In Focus

Losing ground?
THE FIGHT FOR HUNGARY’S ALCOHOL CONSUMERS

WRITTEN BY Kristen Schweizer

The Hungarian alcohol market saw better years than the one it experienced in 2004, which was was plagued by several negative trends regarding competition from abroad - owing to Hungary’s European Union accession. While admission to the EU bloc brought falling prices on some alcohol imports and an abolition of customs duties, it also meant tougher competition in the spirits, wine and beer sectors.

The gloomy picture today is that fewer Hungarians are purchasing spirits, wine producers are losing their export markets and beer producers are losing ground to German canned beer imports. The following is a run-down on how 2004 proved to be a year of learning and adapting for many alcohol producers in Hungary.

BUMPER CROP, YET WINE EXPORTS SUFFER
Hungary’s wine industry was the most active alcohol market in 2004. The year was marked by an unusually large harvest, major funding from the EU for structural improvements and a historic agreement between Hungary and Slovakia over the Tokaji brand name – the most famous white wine produced in Central and Eastern Europe. Yet the market continued to be plagued by marketing problems, which hampered wine exports. The latest announcement from Hungary’s wine industry came in late November, when EUR 10 million was announced in EU subsidies for structural improvements, said Diána Sidlovits of the National Council of Winemakers (HNT), a national wine producers’ group. Subsidies are based on the size of Hungary’s vineyards before EU accession, which totaled 1,261 hectares, she said, and funding translates into EUR 8,000 per hectare of vineyard. “The aim is to adjust the wine offer to the demand of the wine market,” Sidlovits said. “We can also obtain from this aid, [wine] promotion in the EU and in third markets. The wine sector can profit from the rural development programs as well: integrated grape wine production, modernization of the wine production and grape transformation, development of the product sale associations, etc.” Hungary’s 2004 wine harvest was 25% higher than in the past few years, at 680,000 tons of grapes picked or 4.5 million hectoliters of wine produced, Sidlovits said. By comparison, 2003’s harvest was 3.8 million hectoliters and 2002 came in at 478,000 hectoliters.

Despite 2004’s bumper crop, a lack of proper marketing meant less Hungarian wine was exported compared to the last two years. The HNT announced it expected wine exports to fall in 2004, in light of less money being spent on winemakers’ marketing initiatives. In 2002, 890,000 hectoliters of wine were exported, but by 2003 this figure fell to 743,000 hectoliters. Estimates were for an annual export of 700,000 hectoliters of Hungarian wine in 2004.

LOSING MARKET SHARE
While Sidlovts said the domestic market remained relatively stable in 2004 and absorbed about 3 million hectoliters of wine, exports have shrunk for the past seven years. “We can especially look at eastern markets like Russia, Ukraine and Belarus, but in general this is because of great competition in the world wine market.” She added that Hungary lost half its market share in Great Britain as well. According to an interview in NOVIS Food & Beverage News, wine industry expert Csaba Horváth said Hungary is the only EU country to levy taxes on wine exports, and often overprices it against the competition. Additionally, the Hungarian Government allocates little monies toward promoting Hungarian wines, around EUR 800,000 annually, which pales in comparison to the budgets of other major wine exporting nations, he added.

Aside from wine produced in the Tokaj region, in northeastern Hungary – sweet, white wine famous throughout much of the world – other Hungarian wines are little known.

On June 13, 2004, the geographic identity of Tokaj wine became clearer when the governments of Hungary and Slovakia signed an agreement in which Hungary acknowledged Slovakia’s right to the name “Tokaji” for white wine produced on 565 hectares in hills near its border with Hungary. Under the decision, 85% of the Tokaj region is in Hungarian hands and 15% in Slovakia. The dispute between the two countries had existed ever since the Tokaj wine region became part of Czechoslovakia when the Austro-Hungarian Empire broke up in 1920. Since Slovakia became a democracy of its own in 1989, Slovaks used the Tokaji name for wines produced in their Tokaj region, but with no formal agreement.

CHEAPER SPIRIT IMPORTS
Hungary’s liquor industry experienced a 13% decrease in sales to EUR 48 million during the first nine months of 2004, compared to the same period last year. The volume of household purchases for the first nine months was 75,000 liters. One reason for the decline, according to local research firm GfK Hungária, is a fall in the number of families consuming spirits. The decline in purchases is contrary to anticipated rises in consumption prior to Hungary’s EU admission last May. EU accession meant an abolishment of tariffs on European spirits, which resulted in a 20%-30% reduction on the price of well-known imported brands. Customers’ duties of 34% on alcoholic beverages from the EU were waived while duties on spirits imported outside the EU remained at 68%. One example of this was German digestive drink Jägermeister, which is now 30% cheaper in Hungary. Jägermeister’s price decrease narrowed the price gap between its Hungarian rival, Unicum. Prices on Johnnie Walker whiskey also fell 20% and Bailey's Irish Cream dropped 15%-17%.

STILL CONSUMING
One aspect unchanged, however, is buying frequency. During Jan.-Sept. 2004, Hungarian households purchased spirits seven times in mostly discount stores, in line with purchases during the same period a year prior, GfK said. András Nagy, president of the Hungarian Distillers Association, said the average Hungarian spirit drinker consumes 3.4 or 3.5 liters of liquor annually, with consumers more focused on price rather than quality. Current priorities for some member companies of the alliance, Nagy said, include a focus on marketing activities. Zwack, for example, is now promoting its Zwack Unicum Next drink, which has lower alcohol content and is aimed at younger drinkers. The association is also promoting Unicum abroad, Nagy said, along with marketing pálinka within the EU. “Pálinka is not really well known abroad now, but we are working on it,” he said.

Alcoholism rates jump further in Hungary After several years of decline, Hungary, with its population of 10 million, has again become a world leader in alcoholism rates. Using a computation of liters of alcohol consumed per person annually, Hungary is among the highest globally at 11.2 liters of alcohol on average consumed per person annually, said Béla Buda, director of Hungary’s National Institute for Drug Prevention. “Yet these rates reflect only official production and sales data,” he said. “Reliable data about the illegal home production and smuggling of alcoholic beverages is not available, despite many signs of the availability of large quantities.” Hungary had an estimated 588,000 alcoholics in 1990, of which 58,350 ended up seeking help or treatment in some form. By 2002, the estimated number of alcoholics jumped to 800,000, of which 38,433 sought treatment.
Hungary also has one of the highest death rates from liver cirrhosis, behind Russia and Ukraine, Buda said. During the 1980s, alcoholism rates in Hungary grew at the fastest pace worldwide, which began to force the government’s hand in addressing the disease. The rapidly rising rate of alcohol consumption in the 80s was fueled by an increasing number of women and youth with drinking problems. About 120,000 children lived in families in which one or both parents were heavy drinkers, and reports surfaced of youth gangs drinking in Budapest subway stations. While alcoholism today is rampant among Hungary’s older population, particularly in isolated hamlets and settlements in southeastern Hungary, a notable increase has been registered in Hungarian teens, Buda said. Recent surveys show high rates of binge drinking among 16-year-olds, along with high levels of smoking. “I think a lot of this can also be contributed to the fact that Hungarian culture is very permissive to drinking,” Buda said. It is not difficult to find bars keeping very late or very early morning hours for customers, in addition to non-stop pubs scattered across major cities.