Think of the most sophisticated retail grocery markets in the world and Hungary probably does not immediately spring to mind. But of the 10 new states that swelled the European Union's (EU) food market to euros 600bn on May 1, Hungary is not only the most advanced producer, but also the venue for a turf war between more than a dozen leading global chains that are changing the culture of food consumption in central Europe and opening the doors to processors.
Yet, while Tesco, with 62 outlets across the country, is the leading multiple retailer and Jamie Oliver is the only celebrity chef to have successfully infiltrated this far into the former eastern bloc, UK manufacturers may find they are at the end of a very long queue when it comes to sharing in the £5.4bn Hungarian food market. Since 1990, when the communist era ended, foreign investment -- mainly in strategic processing of milk, sugar, tobacco and vegetable oil -- has bought up nearly half of the Hungarian food industry. The Germans were among the first on the beach with their towels, swiftly followed by the Dutch, the Danes and the Italians.
"A lot of people felt they had to be in there before the barriers came down so they could position themselves," says Matthew Nash, head of new market development in central Europe for Food From Britain (FFB), that is organising a trade mission to Hungary in September. "The British were more pragmatic. There might be an argument for saying we were slow, but an awful lot of people have done a lot of business in central and eastern Europe and made very little money. There have been a lot of mistakes."
Despite the warning, he says there's plenty of room for the Brits to raise a parasol. If ever there was a time to cast off that characteristic caution, it's probably now.
As the vast, denationalised Hungarian countryside empties and the number of double income families in the towns increase, working women, who have travelled and been exposed to more food cultures in the last 10 years than any previous generation, are opting to spend less time in the kitchen. And while a native pride in food preparation means the seven-minute meal is still some way off, opportunities for western manufacturers are nevertheless growing in line with disposable income, although Nash points out that the market is still immature.
"People think we will go bowling in there with these fantastic convenience products, but consumers are really not that interested," he says.
Emesé Danks of Tesco Hungary agrees: "There is nothing to compare with Tesco's Finest or Marks & Spencer's ready meal range in Britain, although we do have some partly prepared meals under our own label. The market is just not ready."
Tesco sources 90% of its own-label product from Hungarian-based manufacturers and 80% of all lines from within the country. "We aim for Hungarian companies because we believe local tastes need local suppliers," says Danks.
In fact, of the three new eastern bloc entrants, including Poland and the Czech Republic, Hungary is probably the most traditional in its culinary habits.
James Napier of Montgomery Exhibitions, which is organising the first IFE Hungary in Budapest next February, says the market has developed rapidly since the fall of the Soviet system. "But it would be wrong to see the Hungarians as being the same as the Poles and the Czechs -- it's very different. Food from Hungary, for instance, is a very strong brand."
Launched by the government in 1998 the Food from Hungary label is testament to Hungarians' fierce consumer loyalty for "food from Magyar" and their sometimes overt resentment of foreign investors, no doubt fuelled by the closure of two major processing plants just months after acquisition.
Healthy eating is another niche. With one of the highest incidence of heart disease in Europe, the Hungarian government has invested heavily in a health promotion programme and consumption of fresh fruit, yoghurts and water has increased as a result. Alongside its value and own-label ranges, Tesco recently introduced a 'fit' label covering 'better for you' products. "Consumption is not as high as it is in the UK, but there is measurable change," says Danks.
While the promised nirvana of low wages and cheaper capital is still proving an irresistible draw for prospective investors to Hungary, times are changing, according to David Joll, md of Norfolk-based turkey processor Bernard Matthews which is one of Hungary's largest private employers. As in the UK, its vertically integrated business includes farms, rearing units, feed mills and a factory complex in Sarvar supplying fresh and value-added turkey products to Hungary, the Czech Republic, Poland, Croatia, Germany and Italy.
"A lot of the barriers to trade have been removed with accession to the EU. In the 10 years that we have been here we've had to live with the difficulties of borders and Hungary's own restrictions, including levies on food ingredients entering the country," says Joll. "All that's gone."
He fully expects the wage bill for his 2,500 staff to increase as Hungary is welcomed into the European family. "But no one really knows what type of inflationary pressures are going to be exerted. There's significant inflation in the former East Germany, but wages are still a long way behind those of western Germany."
More important for Joll is the ready supply of labour. "In Norfolk and Suffolk unemployment is running at 1.5% -- we've just run out of people," he says.
He believes British investors must take a long-term view. "You need to get to know the culture, get the training right, overcome the language barriers and teach people new practices. All that takes time and although we have made progress it is somewhat slower than it would have been in East Anglia."
FFB's Matthew Nash says the wisest investors will be eyeing up the competition in Hungary in preparation for acquisitions or joint ventures. Grampian Country Foods, whose chairman Fred Duncan accused the government earlier this year of having no appetite for a food supply base in the UK, is just one considering expanding into eastern territories to supply near markets with fresh and processed meat products.
Like other British investors, Grampian has the advantage of already operating to EU food law and while the Hungarian government was first among the new EU countries to establish a Food Safety Office and has already made hazard analysis and critical control points (HACCP) obligatory, the number of domestic producers that can claim to meet the same export quality standards are still in the minority. "A lot of them are going to go out of business," says Nash.
While opportunities for growth are significant, barriers to entry can be correspondingly daunting -- not least is the language. "At senior level most people do speak English, but once you enter a factory or go on to a farm it's very rare to find anyone else who does," says Joll.
Modern Hungry is also struggling to throw off a 'grey economy' inherited from the Soviet era, which pervades all levels of politics and much of business. Financial structures are poor and access to capital limited. Market entry can also be expensive.
"In central Europe you are now looking at the most developed retail industry in the world and the most modern. Listing fees and all the best practices in Europe are present. To establish a brand on shelves is very expensive," says Nash. "That said, there are very significant opportunities because the positions in major categories are generally occupied by products of very low quality." FM
Food Manufacture's Guide to Hungary
GDP/headeuros 11,900 (51% of EU average)
Gross food production euros 8.3bn
Food processing employment share4.7%
Processed food exports (% of total output)20%
Red meat (on the bone)295,000t
(The Hungarian Agriculture and Food Industry figures 2003, Ministry of Agriculture and Rural Development)