Voluntary Report - public distribution

**Date:** 12/19/2006

**GAIN Report Number:** BU6016

BU6016

**Bulgaria**

**Market Development Reports**

**Consumer Food Service Market**

**2006**

**Approved by:**

![](media/image1.wmf)Susan Reid

US Embassy

**Prepared by:**

Julia Vulkova

**Report Highlights:**

Prospects for the consumer foodservice industry in Bulgaria are bright
and interesting. Although at slower rates, the market will continue to
develop and high value sales will grow. Competition will be the main
driving force with EU accession. The two categories likely to experience
the fastest growth in 2007 are fast food, and food preparation for home
delivery.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Sofia \[BU1\]

\[BU\]

[Executive Summary 3](#executive-summary)

[Key Trends and Developments 4](#key-trends-and-developments)

[EU Accession Impact on The Consumer Food Service Industry
4](#eu-accession-impact-on-the-consumer-food-service-industry)

[Tourism Industry Influence on Consumer Foodservice Sector
4](#tourism-industrys-influence-on-consumer-foodservice-sector)

[Banking System To Facilitate Investment in Consumer Foodservice
Business
5](#banking-system-facilitates-investment-in-consumer-foodservice-business)

[Anti-smoking Regulations 5](#anti-smoking-regulations)

[Market Situation Overview 5](#market-situation-overview)

[Home Deliveries 6](#home-delivery)

[Market Indicators 7](#market-indicators)

[Table 1 Consumer Expenditure on Food in Retail 2000-2005
7](#table-1-consumer-expenditure-on-food-in-retail-2000-2005)

[Market Data 7](#market-data)

[Table 2 Units, Transactions and Value Sales in Consumer Foodservice:
2000-2005
7](#table-2-number-of-outlets-transactions-and-value-sales-in-consumer-foodservice-2000-2005)

[Table 3 Units, Transactions and Value Sales in Consumer Foodservice: %
Growth 2000-2005
7](#table-3-number-of-outlets-transactions-and-value-sales-in-consumer-foodservice-percentage-growth-2000-2005)

[Table 4 Consumer Foodservice Independent versus Chained Outlets:
Units/Outlets 2005
7](#table-4-consumer-foodservice-independent-versus-chained-outlets-number-of-outlets-2005)

[Table 5 Food versus Drinks Split 2005
8](#table-5-food-versus-drinks-share-of-total-sales-2005)

[Table 6 Sales in Consumer Foodservice by Location 2000-2005
8](#table-6-sales-in-consumer-foodservice-by-location-2000-2005)

[Table 7 Forecast Units, Transactions and Value Sales in Consumer
Foodservice: 2005-2010
8](#table-7-forecast-number-of-outlets-transactions-and-value-sales-in-consumer-foodservice-2005-2010)

[Table 8 Forecast Units, Transactions and Value Sales in Consumer
Foodservice: % Growth 2005-2010
8](#table-8-forecast-number-of-transactions-and-value-sales-in-consumer-foodservice-growth-2005-2010)

[Table 9 Leading Chained Consumer Foodservice Brands by Number of Units
2005
9](#table-9-leading-chain-consumer-foodservice-brands-by-number-of-units-2005)

[Table 10 Chained Consumer Foodservice Company Shares 2001-2005
9](#table-10-chain-consumer-foodservice-company-shares-2001-2005)

[Table 11 Chained Consumer Foodservice Brand Shares 2002-2005
10](#table-11-chain-consumer-foodservice-brand-shares-2002-2005)

# Executive Summary

The consumer foodservice industry in Bulgaria continues to grow. To some
extent, the development of the market has been restrained by record high
oil prices and, ironically, countless government laws aiming to raise
the level of the industry to EU standards.

Tourism will continue to play a key role in the expansion of the food
service industry in Bulgaria. The vast majority of new food outlets are
opening in the most popular tourist destinations.

Specialist coffee shops performed notably well in 2005 and 2006. The
Onda Coffee Break chain represents almost the entire sub-sector.
Starting from nothing in 2003 it developed a completely new idea for
Bulgaria and turned it into a profitable business. Since foreign
companies are slowing beginning to enter the market, Onda Coffee Break
will face significant competition for the first time in 2007.

Pizza outlets keep growing. Pizza full-service restaurants and for home
delivery in particular have performed well in the last few years.
Independent outlets continue to grow in popularity.

Burger fast food outlets are in decline. McDonald's, which suffered a
tough year 2005 around the world, reached its peak popularity in
Bulgaria in 2002.

Other fast food outlets, both the chains and independents, showed little
growth. The main factor in this trend is probably rising disposable
incomes which are leading consumers to switch to full-service
restaurants.

The future for the consumer foodservice industry is promising, although
the market will develop at slower rates. New competition and EU
regulations will drive changes in the industry over the next several
years.

###  

# 

# Key Trends and Developments

## EU Accession Impact on The Consumer Food Service Industry

As of 1 January 2007 when Bulgaria will become a full member of EU, the
consumer food service industry will be affected by the very strict
international requirements for food safety and hygiene. Multinational
companies and some domestic companies are already in compliance;
however, some are having difficulties meeting EU standards. The main
reason is the lack of sufficient financial resources for repairs and
improvements, and for training.

A large number of outlets and food producers still do not apply the
HACCP (Hazard Analyses and Critical Control Points) system used in
Europe. Once Bulgaria joins the EU, all producers and traders in the
food industry must comply with EU requirements. Bigger companies cannot
afford to fall behind the requirements and many or most have already
adopted the necessary standards, but medium and small businesses
generally have yet to raise their quality levels.

The first few years after EU accession will be crucial because of the
expected increase in competition from EU firms. The business environment
is expected to become more diverse, transparent and well-regulated,
giving clearer direction and a greater degree of certainty to existing
and potential players. The harmonization of local legislation with EU
laws will reduce bureaucratic procedures for opening big chain outlets
and will make the Bulgarian market more attractive for multinational
players.

EU membership will also engage the Bulgarian government in maintaining a
stable political and economic climate -- another reason for foreign
firms to expand their investments in the country.

The majority of independent operators in Bulgaria run small single owner
businesses, lacking significant capital for investment. They are not
famous for hygiene and quality monitoring standards, but mostly rely on
affordable prices for popular local dishes. Meeting EU requirements will
raise their costs and will force them to raise prices. It is expected
that some firms operating mainly full-service restaurants, self-service
cafeterias and street kiosks will exit the market.

## Tourism Industry's Influence on Consumer Foodservice Sector

Tourism is one of the fastest growing Bulgarian industries. In 2005 more
than 4.5 million tourists visited the country. Every resort witnessed
mass construction of hotels and recreational facilities intended to
accommodate not only local but also an increasing number of foreign
tourists. The development of the tourism business has had a particularly
strong effect on fast food outlets, street kiosks and restaurant
expansion.

The vast majority of the newly opened outlets are situated in the most
popular tourist destinations. Approximately 70 percent of foreign
visitors eat at restaurants -- a major factor in the development of
full-service restaurants. Growth in the number of hotels has increased
the number of restaurants since almost every hotel has a restaurant.

Tourism is expected to continue to expand. As an EU Member State,
Bulgaria will become even more attractive for tourists from all
countries. More foreign tour operators will include Bulgaria in their
catalogues, as the country is considered a relatively inexpensive
tourist destination suitable for \"all inclusive\" programs.

# 

# 

# Banking System Facilitates Investment in Consumer Foodservice Business

Banks have increased their lending to small and medium enterprises. Many
banks offer favorable credit terms for individuals or entrepreneurs who
wish to improve or establish their own business.

The stability of the national currency has supported increases in the
overall purchasing power of Bulgarians, and the macroeconomic climate
has attracted investment from both foreign and domestic companies. The
stability of the banking system has facilitated the construction of
buildings, which has influenced the expansion of restaurants, fast food
outlets, cafés and street kiosks.

Although many restaurant and café/bar businesses do not possess
substantial assets due to the nature of their business, the competition
between banks will make credits more accessible to businesses from the
consumer foodservice industry.

## Anti-smoking Regulations

Bulgaria is among the countries in Europe with the highest number of
smokers. Steady increases in cigarette prices, health warning labels on
packages, and prohibitions on advertising tobacco products are just some
of the government's efforts to reduce smoking.

On 1 January 2005 the Bulgarian Health Ministry introduced legislation
that restricts smoking in public places. Café and restaurant owners were
required to divide their seating areas into zones for smokers and
non-smokers. Outlets with fewer than 60 seats were exempted. By and
large, restaurant and café patrons comply with smoking rules.

# Market Situation Overview

The number of outlets managed by chain operators has risen steadily, but
independent owners are still a significant majority. The advantages of
chains are numerous -- shared marketing strategy and nationwide
advertising. Brand names benefit from consumer recognition and the
ability to buy in large volume. However, building a whole chain requires
significant investment and experienced management, which most
independent companies cannot afford.

Chains are established in greater Sofia, the country's capital, with a
population of more than 1.5 million, and in other big cities. Smaller
cities have fewer chain operators, if any at all, since incomes are
lower outside the capital. Smaller cities and towns tend to be served by
independent outlets.

####  

The presence of chain operators is expected to become stronger starting
in 2007. Existing companies will continue to open new outlets, mostly in
the big cities. The new shopping malls in Sofia, Varna, Bourgas, Plovdiv
and Veliko Tarnovo have cafés and restaurants, including leading chains
such as Happy Bar&Grill, McDonald's, Pizza Hut and Onda Coffee Break.
The company opened three more outlets in 2005, all in strategic
locations in the capital of Sofia. Despite the relatively high prices,
Onda Coffee Break continues to attract people with its innovative
coffee, tasty food, excellent service and modern interior. Its
performance has been helped by the lack of competition in this market
niche.

In 2005 pizza was the food type that had the highest growth compared to
2004.

Among the independent outlets, Ugo, Krivoto and Don Domat, opened new
outlets in 2005 for the first time since 1998. Although none of them
plans to expand the business outside Sofia, all of them battle for
customers in the capital city. They all announced they would open more
new outlets and very likely will evolve into chains. Post sees continued
expansion of mall-based food chains.

New chain operators will also enter the market. According to the
Bulgarian Industrial Association (BIA), starting in 2007, international
chains will look to expand their franchise operations in Bulgaria. This
is due to the relatively low operating and labor costs and to
opportunities in the local market, which is not fully developed. Some
gradual consolidation is expected, along with expansion in the size of
existing stores of the most popular chains.

Bulgarian customers are brand-oriented. After building further brand
reputation and growing financially, chain operators are likely to
compete with each other for dominance of their brand. Independent owners
will continue to count on their low prices and tasty specialties.

### Home Delivery

On-line food ordering continues to grow significantly in popularity.
Home delivery is well established in the big cities like Sofia, Plovdiv,
Varna, Bourgas and Rousse. Websites such as www.amam.bg,
www.netkelner.bg, and www.bgmenu.com provide visitors with the
opportunity to browse menus of more than 10 restaurants and place an
on-line order. Many restaurants themselves have their own websites
containing their offerings, which furnish internet users with up-to-date
electronic versions of menus.

Development of the on-line orders business is closely related to the
rate of internet access and usage. According to the State Agency of
Information Technologies and Communications, only 17% of Bulgarians have
instant access to the internet. Therefore, although convenient and
useful, growth in the on-line orders portion of the home-delivery
business is expected to be relatively slow, while telephone orders for
home and office delivery will continue to grow rapidly.

#### 

# Market Indicators

## Table 1 Consumer Expenditure on Food in Retail 2000-2005

USD bn

2000 2001 2002 2003 2004 2005

Total 3.4 4.3 4.7 5.2 6.1 6.6

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

# Market Data

## Table 2 Number of Outlets, Transactions and Value Sales in Consumer Foodservice: 2000-2005

2000 2001 2002 2003 2004 2005

Number of outlets 29,753 32,733 32,843 34,722 36,234 36,875

Transactions (mn) 246.8 279.0 289.9 316.6 338.3 348.1

USD million current 655 890 957 1,146 1323 1370 prices

USD million constant 655 938 843 987 1072 1070

prices

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 3 Number of Outlets, Transactions and Value Sales in Consumer Foodservice: Percentage Growth 2000-2005

2004/05 2000-05 CAGR 2000/05 TOTAL

Number of outlets 1.8 4.4 23.9

Transactions 2.9 7.1 41.1

Value current prices 3.3 9.4 56.4

Value constant prices -0.3 4.1 22.3

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 4 Consumer Foodservice Independent versus Chained Outlets: Number of Outlets 2005

Independent Chained Total

Cafés/bars 21,049 50 21,099

Full-service restaurants 9,387 90 9,477

Fast food 1,824 136 1,960

100% home delivery/takeaway 49 - 49

Self-service cafeterias 1,805 10 1,815

Street stalls/kiosks 2,475 - 2,475

Consumer foodservice 36,589 286 36,875

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 5 Food versus Drinks Share of Total Sales, 2005

Share of total sales, %

Food Drink Total

Cafés/bars 19.3 80.7 100.0

Full-service restaurants 62.5 37.5 100.0

Fast food 78.0 22.0 100.0

100% home delivery/takeaway 95.9 4.1 100.0

Self-service cafeterias 79.0 21.0 100.0

Street stalls/kiosks 89.0 11.0 100.0

Consumer foodservice by type and 58.0 42.0 100.0

chained/independent

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 6 Sales in Consumer Foodservice by Location 2000-2005

\% of sales value

2000 2005

Stand-alone 84.1 77.0

Retail 1.3 1.9

Travel 4.4 7.2

Leisure 1.2 1.4

Hotels 9.1 12.5

Total 100.0 100.0

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 7 Forecast Number of Outlets, Transactions and Value Sales in Consumer Foodservice: 2005-2010

2005 2006 2007 2008 2009 2010

Number of Outlets 36,875 37,476 37,956 38,379 38,938 39,329

Transactions (mn) 348.1 357.9 366.2 376.0 385.9 400.9

USD million 1,367 1,412 1,472 1,524 1,574 1,628

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 8 Forecast Number of Transactions and Value Sales in Consumer Foodservice: % Growth 2005-2010

\% growth 2005 - 2010 TOTAL

Number of Outlets 6.7

Transactions 15.2

Constant value 19.0

Source: Bulgarian National Official statistics, trade associations
newspapers Pari and Capital , trade interviews, Euromonitor
International estimates

## Table 9 Leading Chain Consumer Foodservice Brands by Number of Units 2005

**Brand Global Brand Owner outlets**

Shell Select Koninklijke 84

Shell Groep/

Royal Dutch

Shell Group

OMV Viva OMV Tankstellen AG 66

Happy Bar&Grill Happy Ltd 20

McDonald\'s McDonald\'s Corp 20

Jimmy\'s Arieks Ltd 17

Lucano Lucano Ltd 17

Nedelia Nedelia Ltd 17

Atlantic Atlantic Ltd 16

Trops House Trops House Ltd 10

Dunkin\' Donuts Dunkin\' Brands Inc 8

Pizza Hut Yum! Brands Inc 4

Subway Doctor\'s 3

Associates Inc

KFC Yum! Brands Inc 3

Goody\'s Goody\'s SA 1

Dunkin\' Donuts Allied Domecq Plc -

KFC Tricon Global -

Restaurants Inc

Pizza Hut Tricon Global -

Restaurants Inc

Others 0

Total 286

Source: Trade associations, newspapers Pari and Capital , trade
interviews, Euromonitor International estimates

## Table 10 Chain Consumer Foodservice Company Shares 2001-2005

Share of total sales, %

Company 2001 2002 2003 2004 2005

Happy Ltd 33.6 34.1 28.0 26.2 26.8

OMV Tankstellen AG 6.3 7.5 15.1 20.0 21.8

McDonald\'s Corp 37.1 33.2 23.9 22.5 19.4

Yum! Brands Inc - 6.4 6.3 6.2 6.3

Trops House Ltd - - 6.8 5.8 5.8

Nedelia Ltd 4.6 4.5 4.0 3.8 4.1

Koninklijke Shell Groep/ 3.8 3.7 3.3 3.1 3.4

Royal Dutch Shell Group

Lucano Ltd - 4.0 3.4 3.3 3.3

Atlantic Ltd - - 3.4 3.2 3.2

Arieks Ltd 4.5 4.0 3.1 3.1 3.1

Dunkin\' Brands Inc - - - - 1.8

Goody\'s SA 0.9 0.8 0.6 0.6 0.6

Doctor\'s Associates Inc - 0.2 0.4 0.5 0.5

Allied Domecq Plc 1.8 1.6 1.7 1.7 -

Tricon Global 7.4 - - - -

Restaurants Inc

Others 0.0 0.0 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0

Source: Trade associations, newspapers Pari and Capital , trade
interviews, Euromonitor International estimates

## Table 11 Chain Consumer Foodservice Brand Shares 2002-2005

\% value

Brand Global Brand Owner 2002 2003 2004 2005

Happy Bar&Grill Happy Ltd 34.1 28.0 26.2 26.8

OMV Viva OMV Tankstellen AG 7.5 15.1 20.0 21.8

McDonald\'s McDonald\'s Corp 33.2 23.9 22.5 19.4

Trops House Trops House Ltd - 6.8 5.8 5.8

Pizza Hut Yum! Brands Inc 3.9 4.4 4.5 4.6

Nedelia Nedelia Ltd 4.5 4.0 3.8 4.1

Shell Select Koninklijke Shell Groep/ 3.7 3.3 3.1 3.4

Royal Dutch Shell Group

Lucano Lucano Ltd 4.0 3.4 3.3 3.3

Atlantic Atlantic Ltd - 3.4 3.2 3.2

Jimmy\'s Arieks Ltd 4.0 3.1 3.1 3.1

Dunkin\' Donuts Dunkin\' Brands Inc - - - 1.8

KFC Yum! Brands Inc 2.5 1.9 1.7 1.7

Goody\'s Goody\'s SA 0.8 0.6 0.6 0.6

Subway Doctor\'s Associates Inc 0.2 0.4 0.5 0.5

Dunkin\' Donuts Allied Domecq Plc 1.6 1.7 1.7 -

KFC Tricon Global - - - -

Restaurants Inc

Pizza Hut Tricon Global - - - -

Restaurants Inc

Others 0.0 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0

Source: Trade associations, newspapers Pari and Capital , trade
interviews, Euromonitor International estimates

Source: Euromonitor, \"Hotel and Restaurants Magazine\", daily newspaper
\"Dnevnik\",

\"Your Business\" magazine, Bulgarian National Statistics