average income. It recently

bought Goplana from Nestle. Wafle Familijne is the best brand sold by Jutrzenka.It also offers chocolate wafers and bars: Alibi, Apetit, Amiko; cookies: Petit-Beurre, Elitki, Zwierzaczki, Je yki, Kokosowe; jellies: Gumolki, D o, Serduszka,Mi ki.

Zak ady Przemys u Cukierniczego MIESZKO S.A.

Location: Racib rzBeginning of activity: 1993Number of employees: 800Turnover: n.a.Website: www.mieszko.pl

Main products are pralines: Klejnoty Premium, Klejnoty Classic, Espresso,Momento, Bellissima, Tw j Sekret, La Stella; candies: Michaszki, Trufle; jellies:Duet, Solo, Rajska Pla a, Zozole, Yolobo, Vitto and wafers: Mi e Chwile.

TERRAVITA Sp. z o.o.

Location: PoznaBeginning of activity: 1998Number of employees: 300Turnover: EUR 20 269 250

Website: www.terravita.pl

Terravita is 60% owned by Polish capital. It offers chocolate: Amaretto, Advocat,Kawowa, Serduszka, Andrzejki, Natchnienie; occasional chocolate figures forChristmas and Easter. It also produces sauces for ice cream in several flavorsand chocolate spread.

Lindt & Sprungli Poland Sp. z o.o.

Location: WarszawaBeginning of activity: 1993

Number of employees: n.a.Turnover: n.a.Website: www.lindt.com

It offers chocolate products from the premium segment: Excellence, Gold, alcoholfilled; pralines: Lindor, Swiss Tradition, Nouvelle Confiserie, Fioretto, PetisDesserts.



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Ferrero Polska Sp. z o.o.


Number of employees: 750Turnover: 42, 5 millionWebsite: www.ferrero.com

It produces Nutella chocolate spread; bars and wafers: Kinder Niespodzianka,Kinder Bueno, Kinder Country, Kinder Pingui, Kinder Delice; pralines: Rocher,Mon Cheri, Rafaello and dragees: Tic-Tac.

Firma Cukiernicza Solidarno Sp. z o.o.

Location: LublinBeginning of activity: 1952Number of employees: n.a.Turnover: n.a.Website: www.solidarnosc.pl

It offers pralines: Z ote, Golden Hazelnut, Golden Advocat, Almondo, ChocoChoco, Wi nie w likierze.

Most important players in the milling market

The baked goods market is also dominated by foreign companies, which eitherhave taken over Polish plants (Bahlsen, Nestle, Kraft, United Biscuits) or have

built their own factories (Danone). Of the main producers, only Jutrzenka, Waweland Kaliszanka are owned by Polish capital.

LU Polska

Location: WarszawaBeginning of activity: 1999Number of employees: n.a.Turnover: n.a.Website: www.lupolska.pl

It produces cakes: Delicje Szampa kie, Delicje Impresje, Pieguski, Petitki, PetitkiDzie Dobry, akotki, Pierniczki Alpejskie, Pyszotki San, golden wafers Danone.

Thie Lorenz Bahlsen Snack-Wols Sp. z o.o.




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Number of employees: 100Turnover: n.a.Website: www.lorenzsnack-world.pl

It is owner of Lajkonik, Bahlsen, Hit and Leibniz.Most important players in the sugar confectionery market

Mieszko

The company has been described above.

It is one of the most important player in candies sector. It produces Fruits Frutisand famous Zozole.

Leaf Poland Sp. z o.o.

Location: WarszawaBeginning of activity: 1991Number of employees: n.a.Turnover: EUR 17 109 750Website: www.leaf.pl

It produces hard caramels and jellies HOPS!, Bomba, Mython pastilles, halvaKr lewska, sesame AHA!, Chupa Chups lollipops.

Perfetti van Melle Sp. z o.o.

Location: TarczynBeginning of activity: 1993Number of employees: 430Turnover: 36 057 750Website: www.perfetti.com

It offers Fruittella, Mentos, Alpen Liebe and Golia.

STORCK Sp. z o.o.

Location: WarszawaBeginning of activity: n.a.Number of employees: n.a.Turnover: n.a.Website: www.storck.plIt offers Werthers Original, Nimm2, Ice Fresh, Riesen, Mamba; pralines: Merciand Toffifee; wafers: Knoppers.



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Przedsi biorstwo Wyrob w Cukierniczych ODRA S.A.

Location: BrzegBeginning of activity: 1946

Number of employees: n.a.Turnover: n.a.Website: www.odra.com.pl

It offers hard caramels : Mini Owocowe, Le ne, Landrynusy, Cytruski, Tropic; jelly in chocolate: Opolanki, candies: Micha ki Piastowskie and Trufle, pralines:Bon Voyage, Elegancja; Sesame Halva.

Cloetta Fazer Polska Sp. z o.o.

Location: Gda skBeginning of activity: 1993Number of employees: 450Turnover: EUR 21 905 250Website: www.fazer.com.pl

It offers candies: Dumle, Geischa, Liqueir Fills, Fazer Mint, Fantazja and Fazerchocolate tables.

4.9 Recommendations

The Polish market is very congested and full of players: domestic as well asinternational. All main world leading companies have an establishment and soare numerous Polish producers. Lack of space does not mean there is no chanceto enter the market.

The product, however, needs to offer unique values, be interesting and besupported by suitable marketing strategy. Moreover, the market is being shapedby retailers, discount opportunities and a rapid turnover of goods. It is verydifficult to fulfill expectations of such markets, but thanks to a good concept,imagination in advertisements and promotion, it may bring in large profits. Thebiggest chances to success have those companies which find their niche in themarket and strengthen their image and products position.

Poles are very demanding n

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