Required Report - public distribution

**Date:** 2/14/2007

**GAIN Report Number:** BU7003

BU7003

**Bulgaria**

**Exporter Guide**

**Exporter Guide Bulgaria 2006**

**2007**

**Approved by:**

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

US Embassy

**Prepared by:**

Julia Vulkova

**Report Highlights:**

From 2000-2006, Bulgaria experienced GDP growth of 4-6 percent with a
declining unemployment rate and a tight budget policy. Tourism remains a
leading industry, with USD 2.6 billion in income in 2006 and annual
growth of 11-17 percent over the last five years. International
supermarket chains have flourished, providing new opportunities for U.S.
food and beverage exporters.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Sofia \[BU1\]

\[BU\]

Table of Content

[Market Overview 3](#market-overview)

[**\_Toc159236244**](#__RefHeading___Toc159236244)

[Consumer food market 4](#consumer-food-market)

[Exporter Business Tips 5](#exporter-business-tips)

[Local Business Customs 5](#local-business-customs)

[General Consumer Tastes and Preferences
6](#general-consumer-tastes-and-preferences)

[Food Standards and Regulations 7](#food-standards-and-regulations)

[Labelling 7](#labelling)

[Tariffs and Tariffs Rate Quotas 8](#tariffs-and-tariffs-rate-quotas)

[Taxes 8](#taxes)

[Market sector structure and trends
8](#market-sector-structure-and-trends)

a\. [Food retail sector 8](#a.-food-retail-sector)

[b. Hotel-Restaurant-Food Service 11](#b.-hotel-restaurant-food-service)

[c. The food processing sector 12](#c.-the-food-processing-sector)

[BEST HIGH-VALUE PRODUCT PROSPECTS
13](#best-high-value-product-prospects)

[Table 1 Key Trade and Demographic Information
14](#table-1-key-trade-and-demographic-information)

[Table 2 Imports 14](#table-2-imports)

[Table 3 Importance of Food and Beverage Industry for Bulgaria
15](#table-3-importance-of-food-and-beverage-industry-for-bulgaria)

[Table 4 Foreign Direct Investment Inflow by Country and Year
15](#table-4-foreign-direct-investment-inflow-by-country-and-year)

[Table 5 Selected Retailers and their Private Label Products 2005
16](#table-5-selected-retailers-and-their-private-label-products-2005)

# Key Contacts in Bulgaria ....................................................................................... 16 

# Market Overview

Bulgaria is a small country with population of approximately 7.8
million. Its climate and other natural conditions are generally
favourable to agriculture, and more than a third of its land is
considered to be arable.

Over the last seven years, Bulgaria has made impressive progress towards
long-term stability and sustained growth. Bulgaria; however, is
significantly poorer than other members of the EU. To narrow the income
gap and bring Bulgaria in step with the rest of the EU, Bulgaria needs
to increase employment and productivity consistent with the Lisbon
Agenda. Raising investment and total factor productivity is critical to
creating sustainable growth in the future.

The average Bulgarian GDP growth rate from 2000-2006 was 5p ercent and
unemployment has now dropped below 9%. Largely due to a balanced budget
and falling interest rates, Bulgaria's public debt amounts to
approximately 45 percent of GDP. Inflation varied from 2000-2005, with
annual averages between 4 and 10 percent.

The transition to a market economy started in 1997 with liberalization
of the market and privatization of state-owned enterprises.

Bulgaria\'s EU accession on January 1st, 2007 and compliance with EU
requirements and regulations is expected to create and support favorable
economic conditions. Evidence of this includes Parliament's recent cut
to the corporate income tax, reducing it to 10%, effective January 1,
2007. A further stimulus will be provided as the EU Food legislation is
integrated into Bulgarian Law.

Factors Encouraging Investment:

\- EU membership as of January 1, 2007

\- Highly-skilled, multilingual workforce at Europe\'s most competitive
wages;

\- Stable and predictable business and political environment;

\- The lowest operational costs and tax rates in Europe;

\- Industrial goods traded duty free between Bulgaria and the EU, EFTA,
CEFTA and Turkey;

\- Tax exemption and investment incentives for qualified investment;

\- Annual depreciation rate of 30% for machinery & equipment, 50% for
new equipment used in entirely new investment or expansion and 50
percent for software and hardware;

\- Acquisition of land and property through Bulgarian registered company
with 100 percent foreign ownership;

\- Vast administrative services through InvestBulgaria Agency;

\- 58 treaties for avoidance of double taxation;

\- 56 agreements on mutual protection and promotion of foreign
investment;

\- Favorable climate

The relative share of GDP made up by investments increased from 15.7
percent in 2000 to

23.8 percent in 2005. Macroeconomic stability, progress in structural
reforms, and a high rate of return all contribute to Bulgaria's
attractiveness to investors. Foreign Direct Investments (FDI) in
Bulgaria totaled about USD 11.1 billion in the period 2000-2005.

General sentiment in Bulgaria is pro-American with both the public and
the government supporting expanding the US-Bulgarian trade relationship.

Agriculture is an important sector of the economy, accounting for 9
percent of GDP in 2005 and being the main source of income for about 25
percent of the economically active population. An increase in the
stability of the macroeconomic situation has created a favorable
environment for completing the transition and the restructuring of most
of the sub-sectors.

Limited access to credit and scattered land ownership remain major
constraints to local investors. A basic prerequisite for the development
of a competitive agriculture sector is the ability to utilize all
available agricultural land in the most economically viable way. In
accordance with the amendments to the Ownership and Use of Agricultural
Land Act the government is required to pay the technical expenses
related to land exchanges with adjacent agricultural land, with the
intent of to encouraging consolidation of land ownership.

Enforcing the regulation, implementing controls and fighting the grey
economy are vital for smooth expansion of the economy and attracting new
investments. The rule of law must be strictly observed by all market
players in the food industry for sustainable growth to be achieved.

Bulgarian national legislation pertaining to agriculture and food
production will be changed to be in harmony with EU regulations. It is
adopting the relevant standards for contemporary control practices. Some
watchdog agencies, similar to the Consumer's Rights Protection Agency,
have already been established by the Bulgarian government, but there is
still much more to be done in order for systematic control measures to
be fully implemented. If the government chooses to use consumer\'s
protection as a justification for the introduction of additional
regulatory regimes, it will have a detrimental effect on the food
processing sector.

The greatest potential areas of benefit from Foreign Direct Investment
(FDI) are productivity improvement and management know-how. Improvement
in these two areas is essential in bringing about sustainable economic
growth. Even without these changes, the agriculture and food processing
sectors enjoy an environment generally favorable to economic growth.

In the period 2000-2005, the rate of growth of exports exceeded 10
percent per year. The import rate increased more rapidly, and reached 22
percent. Industry growth is 7.3 percent in 2005.

In 2002-2005, export of agricultural products almost doubled. In 2004,
food and beverage exports were 9 percent of the total exports compared
to 8.7 percent in 2005. 40 percent of exports and 50 percent of imports
of agricultural products is with EU markets.

# Consumer food market

A number of trends have been observed in the consumer food markets,
including:

-   Increase in total consumption of food products- in 2005 average
    household expenditure for food, beverage and tobacco products was
    39-40 percent of total expenditures

-   Increase in the variety and amount of higher priced goods purchased

-   Changes in consumer preferences- a shift from high fat and breads
    consumption with low consumption of fresh foods, including
    vegetables, dairy and fish to a low fat, low calories preference

-   Decline in the consumption of added fats since 1989- in 2003,
    consumption was 19 percent lower than in 1989

-   Increases since 2003 in the amount of sunflower oil, butter and
    margarine consumption (5, 20 and 5 percent respectively)

-   Increased consumption of beans and lentils- 5 percent from 2003-2005

-   Increased consumption of soft drinks and beer- 26 percent from
    2003-2005

-   Increased consumption of alcoholic beverages- 5 percent from
    2003-2005

-   Increased consumption of meat and meat products- 102 percent from
    2003-2005, although there are significant differences in consumption
    between different socioeconomic groups

-   Decreased milk consumption- down 18 percent from 2003-2005

-   Increased yellow cheese consumption- 4 percent from 2003-2005

-   A lack of seasonal consumption of fruits and vegetables- in 2005,
    164 grams daily of fresh fruits and 99 grams daily of frozen

-   Low fish consumption due to high costs and lack of knowledge of
    fish- in 2005, average daily consumption of 12 grams.

-   Significant differences in consumption across social-economic
    groups- consumption of major food products is 3 less in the lowest
    income group as compared with the consumption in the highest income
    group.

-   Small, growing demand for organic food.

-   Growing demand for semi-cooked and ready-made, higher cost goods in
    the last five years.

+-----------------------------------+-----------------------------------+
| **Advantages**                    | **Challenges**                    |
+-----------------------------------+-----------------------------------+
| Increased consumption             | Domestic food processing industry |
|                                   | is competitive                    |
+-----------------------------------+-----------------------------------+
| Western European consumption      | Competition with European         |
| patterns are emerging             | commodities is increasing with EU |
|                                   | membership                        |
+-----------------------------------+-----------------------------------+
| Growth in supermarket and         | Steady certain income increase    |
| hypermarket and                   |                                   |
|                                   |                                   |
| Consumer foodservice sector       |                                   |
+-----------------------------------+-----------------------------------+
| Consumer\'s references for        | Food Safety Issues                |
| imported products                 |                                   |
|                                   |                                   |
| and specifically high value       |                                   |
| products and additives            |                                   |
+-----------------------------------+-----------------------------------+
| Ingredients insufficiency for     | Lack of experience in doing       |
| food industry in Bulgaria         | business with                     |
|                                   |                                   |
|                                   | overseas consolidated companies   |
+-----------------------------------+-----------------------------------+
| Tourism industry development      | Increase in food servicing        |
|                                   | outlets and restaurants           |
+-----------------------------------+-----------------------------------+
| Innovative products and packaging | Lack of knowledge in U.S. high    |
|                                   | value products and packaging      |
+-----------------------------------+-----------------------------------+
| Visits to USDA sponsored Trade    | Gain knowledge about U.S.         |
| Shows                             | products                          |
+-----------------------------------+-----------------------------------+
| Importers are open for U.S.       | Relatively small delivery volumes |
| products and technologies         |                                   |
+-----------------------------------+-----------------------------------+

# 

# Exporter Business Tips

## Local Business Customs

The food and beverage wholesale trade is more concentrated than the
retail sector.

Retailing sales in Bulgaria grew by 6 percent in current value terms in
2005, following an equally strong performance in 2004. Current value
growth was driven mainly by the expansion of retailers to match the
rising standard of living and expectations of Bulgarian consumers, but
also by increasing variety in terms of the product assortments.
Store-based retailing (grocery retailers and non-grocery retailers)
remained dominant, though non-store retailing niches such as vending,
internet retailing and home-shopping have developed positively, bringing
greater diversity to the retailing market as a whole.

Retail in Bulgaria has proven extremely attractive to new entrants.
Retailing current value sales grew by a total of 49 percent between 2000
and 2005, as local and multinational players initiated expansion plans
in store-based retailing. Bulgarian retailing remained relatively
underdeveloped in 2005, facilitating the entry of new players and the
expansion of existing chains not only in bigger cities but also in
smaller towns and rural areas. Strong development for both hyper and
supermarkets showed the most dynamic current value growth within grocery
retailers in 2000 - 2005. Greater interest of multinational players
generally in Bulgarian retailing and the increase in competition will
contribute the development until 2010.

Retailers, including multinational chains, mainly import through local
importers and wholesalers. Distribution networks are currently being
consolidated and expanded to cover more rural regions of the country.
Many importers and producers create their own distribution channels in
order to influence the market and to be cost effective. EU accession
will also change the market structure, making it more consolidated and
more profitable.

Bulgarian wholesale markets are also being consolidated. Know-how and
logistics upgrade and update issues are very important for wholesaling
channels. The current trend is towards mergers of wholesalers with
distributors.

EU membership will facilitate entrance of U.S. products through European
importers and distributors. Importers of U.S. products in Europe are
listed at: www.american-foods.org.

## General Consumer Tastes and Preferences

The consumption of food products largely depends on the structure of the
population and its purchasing power. The segment of elderly consumers
has and continues to increase, which means higher demand for dietary and
health foods and nutrient additives. General consumption patterns
largely depend on the income of individual consumers. The selection of
goods is based on quality rather than promotions and advertisements with
consumers being more price than brand-oriented. Quality to price ratio
is of foremost concern for many purchases. Over the past few years,
there has been a growing number of people willing to pay more for
quality. One notable trend of 2006 is an increase in demand by consumers
for healthy, ready-made and semi-cooked foods.

Brand expansion is taking place, with new company and product names
being popular mainly with younger consumers. These new products
differentiate themselves from the old with both with new packaging and
price. Demand for packaged food products increased by 30% in 2006.

Shopping places themselves are also changing, driven by consumers demand
for a large variety of high quality goods. This has lead to an increase
in the number of super and hypermarkets and shopping malls and a
decrease in the number of family owned, small shops. Small shops are now
primarily used only to meet consumers' urgent everyday needs, such as
bread and milk purchases. The relative share of shopping at super and
hypermarkets is steadily growing- 17 percent in 2006 compared to 2005
and 11 percent compared to 2004.

Consumer food expenditures in Bulgaria grew by a total of 36 percent in
the period 2000 -2005.

# Food Standards and Regulations

# 

Bulgaria has harmonized its national standards with international and EU
standards. Bulgaria is a participant in the International Organization
for Standardization (ISO) and the International Electro-Technical
Commission (IEC). EU standards and product safety requirements are
enforced, according to the respective EU directives. All imports of
goods of plant or animal origin are subject to EU phytosanitary and
veterinary control standards and relevant certificates should accompany
them. Bulgarian authorities have modified national regulations so as to
accept U.S. Department of Agriculture certificates.

Particularly notable were changes in the Food Law, forcing food
producers and retailers to meet certain quality requirements regarding
working conditions, hygiene standards and HACCP.

Further information, and the Food and Agricultural Import Regulations
and Standards for EU, are found at: http://www.useu.be/agri/fairs.html

# Labelling

The producers and importers must:

-   indicate the name and the address of the head office on the product
    and, if possible, on its packaging and the accompanying
    documentation;

-   provide instructions and/or operating manuals in Bulgarian;

-   have conformity marking;

-   have a statement of conformity (in the cases where the product must
    be accompanied by a statement of conformity).

Labels must contain the following information in Bulgarian:

-   Trade mark;

-   Name and address of producer;

-   List of ingredients and supplements in processed foods;

-   GMO products or ingredients must be defined as GMO with their
    specific characteristics. The regulation requires food products
    containing more than 1 percent maize, GM soybean or other GMO\'s to
    be appropriately labeled.

-   It is not necessary to list ingredients in food products with
    content of one product with the same name and when the name of the
    product is with sufficient identification;

-   Nutrient content;

-   Health claims;

-   Date of packaging;

-   Expiration dates must be marked as follows:

    -   Shelf life of 3 months and less - day and month,

    -   Shelf life more than 3 months and less than 18 months year -
        month and year

    -   Shelf life more than 18 months - year

    ```{=html}
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    -   Perishable products must be marked with \" To be used before the
        date - day and month;

    -   Storage conditions;

    -   Name and address of importer;

    -   Imported food products must be labeled with the same name as
        given in the country of origin. In case the name of the food
        product is not definitive enough itself, explanatory definition
        must be provided;

    -   Imported biotech products must follow a special procedure. It is
        the importer's obligation to submit the necessary application
        and receive permission form Bulgarian Authorities.

# Tariffs and Tariffs Rate Quotas

# 

Bulgaria has a liberal regime for international trade in accordance with
WTO requirements, although a limited number of goods are subject to
administrative control. Bulgarian legislation provides trade guidelines
for import and export of goods. Bulgaria is adopting the current
procedures and customs regimes used in the European Union in transit,
handling of goods under customs control, temporary import, active
improvement, passive improvement, customs' controlled storage, temporary
export, etc. The Uniform Administrative Document (UAD) is the official
written declaration of import and export regulation in accordance with
the accepted procedures. As of January 1st, 2007 Bulgaria began applying
the integrated EU customs tariff.

For more information on the EU customs tariff**:**
http://ec.europa.eu/taxation_customs.

# Taxes

The Value Added Tax Act (VAT) has been in force since January 1, 19999.
The standard VAT rate is 20 percent. A VAT rate of 0 percent is applied
on transactions involving the export of goods and services specified in
the Act, as well as on other transactions specified in the Act. VAT
exempted option in valid for import of equipment for investment projects
exceeding the value of USD 5.9 million.

In the case of imports, there is a special preferential regime of
levying the VAT. VAT may be levied by the importer instead of the
customs administration, provided the importer has received a permit from
the Minister of Finance and the import includes goods (excluding excise
goods) specified on a list approved by the Minister of Finance. The
preferential regime of import of goods is applied for importers meeting
the following conditions:

-   implementer of investment project approved by the Minister of
    Finance;

-   registered under the Value Added Tax Act;

-   has no liquid or payable tax liabilities and liabilities payable to
    the agencies for mandatory social security and health insurance;

-   has received a permission from the Minister of Finance;

-   eligible to receive regional development state aid under the State
    Aid Act and the regulations on its application.

 

Excise duty is levied on the goods and services listed in the Excise
Tariff, which are the subject of transactions in the territory of the
country, or on goods imported into the country. Excise duty is levied
on: alcoholic drinks, including wine and beer; tobacco products; coffee
and tea. The Excise Duty Act also provides for a refund of the excise
duty paid in case of import of excise goods.

# Market sector structure and trends

## a. Food retail sector

The government's attitude towards retailers is, on the whole, positive
and welcoming. Considerable efforts have been made to facilitate
incoming retailers, especially large and medium sized and supermarket
chains. With Bulgaria's recent EU accession, the government is
especially interested in the investment and expansion plans of
retailers. Retail is under responsibility of Ministry of Economy and
Energy with competition in retailing being regulated by the Commission
for the Protection of Competition. Bulgarian retailing regulations are
harmonized with EU requirement; changes were made in the Food Law,
compelling food producers and retailers to meet quality requirements
regarding working conditions, hygiene standards, HACCP, etc. The
business environment is expected to become more diverse, transparent and
well-regulated, giving clearer direction to existing and potential
players. The harmonization with EU laws will reduce bureaucratic
procedures for opening big chain outlets and will make Bulgarian market
more attractive to international and multinational players.

The current value of sales at grocery retailers was USD 3.5 billion in
2005, growth of 4% from 2004 capping total growth of 28 percent over the
period 2000-2005. This development was relatively slow. The slow pace of
current value growth was attributable to the poor performance of
independent groceries with current value growth of 3 percent in
2000-2005. The most dynamic performances within grocery retailers were
registered by hyper and supermarkets, which showed total current value
growth of 644 percent and 327 percent respectively for the five-year
period.

Retailing in Bulgaria is likely to continue its positive development
over the 2007-2010 period. The entry of new players, most notably
discounter chains, is likely to result in greater market saturation.
This will lead to more intense competition and possibly price wars.
Legislation, economic development and EU accession are the factors most
likely to affect and redirect market movements. The gap among players,
currently divided into local and foreign, will decrease as price and
goods offered become more similar.

Trade was liberalized after 1989. At the same time the relevant
conditions were created for establishment of commercial companies, and
the opportunities for supply and sales were enhanced. A large number of
retail businesses appeared on the market. Retail trade entered a new
stage in 1998 with the emergence of the first chain of supermarkets,
Metro Cash and Carry. Metro was followed by other international retail
chains such as Billa, Ramstore, Hit, VP Market, and Kaufland. Bulgarian
chains of supermarkets were also created -- Piccadilly, CBA Bulgaria,
Fantastico, Family, "345", and Elemag. The larger cities of Bulgaria --
Plovdiv, Bourgas, Varna, Stara Zagora, Veliko Tarnovo and Rousse were
targeted. The entry of the Western chains of stores also resulted in the
establishment of private labels, with Metro, Billa, Fantastico and CBA
Bulgaria already having their own private labels.

Currently, the foodstuffs market is still fragmented. The concentration
of food stores is relatively low compared to average Europe levels.
Dynamic growth of hyper and supermarkets, in terms of value growth,
within grocery retail in 2007 is forecasted to 30 percent compared to a
rate of 20 percent in 2006.

Despite the rapid development of hypermarket chains, many Bulgarian
consumers continued to show a preference for medium sized supermarkets
outlets in 2005. Medium sized supermarkets outlets are smaller in size
than large hypermarket outlets but offer similar products and services,
at similar prices. All supermarkets chains in Bulgaria offer promotions
and discounted prices on a weekly basis to attract consumers.

Supermarkets in Bulgaria have triggered an upstream transformation of
food marketing system and rapidly penetrated the food retail sector.
They became major buyers of local and imported products of intermediate
to high quality. Retailers are paying more attention to improving
product quality and food safety in the domestic market.

Three major trends have characterized the development of the supermarket
sector.

-   Foreign ownership;

-   Rapid concentration, mirroring trends in the developed regions;

-   Penetration in big cities to intermediate and small towns in rural
    areas.

Supermarket\'s distribution channels have been improved logistically and
are being consolidated into a country-wide network.

The leading chains of supermarkets (Billa, CBA Bulgaria, Fantastico,
Metro, Hit, Kaufland and Piccadilly) cover 20 percent of the foodstuffs
market in Bulgaria. Billa was the leading chain within grocery retailers
in 2005, with value sales share of 3 percent, followed by CBA (a chain
consisting of formerly independent outlets) with a share of 2 percent.
Leading domestic supermarket chains in 2005 were Piccadilly with sales
of USD 40 million in 2005 and USD 64.7 million in 2006.

Metro established stores under the name of Aro, selling exclusively
Metro private label products at lower prices. Billa and Fantastico are
also following this trend, although it cannot be considered as an
aggressive policy for discount prices. The tendency is for customers to
be attracted to product based quality, trademarks, packaging, discounts
or advantages for loyal clients, promotions, discounted purchasing cards
and quality of services.

In 2007 the following chains are expected to enter the Bulgarian market:

\- Carrefour, France, first store to be opened in 2008 in Sofia,
expressed interest to invest also in Varna, Bourgas, Plovdiv and Stara
Zagora;

\- Plus, German discount chain;

\- Penny Market - Billa discount chain;

\- Lidl, German discount chain.

Foreign chains see major potential for expansion in Bulgaria, though the
trade network is less developed than in Central and other Eastern
European countries. Commercial area per capita is several times smaller
than the average in Europe, but the market is showing substantial
growth. Bulgaria was ranked 13^th^ in 2005 in terms of retail trade
development index and is the 15^th^ most attractive destination in the
world for investments.

Convenience stores outlets are usually of small size, and mainly offer
confectionery, soft drinks, ready-to-eat food products, magazines and
newspapers. The prices are similar to other retail outlets, and the
service is satisfactory. Chains of small convenience stores at gas
stations, such as Shell, OMV, Tempo etc. can attract a lot of additional
customers for food products. Convenience stores' value sales during
2000-2005 was 56 percent of the food market with 2005 growth at 4
percent.

Malls with various outlets including supermarkets, restaurants and food
courts are becoming popular in Bulgaria. The first malls were in Sofia,
Varna and Veliko Tarnovo and were opened in 2006. The construction of 7
new malls is scheduled by 2011.

There is a niche of outlets for luxury foods products and beverages and
specialty foods.

The expected consolidation of the market will result in greater
competition between producers and traders. The small retail outlets will
be gradually pushed out over the next several years by the effects of
the competition of the chains of retail outlets (hypermarkets and
supermarkets) and by the expected emergence of the discount chains. The
options for the small community-type independent retail outlets are also
being reduced by the introduction of the European requirements for
storage and trade in foodstuffs -- specifically enhanced sanitary and
hygiene requirements related to warehousing and transportation. In
addition to the other factors, small retail outlets will be restricted
by their low purchasing power.

**Grocery retailers based on number of outlets:**

  --------------------------------- ------------- ------------- -----------
  **Type of outlet**                **Numbers**                 

                                    **2003**      **2004**      **2005**

  Hypermarkets                      7             10            12

  Supermarkets                      235           283           311

  Convenience stores                315           321           325

  Independent groceries             32090         31618         31027

  Food special stores               7295          7438          7572

  Other grocery retailers           2314          2269          2221

  Total grocery retailers           42256         41939         41468
  --------------------------------- ------------- ------------- -----------

## b. Hotel-Restaurant-Food Service

### 

A significant growth in the market is observed in three areas:

\- number of outlets, growth of 15 percent in 2005;

\- value sales growth 10 percent in 2005;

\- investment opportunities in cafés/bars and full-service restaurants,
the most dynamic sectors of development.

Well established consumer foodservice performance will continue and be
boosted by stability in Bulgaria's GDP, growing incomes and EU
accession. New chain operators will also enter the market. Starting in
2007, international chains will look to expand their franchise
operations in Bulgaria, due to relatively low operating and labor costs
and expanding opportunities in the local market.

Bulgarian customers are brand-oriented and chain operators are competing
for dominance of their brands.

Tourism is playing a key role in the expansion of food service sector.
In 2004 the growth of the tourism business was higher than the total
growth of the economy. The tourism sector proved to be an engine for
growth in the economy, and this trend will push for further development.
In 2004, the total number of tourists who visited Bulgaria was up 11
percent from 2003, in 2005, 4 percent and in 2006, 17 percent. The most
important reason for the increase were economic and political stability,
a constant increase in the number of accommodation facilities,
improvements in the services provided, competitive prices and more
advertising campaigns outside of the country. Tourism is, and will
remain, the main factor driving the development and growth of the
Bulgarian consumer foodservice market.

The highly fragmented nature of the Bulgarian consumer foodservice
market in 2005 led to increased competition and the use of a variety of
different marketing strategies by players. There was an increase in
advertising in the national media through TV, radio etc. The most active
players were the biggest chains, namely McDonald's and Happy Bar&Grill.
Outlets began to offer promotions more frequently, such as discounts for
ordering more food, gifts for children etc. The increased competition
brought a slight decrease in prices, which was the primary reason for
higher growth in the number of transactions than in current value sales.

A number of trends among consumers in Bulgaria contributed to the growth
of the consumer foodservice market in 2005. Consumer lifestyles were
busier, with people, especially those in urban areas, working longer
hours. Declining marriage rates meant there was an increase in the
number of single people without families; the market was significantly
boosted by these factors, as they led to an increase in the number of
people who relied on consumer foodservice more often as they did not
have time to cook for themselves. This was expressed by an increase in
the number of visits to consumer foodservice outlets in cities, an
increase in takeaway and delivery services and growth in the number of
fast food outlets.

There are not many chains in the Bulgarian consumer foodservice market.
The few number that do exist tend to be larger players that have the
resources to attract more consumers thanks to their well-known brands,
quality standards and services, key locations and promotional
activities. New chains are expected to appear on the market which will
additionally change the market and will bring an increase in
competition.

## c. The food processing sector

The food processing industry in Bulgaria has strong traditions, with the
strongest sectors traditionally being meat, dairy and fruits and
vegetables processing.

Duty and quota exemption with other EU countries and more restrictive
policy toward third countries are the likely trends for 2007. Importers
are forecasting lower prices for pork meat imported from EU countries
and higher prices for beef and veal meat due to higher EU duties for
import from third countries. Import of poultry meat from third countries
starting January 1, 2007 will have a duty of Euro 1,000 per one MT which
will significantly increase the price.

The dairy products' market increased over the last 3 years by 8 percent
in value and 5 percent in volume.

Sunflower oil processors are predicting a price increase between 10-15
percent, due to increased export and an increase in prices to reach EU
price level. There is also increased interest in importing both soy and
palm oils.

Soft drinks are not expected increase price and opportunities for import
will increase.

Specific legislation in food processing industry has been harmonized
with EU regulations.

High quality food products, healthy, organic and high-value products
will be further developed due to increased consumer interest. Import of
such products will increase.

Bulgaria's food processing industry share in GDP was 26 percent in 2005.
The production of foods and beverages is 18 percent of the total
industrial output. Meat production is at the top of the list, followed
by beverages, dairy products, vegetable oil, canned fruits and
vegetables, and fish products. Exports of foods and beverages in 2005
amounted to USD 485 million. Direct foreign investment in the food
processing sector is 5 percent.

Foreign investors in food-processing sector (according to September
2005)

+-----------------------+-----------------------+----------------------+
| **Foreign Investor**  | **Activity**          | **FDI,Foreign Direct |
|                       |                       | Investment**         |
|                       |                       |                      |
|                       |                       | **total USD,         |
|                       |                       | millions**           |
+-----------------------+-----------------------+----------------------+
| Carlsberg, Denmark    | Brewery production    | 76.7                 |
+-----------------------+-----------------------+----------------------+
| Kraft Foods, USA      | Food industry         | 35.9                 |
+-----------------------+-----------------------+----------------------+
| Nestle, Switzerland   | Food industry         | 35.8                 |
+-----------------------+-----------------------+----------------------+
| Brewinvest, Greece    | Brewery production    | 35.2                 |
+-----------------------+-----------------------+----------------------+
| Klarina Holding,      | Food industry         | 35.0                 |
| Luxemburg             |                       |                      |
+-----------------------+-----------------------+----------------------+
| Luxkraft, UK          | Food industry         | 29.8                 |
+-----------------------+-----------------------+----------------------+
| Interbrew, Belgium    | Brewery               | 11.0                 |
+-----------------------+-----------------------+----------------------+
| Delta, Greece         | Food industry         | 10.4                 |
+-----------------------+-----------------------+----------------------+
| Coca-Cola, USA        | Beverage production   | 9.5                  |
+-----------------------+-----------------------+----------------------+
| TKM Fruit Juice,      | Beverage production   | 8.7                  |
| Greece                |                       |                      |
+-----------------------+-----------------------+----------------------+
| Chipita, Greece       | Food industry         | 7.4                  |
+-----------------------+-----------------------+----------------------+

##  

## 

# BEST HIGH-VALUE PRODUCT PROSPECTS

Customs tariff rates are available on EU customs tariff webpage:
http://ec.europa.eu/taxation

Thousands USD Imports in Bulgaria

+------------------------------+-----------+-------------+------------+
| Product                      | 2005      | 2005        | Annual     |
|                              |           |             | Growth     |
| Category                     | World     | USA         |            |
|                              |           |             | \% to 2004 |
|                              | Imports   | Imports     |            |
|                              |           |             |            |
|                              | Market    |             |            |
|                              | Size      |             |            |
+------------------------------+-----------+-------------+------------+
| Seafood                      | 18547     | 5603        | 114        |
+------------------------------+-----------+-------------+------------+
| Fruits, Nuts                 | 57598     | 2325        | 121        |
+------------------------------+-----------+-------------+------------+
| Cereals,Flour,Starch         | 34848     | 678         | 233        |
+------------------------------+-----------+-------------+------------+
| Misc Edible Preps            | 70642     | 1407        | 8          |
+------------------------------+-----------+-------------+------------+
| Snack Foods                  |           | 784         | 117        |
+------------------------------+-----------+-------------+------------+
| Distilled Spirits/Liquors    | 7318      | 2096        | 33         |
+------------------------------+-----------+-------------+------------+
| Pet Food                     |           | 100         | 54         |
+------------------------------+-----------+-------------+------------+

#  

# 

#  Table 1 Key Trade and Demographic Information

  ----------------------------------------------- ---------- ---------------
  **Key trade and demographic information**       **YEAR**   **VALUE**

  Agriculture Imports From All Countries (\$      2005       2 500 000 /
  thousands) / U.S. Market Share (%)                         1.2%

  Consumer Food Imports From All Countries (\$    2005       976 000 / 2.2%
  thousands) / U.S. Market Share (%)                         

  Edible Fishery Imports From All Countries (\$   2005       18 500 / 34%
  thousands) / U.S. Market Share (%)                         

  Total Population (Millions)/ Annual Growth Rate 2006       7.7 / -0.5%
  (%)                                                        

  Urban Population (Millions)/ Annual Growth Rate 2006       5 / -0.3%
  (%)                                                        

  Number of Major Metropolitan Areas              2006       1

  Size of the Middle Class (Millions)/ Growth     2006       N/a
  Rate (%)                                                   

  Per Capita Gross Domestic Product (U.S.         2005       \$3443
  Dollars)                                                   

  Unemployment Rate (%)                           2005       10.7%

  Per Capita Food Expenditures (incl.             2005       \$410
  beverages/tobacco) (U.S. Dollars)                          

  Percent of Female Population Employed           2006       55

  Exchange Rate (US\$1 = BGN)                     2005       1.6579
  ----------------------------------------------- ---------- ---------------

# Table 2 Imports

  ------------ ---------------------- --------------- -------------- -------------
               **Bulgaria Imports                                    
               2005**                                                

               By sections of HS                                     

               thousands USD                                         

  **Sections                          **Imports from  **Imports from **U.S. Market
  of HS**                             the world**     the US**       Share**

  02           MEAT, EDIBLE OFFAL     122,475         11,443         9.3

  03           FISH, CRUSTACEANS      18,547          6,332          34.1

  04           DAIRY PRODUCTS         34,670          85             0.0

  05           ANIMAL PRODUCTS NES    6,838           453            6.6

  08           EDIBLE FRUIT, NUTS     57,598          2,325          4.0

  09           COFFEE, TEA, SPICES    30,833          10             0.0

  10           CEREALS                12,059          785            6.5

  12           OIL SEED               23,721          97             0.4

  15           FATS, ANIMAL, VEGIE    49,841          248            0.5

  16           MEAT, FISH, PREPS      6,030           102            1.7

  19           CEREAL,FLOUR,STARCH    34,848          678            1.9

  20           VEGIE, FRUIT, PREPS    46,292          219            0.5

  21           MISC EDIBLE PREPS      70,642          1,410          2.0

  22           BEVERAGES, VINEGAR     39,984          2,137          5.3

  24           TOBACCO                21,342          685            3.2

  35           MODIFIED STARCHES      33,829          719            2.1

  41           RAW HIDES AND SKINS    113,652         50             0.0

  44           WOOD                   112,872         379            0.3

                                                                     

                                                                     
  ------------ ---------------------- --------------- -------------- -------------

# Table 3 Importance of Food and Beverage Industry for Bulgaria

![](media/image2.jpeg){width="6.520138888888889in"
height="3.9097222222222223in"}

# Table 4 Foreign Direct Investment Inflow by Country and Year

![](media/image3.jpeg){width="6.489583333333333in" height="4.75in"}

# Table 5 Selected Retailers and their Private Label Products 2005 

  -------------- -------------- ------------------- -------------- ---------------
  Retailer       Umbrella       Brands/sub-brands   Product        Positioning
                 brands                             category       

  Billa          Clever         Clever              Packaged food, Best
                                                    canned food,   combination of
                                                    drinks, deli,  price and
                                                    household      quality
                                                    care, bakery   
                                                    products       

  CBA            CBA            CBA                 Packaged/dry   Economy
                                                    food, nuts,    
                                                    herbs, pasta,  
                                                    drinks,        
                                                    household care 

  Piccadilly     Mr Piks        Mr Piks             Packaged food, Good quality at
                                                    processed      affordable
                                                    meat, herbs,   prices
                                                    nuts, drinks   
                                                    -- over 300    
                                                    products       

  Fantastico     FF Vkus        FF Vkus             Packaged food, Economy
                                                    meat products, 
                                                    dry food,      
                                                    drinks         

  Fantastico     FF Dom         FF Dom              Household      High quality at
                                                    appliances,    affordable
                                                    household care prices

  Metro Cash &   Aro            Aro                 Packaged food, Economy
  Carry                                             drinks,        
                                                    household      
                                                    care,          
                                                    cosmetics      

                                                                   

  Metro Cash &   Metro Quality  Metro Quality       Packaged food, Professional
  Carry                                             drinks, dairy  Quality for
                                                    products       Professionals
  -------------- -------------- ------------------- -------------- ---------------

# KEY CONTACTS IN BULGARIA 

# 

Ministry of Agriculture and Forestry

55 Hristo Botev Blvd

tel. (359 2) 985 11244

Sofia 1000

web: www.mzgar.government.bg

Ministry of Economy and Energy

12 Batenberg Str

tel. (359 2) 940 7008

Sofia 1000

web: mee.government.bg

Ministry of Finance

102 G.S.Rakovski str,

Sofia 1000\
Tel. (359 2) 9859 2078/ 2022

web: minfin.bg

InvestBulgaria Agency\
31 Aksakov Street\
Sofia 1000\
Tel.: (359 2) 985-5500\
Fax: (359 2) 980-1320\
web: [www.investbg.government.bg](http://www.investbg.government.bg/)

Bulgarian Agency for Economic Analysis and Forecasting

102 G.S.Rakovski str

Sofia 1000

Tel.: +359 2 9859 5601

www.aeaf.minfin.bg

Bulgarian Association of Food and Drink Industry

29 Vladaiska Str

Sofia 1000

Tel. (359 2) 952 0989

Web: www.bafdi.com

Food Industry Union

108 G.S.Rakovski Str

tel (359 2) 987 4744

Sofia 1000

e-mail: ufi_sb@abv.bg

Source: InvestBulgaria Agency, Euromonitor International, \"Regal\"
magazine, HOREMAG (Hotels Restaurants Magazine), TNS - Balkan British
Social Survey, Bulgarian National Statistical Institute