“It is true that our competitors are now 30-40 percent cheaper than previously, but we were prepared for this situation. In fact, we prepared for a lot more negative impact,” says an optimistic Frank Odzuck, CEO at Zwack Unicum, the firm that produces Hungary’s renowned bitter herbal liquor, Unicum. Accountable for an 80 percent share in the premium bitter segment of Hungary’s alcohol market, Zwack Unicum already enjoys popularity in Italy, Germany and Hungary’s neighboring countries. While Unicum is the flagship product, it is not the only trademark Zwack is wagering on. The company is currently trying to corner the EU market on sweet varieties of schnapps with its current hits, Fütyülős, namely the honey apricot version, and Vilmos Nectar.

Competition abounds EU membership, meanwhile, has delivered some bittersweet wake-up calls to the Hungarian alcohol industry. As part of EU membership, new members had to abandon their own trade policies and adopt EU trade benefits and customs policies. Along with the abolition of import duties, domestic alcohol producers will face additional burdens as new and cheaper brands enter the market, especially those focused on the highest segments of the Hungarian market.

Although in price sensitive Hungary cost still remains a key factor in sales strategies, brandbuilding is starting to play a more important role. Businesses are pressured to create identities that will attract and retain customers at home and abroad. Odzuck sees branding as an opportunity to differentiate his company’s products from rival imports and up market local challengers. “In the fast moving consumer goods industry, good brand strategy is necessary for survival. If local brands are modern and innovative enough then they will stay much stronger than international competitors. That is why the British drink whiskey, Italians grappa, and Hungarians Unicum and pálinka,” says Odzuck.

As part of their new strategy, Zwack Unicum management has undertaken the step of “modernizing its look” by renewing its logo in a bid to stand out from the European market. The trademark Unicum bottle was recently given a facelift that will soon appear on shelves.

Revival of old brands

Hungarians are rather used to surprises and novelties when it comes to their traditional brands. The privatization processes of some industries in the beginning of the 1990s, and their transfer to the hands of foreign firms, led to reduced production and the disappearance of some Hungarian brands as global trademarks took their place. But some traditional products, such as Zwack Unicum or Pick salami, proved resilient. In the course of the economic transition, Hungarians also saw many former brands return to the shelves - often in their old packaging, such as the soft drink, Traubisoda, Baba cosmetics, and chocolate brands Balaton, Sport and Túro Rudi, to name a few. They were either brought back to life, or they simply survived the market, whether their owners were Hungarians or shrewd Western multinationals who spotted market niches.

FRANK ODZUCK Zwack Unicum’s CEO is overseeing a facelift of the traditional Unicum bottle, to appeal to a more modern, European consumer.

“You can see that at the beginning, people bought more imported goods mainly because they were cheaper, but after some time they returned back to their old familiar products,” says Odzuck, adding that some Hungarian trademarks, such as Pick salami, enjoy more brand power than before owing to innovative branding strategies. Similarly, the re-branding of the Tisza shoe trademark as a high quality fashion product has paid off for László Vidák, the 33-year-old owner of Tisza bent on making this 70s socialist track-shoe icon a unique Hungarian brand. With the flagship store in downtown Budapest, Tisza trainers have also made a remarkable debut abroad. A well known upscale boutique in Stockholm, Nitty-Gritty, is one European retail unit that has carried four lines of Tisza shoes since February 2004. With prices ranging from EUR 95-110, they have been disappearing off shelves.

“Since our store first opened in May 2003, we have doubled our sales there. Also, we had to triple Tisza production for the Fall/Winter season to serve Hungarian customers' needs as well as foreign partners. According to our business plan, we expect a boom in sales in the Spring/Summer 2005 season,” said Monika Molnar, Tisza’s director of international marketing and sales. With plans to open its second store in Budapest next year, Tisza will launch a wholesale business in September and expand its retail distribution channels to five other cities in Hungary.

EU accession offers many strategic opportunities to local producers but also brings further pressure to bear on prices and brand positioning, together with the challenge of meeting competitive foreign product standards. The present popularity of some Hungarian products aside, the next decade will show whether these brands can withstand the challenge of the common market and communicate with the European consumer the same way they have in Hungary.

Global vs. local

Long gone are the days when the idea of Pan-European advertising held sway over the European market, allotting consumers in various countries into the same demographic and psycho-graphic categories. Changing consumer trends in the EU eventually forced brand builders to adjust their approaches and advertise to specific communities. The European market of today, like the rest of the world, is parceled into ever smaller segments in which established local brands often give the global ones a run for their money.

“Consumer markets have changed tremendously. We don’t live in a homogeneous world. Markets are extremely de-fragmented and even though there are global markets and global brands, region-specific issues are very relevant,” says Peter Sebok, a branding specialist who has been involved with strategic communication projects for corporate giants like Amstel, Shell and AT&T, and now runs his own brand-consulting agency, BrandDoctor.

It can be said in many instances that market competition hinges more on the intensity and efficiency of communication, rather than product quality. For small and medium size producers in Hungary, who are barely meeting the expense of the upgrades needed for “Euro-conformity,” marketing and brand-building strategy for the common market is a luxury they cannot afford.

According to a recent survey of the Hungarian food industry and its preparations for EU accession, conducted by the Research and Information Institute for Agricultural Economics in Budapest (RIIAE), few Hungarian SMEs or even large businesses put aside resources to manage a marketing approach that would allow them to promote their name, logo, products and services to a wider but targeted audience, while developing links with the European consumer.

For many market experts the issue of EU competitiveness boils down to healthy corporate structures that are still hard to find in Hungary.

“Bigger Hungarian brands are still not addressing all the opportunities they could be. They are slow to reposition themselves to go for the larger market. The main problem in Hungary is poor organizational structures in businesses that continue to suffer from hierarchy, slow decision-making, lack of fresh thinking and adaptability and unwillingness to take risks. This is a very competitive market and Hungarian companies can do much better,” says Sebok. The powerful currency of branding Branding has become a real business differentiator in the EU. Promoting the brand concept of labels of protected origin to consumers and policymakers is one marketing instrument that has been used in the EU to gain maximum differentiation for the customer at a local level.

Whether it is Roquefort cheese, Parmigiano cheese or Rioja wine, European consumers are known for their fondness of products from specific regions. Despite their legal complexity and diffuse nature, geographical indicators (GIs), have long provided sound business opportunities for European producers. GIs protect quality products in the EU based on their origin and production methods. Totaling 4,800, GIs not only constitute the main pillar of the EU’s quality policy on agricultural products but also account for a significant amount of EU exports. EU provisions for regional quality products could open a whole new world of opportunities for the new member states.

In fact, Hungary’s neighbor, Slovakia, has already benefited. The Bratislava-Brussels accession treaty, which took effect May 1 with EU enlargement, has given the Slovaks an exclusive chance to sell their brynzda cheese to the rest of Europe. Already popular in the Czech Republic, Hungary and Poland, this un-pasteurized sheep cheese can finally appear on tables in other EU countries. This brings hopes of increased brynzda exports, which will revitalize Slovakia’s cashstrapped dairies.

Hungary needs a new image in Europe

Provided that producers of traditional Hungarian products bring their branding strategies up to speed, Hungarian brands have the opportunity to become single market trailblazers. Indeed, four renowned Hungarian producers: Herend Porcelain, Pick Szeged, Tokaj Trading House and Zwack Unicum recently teamed up to form the so-called “Hungaricum Club.” The group was joined by the Halas Lace Foundation, a renowned Hungarian embroidery maker. Representatives of these traditional trademarks opted for joint action to steer their brands’ new European direction by defining and communicating the brands’ core values.

TISZA SHOES The re-branding of the Tisza Shoe trademark has paid off, and is selling well in Sweden.

“The image of Hungary is not in the right place right now. The purpose of the Hungaricum Club is to bring these four strong brands together and reinforce positive associations for Hungary,” says Odzuck, adding, “Eastern bloc” thinking still prevails in Europe when speaking of Hungary. The “Puszta-Paprika-Gulyas image is not necessarily a bad one; it attracts tourism but Hungary has more to offer. We need a more contemporary image of Hungary and especially Budapest.”

As the experience of other EU nations demonstrates, the survival of Hungarian brands will depend on whether they will be able to find market niches. “Being a small nation doesn’t mean you cannot create a powerful brand. If necessary changes take place, Hungary can follow in the footsteps of other European countries. Look at the Finns with Nokia, the Swedes with Volvo, the Danes with design, the Dutch with banking, etc.,” says Sebok.