Eastern price marauders head west
With the smashing of trade barriers on May 1, A-brand manufacturers are not only having to fight private label competition from the East, but also east-to-west transfers of their own brands, according to Robert Maciejko, vice-president of the Warsaw-based Boston Consulting Group (BCG). And buying up brands from new accession countries and re-selling them on Western markets can be a very lucrative business, as the same brands in the West typically cost around twice as much as in the CEE. For example, the net arbitrage gain on just one truckload of Nescafé shipped from Poland to Germany, BCG calculates, could be as much as zł.275,000 (E60,000). And this is something Maciejko sees as "a macro-economic phenomenon with far reaching consequences."
However, many global brand owners are remaining fairly cool about the new threat, with Francois-Xavier Peroud, a spokesperson for the Nestlé group, saying, "People don't like coffee with labels they don't understand."
But many global companies have taken craftier measures than simply relying on language barriers to dam the westward flow of cheap products. One tactic is, like Unilever's, to promote different, cheaper brands exclusively in CEE countries, where purchasing power is lower, while keeping Western consumers in the dark about such cost-cutting possibilities. Nescafé itself has followed such a strategy by developing its Winiary stock cube brand here, while in the old EU 15 the company is known for its pricier Maggi range.
But how long and how completely will multinationals be able to keep the wool pulled over the eyes of Western shoppers? Even Peroud concedes that beyond creating brand and linguistic barriers and relying on Western consumer conservatism, there's not much that even the most far-sighted multinationals have been able to do.
And BCG, which published a report on the issue shortly before Poland's accession, says that some companies have only just begun to realize the size of the potential problem. This, Maciejko says, is because of the way some companies were organized before EU entry. "Often there would be one manager for Central and Eastern Europe, and another one for the EU. Or different managers for different countries, so cross-border issues were sometimes not foreseen."
Just how hard this oversight by A-brand producers will bite into their profits in the newly enlarged European free market, though, still remains to be fully felt. Re-imported tea, anyone?
However, many global brand owners are remaining fairly cool about the new threat, with Francois-Xavier Peroud, a spokesperson for the Nestlé group, saying, "People don't like coffee with labels they don't understand."
But many global companies have taken craftier measures than simply relying on language barriers to dam the westward flow of cheap products. One tactic is, like Unilever's, to promote different, cheaper brands exclusively in CEE countries, where purchasing power is lower, while keeping Western consumers in the dark about such cost-cutting possibilities. Nescafé itself has followed such a strategy by developing its Winiary stock cube brand here, while in the old EU 15 the company is known for its pricier Maggi range.
But how long and how completely will multinationals be able to keep the wool pulled over the eyes of Western shoppers? Even Peroud concedes that beyond creating brand and linguistic barriers and relying on Western consumer conservatism, there's not much that even the most far-sighted multinationals have been able to do.
And BCG, which published a report on the issue shortly before Poland's accession, says that some companies have only just begun to realize the size of the potential problem. This, Maciejko says, is because of the way some companies were organized before EU entry. "Often there would be one manager for Central and Eastern Europe, and another one for the EU. Or different managers for different countries, so cross-border issues were sometimes not foreseen."
Just how hard this oversight by A-brand producers will bite into their profits in the newly enlarged European free market, though, still remains to be fully felt. Re-imported tea, anyone?
