Sources: Invest in Denmark, Invest in Sweden Agency

In recent years, the Danish and Swedish food industries has undergone considerable change. Corporate rationalisation and restructuring have increased the industry's competitiveness. This has contributed to an increasing share of foreign participation, both in terms of ownership and as suppliers to wholesalers and retailers.

Measured by GDP, Denmark and Sweden are the largest markets in the Baltic Sea Region and thereby sophisticated test markets, where consumers easily accept and adopt new products and concepts. There is a long history of sourcing food products globally and consumers are used to buying foreign brands. The food industry in itself is advanced both in terms of soft and physical infrastructure and the full chain from primary supply to end consumer is highly sophisticated.

In the Nordic context, food companies locating in The Oresund Region gain access to 25 million consumers with strong purchasing power. The neighbouring Baltic countries are some of the fastest-growing markets in the world and although purchasing power is still fairly weak it is improving rapidly. In total, there are some 100 million consumers in the ten countries of the Baltic Sea Region. There are thus considerable opportunities for international food companies to capture market share.

Changes in consumer lifestyles, in the shape of growing demand for healthier, "greener" and more convenient products, is one of the major driving forces behind the evolution in the food industries of Sweden and Denmark. The trend towards ready prepared meals – as in the rest of the European and US food industry – can be seen most clearly in the meat and processed meat products sector of the market, particularly in the area of frozen items. The ready meals sector has for decades shown one of the highest percentage growths. Products that present ingredients in new ways, combined with innovative packaging and preparation techniques, will take precedence over traditional items.

For international companies with established expertise in both the ready meals and the "healthy" foods arena, this is good news. These trends can only continue to grow, and as cookery skills become less universal – as in other international food industries – it is improbable that the upcoming generation of consumers will revert to food requiring much preparation. Real opportunities exist here for foreign enterprises to duplicate their expertise in this market and obtain important share at an early stage. The domestic industry has reacted positively to these developments, and both the retail and catering segments are offering products that meet consumer needs.

A number of factors shape the opportunities available, now and in the future, in the food business. Success is dependent on the business approach, timing and levels of strategic awareness of the players, both national and international.

The ongoing changes shaping the region’s food industry present a number of opportunities for both domestic and international players. As one of the major drives of development, consumers’ behaviour, lifestyles and habits, is of primary importance, it is useful to look at how current changes will go on to affect future demand for food and drink products.

Demand for convenience and pre-prepared products continues unabated, as lifestyles become more hectic and leisure takes on a new meaning. In this context, pre-portioned products that come with a sauce, with vegetables or with a carbohydrate such as pasta or potatoes – or combinations of all three – will continue to grow. As will products that present ingredients in new or novel ways combined with new packaging and preparation techniques. Three-way cook options – oven, grill and microwave – or dual ovenable items will have the edge over traditional packages.

Hand-in-hand with the demand for convenience goes the raised consumer awareness of health-related issues and, as a consequence, heightened knowledge of nutrition. This has led to a proliferation of "healthy" foods. Not only those with low fat benefits, but also those with nutritional advantages, such as added fibre, vitamins and minerals, or ingredients with perceived disease-preventative qualities. The signs are that these trends will continue to influence future growth and demands.

So far, the food industry has reacted positively, and both the retail and catering segments of the market are able to offer products that satisfy these consumer needs. But there are, clearly, real opportunities for foreign companies to transfer their expertise to the market and gain valuable share at this early stage of the game.

Another area of change – and opportunity for investment – is in private label. Supermarkets are responding to demands for an ever-widening list of products and product formats and are following trends in other European countries by producing quality, yet lower-priced, in-house labels. This is also encouraging branded producers to concentrate on their core ranges, again with the aim of satisfying an increasingly sophisticated consumer base.

Predicted to have far-reaching effects is the development of genetically modified products, while progress in electronic shopping and the Internet also has an impact. While these are areas still being developed, there is no doubt they will have a big influence on consumer behaviour. Companies that can see, and seize, the opportunities these will provide can be assured of a market-leading position.

For both new-, and established players, events a little further behind the scenes will provide for further scope in the market. The structure and power balances within the industry are changing, notably in the area controlled by the retailers and the wholesalers. The external evidence, is seen through the introduction of growing ranges of private label products, as well as an increased concentration on logistics. Flexibility will be the key in that area, and will open up new avenues for companies prepared to concentrate on more partnership-oriented relationships.

The relationship between suppliers, wholesalers and retailers, is destined to become even more quality conscious. The quality issue is also being affected by consumer awareness of production methods and the safety issues. Assurance of production conditions, from animal welfare to the use of fertilisers and pesticides, will play en ever increasing role in all links of the food production chain.

The Oresund Region, being one of "cleanest" farming- and production areas in the world, enjoy a fine reputation for its highly developed food industry.

Focal points

• Changing consumer demands favour value-added products, convenience foods and functional foods.
• Increasing number of private label products.
• Burgeoning alliances between retailers, wholesalers and food manufacturers.
• High acceptance for new products and concepts.
• Productivity levels above European average.

The Oresund Region is characterised by a well-educated workforce, and more than 25 percent of the population has benefited from third level education, placing Denmark and Sweden in the forefront of European nations. Many of the universities and institutes also have international reputations for cutting edge research in most areas of science.

Industry reaps the rewards of this strong education system, and the proportion of the population involved in research and development is the highest in the EU.

The workforce is highly technological literate: Most of the citizens in the region are familiar with computer technologies, and their language skills have placed The Oresund Region in a favourable position.

Direct marketing, as one of the most regularly used forms of communication between the retail sector and the consumers, shows a rapid growth. Current trends in media show that as a marketing medium, the Internet will bring new challenges to the industry. Morning papers are expected to start losing advertising volume, while radio-, television- and Internet advertising are in rapid increase.

There is currently a trend towards polarisation in retail sector. Large supermarkets and small convenience stores have the biggest share of retail sales, while the number of medium-sized grocery stores are declining.

Other developments of note that could represent good opportunities for foreign or further domestic investment include the ongoing move toward vertical integration, the increasingly common exclusive contracts with their emphasis on deliveries and sales, and the growth of private label.

The growth and internationalisation of both retailers and manufacturers, the changing sourcing patterns and the increasing sophistication of suppliers' logistics systems, have resulted in a decline in demand for traditional wholesale services. This however, presents an opportunity for domestic and international companies with expertise in these areas, as well as in the co-branding and marketing arenas.

Changes in lifestyle and the subsequent shifts of emphasis in food consumption, such as convenience, are also having a significant effect on the catering sector of the market. Fast food is the area benefiting most from these trends, as in reaction is the restaurant sector for both traditional- and fine cuicine.

Technological developments in both food preparation and packaging have increased the opportunities opening up in fast food.

Efficient distribution systems are extremely important, and logistics accounts for notable expenditures in many businesses. In the food industry, shorter shelf-life products require even more effective distribution networks.

The factors that are influencing growth include higher consumption of frozen foods, demand for pan-European distribution and the search for more cost-effective distribution solutions. One of the main drivers is the development of the market for frozen and chilled products and frozen foods in particular, which have been growing over the past few years.

Integrated third party logistics is growing swiftly, and the role of the freighter is changing rapidly as the boundaries between the parties shift. These changes are coming about primarily because of the increasing costs of logistics compared to costs of manufacturing the product.

Risk minimisation is a cornerstone for transport to and from the transition economies in the Baltic Sea Region, where the removal of trade barriers is a protracted process. Surveys of shippers indicate that vital competitive factors are on-time delivery, safety of goods and personnel, and the ability to assume responsibility for the entire chain of logistics. In this regard, The Oresund Region offers excellent logistics service providers.

Many international companies consider the Baltic Sea Region to be a natural business region. A unique combination of features has made The Oresund Region a particularly attractive base and point of departure for business operations in parts of or throughout the region. With The Oresund Region as a hub, companies gain access to a total Baltic market of some 100 million consumers.

The Oresund Region offers a number of features that may present advantages to companies located there, especially those which aim to pursue Baltic business opportunities. Establishing regional headquarters in the region provides access to the largest single market among the Nordic countries.

Another advantage is the regions geographical position, with excellent traffic connections – domestic, intereuropean and intercontinental.

The Copenhagen Airport ranks among the largest in Europe, servicing more than 60 airlines and counting for more than 12 million departures and arrivals annually.

The Oresund Region’s position as the home of many world class and instantly recognisable original equipment manufacturers (OEM) enhances the availability of the pool of headquarter skills in comparison to other Baltic locations. The presence of large multinational corporations has fostered detailed knowledge of international business, management and language skills. In fact, it is generally not hard to find people in the region who speak English, German, French, Finnish, Norwegian, Estonian and Russian.

According to international surveys, after the United States, the Oresund Region and its Nordic neighbours are the leading IT nations in the world. Foreign companies in the region state that the telecommunications infrastructure is more competitive than elsewhere. Both Denmark and Sweden has had a deregulated telecommunications market for several years and there are a number of different operators competing with the publicly companies. As a result, the region enjoys the lowest total telecommunications costs for a multinational company in a major city in the Baltic Sea area.

Copenhagen is the financial centre of the region. Copenhagen’s role as the leading marketplace will be strengthened through an important event which took place in January 1998, when the Copenhagen Stock Exchange signed a formal co-operation agreement with the Stockholm Stock Exchange. The agreement states among other things that the two exchanges will use a joint trading system. Danish and Swedish shares will be traded in the joint system from the beginning of 1999. The alliance will be Europe’s fifth largest stock market in terms of capitalisation.

Sweden and Denmark are rated among the top European countries in logistics infrastructure. The geographic location, combined with highly developed logistics systems, provides rapid and reliable distribution to all parts of the Baltic Sea Region. All larger Nordic cities, as well as the northern parts of Germany and Poland can be reached by surface transport within 12 hours. By air, most of the destinations can be reached from Copenhagen Airport within 1–2 hours.

Shipping and other connections with the east will assume increasing importance for the expanding transition economies. Sufficient transport capacity is available thanks to extensive port networks and a large number of shipping companies which today provide freight and passenger services between the region and the other countries in the Baltic Sea Region.

In a growth scenario, The Oresund Region’s competitive edge is further enhanced. The potential market within reach would include the entire Baltic Rim, the St. Petersburg area and parts of Belarus. In contrast, the growth areas would be difficult to reach within 24 hours from Germany and the Netherlands.

The Oresund Region is the only area that can offer sustainable service capability with regard to all three criteria: time, current GDP and growth. These factors provide additional advantages for The Oresund Region as a location for companies seeking to expand in the dynamic Baltic Sea Region.