Turkey: Torn between tradition and modernisation
With its population of some 70 million, and a growing economy, Turkey is an interesting market for local and foreign retailers. Retail is modernising rapidly but high prices, tariffs, slotting fees and inequality in income levels, are slowing down this process. Consolidation and reform might further stimulate Turkey’s retail sector.
Elsevier Food International Vol.8, No.4, November 2005
Teuta Narazan
Turkey is a country of growing economy and population, with a GDP growth rate of 8.2 per cent and a population of almost 70 million. Especially in the four biggest cities – Istanbul, Izmir, Ankara and Bursa – the population is increasing by ten per cent every year. Turkey’s modern retail structures concentrate in these four cities.
Due to the development of economic and social structures, the retail sector in Turkey is growing rapidly. The Customs Union between Turkey and the European Union (in 1996) stimulated growth and entrepreneurship in Turkey. Despite difficulties in macro economic development, there is a positive trend in the development of the Turkish economy.
With an increasing number of women working outside the home, a significant rise in income levels and escalating urbanisation together with the influence of western lifestyles, consumption patterns of Turkish customers have changed. All this has supported the development of the retail sector.
Large western style retail outlets have flourished in Istanbul, Ankara, Izmir, and other large cities like Adana, Gaziantep, Bursa, Kocaeli, Konya and Mersin, where consumers are more aware of international trends, have higher income levels, and have cars to reach large big box stores. Such hypermarkets are built in the suburbs of larger cities while the share of supermarkets and superstores is rapidly increasing in the medium-sized cities. Modern retail formats throughout the country will most probably further change the shopping habits of Turkish consumers.
Modernisation
Despite the modernisation trend, Turkey’s retail market is still dominated by traditional, unorganised sales channels. The total market value is estimated at some US$60 billion with organised retail accounting for US$20 billion. Two-thirds of Turkish food retail sales, however, still happen via the unorganised sales channels such as open-air markets (bazaars or souks), kiosks and small grocery stores, called bakkals.
As said, modernisation happens especially in the cities. There the unorganised and traditional sales channels are increasingly being replaced by modern self-service sales formats of organised retailers, such as hypermarkets, supermarkets and discount stores. The share of organised food retailing in the total food retail industry is expected to reach 44 per cent in 2007, compared to 36 per cent in 2004.
When compared internationally, the growth potential for modern retail formats in Turkey such as superstores and supermarkets is obvious. In Europe, there are on average 15 superstores and 150 supermarkets for every one million people. In Turkey, approximately two superstores and 16 supermarkets cater to every one million people.
Despite the potential of the modernisation trend, the majority of the Turkish population still does not shop in the modern, large retail outlets due to low income and high prices. A report on Turkey by the USDA Foreign Agricultural Service (dated August 2004) refers to industry sources estimating that only five to seven million people do the majority of their shopping in modern retail outlets.
Low income levels, unequal income distribution, high local tariffs and non-tariff difficulty prevent any major increase in imports of ready food items. Industry sources estimate that only the top five per cent of Turkish population can afford to purchase imported food items. Moreover, Turkey has a well-developed domestic food industry and local food products dominate the Turkish retail market with a 98 per cent share.
Turkey’s modernisation of retail structures opened new areas for import of branded goods. Despite the Customs Union with the EU, which generates a privileged position for EU imports to Turkey, food imports face demanding administrative requirements. The lower value of the US dollar against the Turkish lira in recent months has made some US products more attractive, but increased cost of container shipment added further cost on imported items. Transportation costs are much lower for neighbouring countries.
Imported products have a good image in Turkey. However, there are high import duties on particular products. International retailers influence purchasing patterns by marketing a wide range of imported products and offering them in their stores. Alternatively, there is a well-developed local food sector in Turkey supplying most of the products in the market. There is a growing demand for specialised products such as diabetic and diet foods, which are mostly imported. Last but not least high shelf fees for imported goods charged by the supermarket chains lead to high costs for introducing new products.
Gradually rising shares
The combination of low wages and high prices limits the share of modern formats in the overall food retail market, but this share is gradually rising. Hypermarkets with sales surfaces over 2,500 m² have recently become the most profitable investment objects in Turkey’s retail sector. Sabanci, Koç and Dogus – the three biggest corporations in Turkey – are seriously involved in this sector. Hypermarkets account for nine per cent of total food retail sales, but it is expected that their share will reach 20 per cent in the medium term.
Discount stores also developed rapidly, as they cater to low income groups. Since its inception in 1995, the hard discount chain BIM – which was designed by former Aldi executive Dieter Brandes on a blueprint of Aldi’s lowest cost operational model – has grown into one of the largest retailers in Turkey.
Major supermarket chains offer several services to their customers. These include private label items, phone and Internet purchase and delivery and the use of membership cards. Since Turkey’s traditional service stores (bakkals) provide customers with a delivery service, and the minimum purchase level is fairly low, supermarkets expect this service will raise their sales. In addition, large supermarkets have started several promotion plans and increased their advertising spending. Today, modern retailers have become the biggest media space buyers to attract shoppers.
Convenience and forecourt stores in Turkey, feature leading brand names such as Select from Shell (404 stores), BP (554 stores), Total (94 Bonjour markets) and 7-Eleven (90 convenience stores operated by the Turkish franchisee Seven & I). Petrol station stores are quite new to the Turkish retail market and – like convenience stores – are mostly located in the larger cities. Marketim, a market chain, recently clinched a deal with Elf petrol stations to open up 24-hour service station stores. They are planning to open 25 outlets. There are also ventures of individual entrepreneurs who do not operate as part of a chain marketing system and organise their retail operations themselves.
Consolidation
The organised food retail sector is under the control of two domestic retailers (Migros Türk and BIM) and three foreign retailers (Carrefour, Metro, and Tesco-Kipa). The total market share of Turkey’s top three retailers is close to 13 per cent.
At the moment, around 50 different retail food chains operate in Turkey. Foreign investors in the Turkish retail market choose to form joint ventures with Turkish companies, such as Carrefour that has teamed up with Sabanci, and – way back in the past – Swiss retailer Migros that teamed up with the Istanbul municipality before the buy-out by the Koç Group in 1975, which created Migros Türk.
In 2005, consolidation affected Turkey’s food retail sector. In May, Carrefour announced it was going to acquire a majority stake in the retail chains Gima (81 supermarkets) and Endi (45 discount stores). According to Carrefour, this move is part of its strategy to become market leader in Turkey, an ambition which it quantified, according to PlanetRetail, as investing over US$100 million annually in order to reach a 20 per cent share by 2010.
In August 2005, Migros Türk announced the acquisition of a 71 per cent controlling stake in Tansas (206 supermarkets) in a deal worth US$387 million. Tansas played a prominent role in the consolidation grapevine since July 2004 when it said to be on the lookout for a partner, either domestic or foreign, to retain its position in Turkey’s increasingly competitive marketplace. Tansas was rumoured to be looked at by Tesco and Carrefour and negotiations are alleged to have taken place between Tansas and Carrefour, but Migros Türk turned out to be the one to acquire Tansas in the end.
Other rumours are that BIM was up for sale – this was denied by BIM in January 2005 – and that Wal-Mart was negotiating a possible cooperation with Migros Türk. BIM decided to free float 43.1 per cent of its shares by July 2005 so far nothing has happened between Wal-Mart and Migros. According to PlanetRetail, neither Wal-Mart nor Migros Türk’s parent company Koç Holding denied discussions between the two, which led to ongoing expectations that it is only a matter of time before Wal-Mart enters the Turkish retail market.
Consolidation and higher shares of modern retail structures in combination with a reform of the distribution system might well provide Turkey with an even stronger pace of change.
Turkey
Population: 69,660,559 (July 2005)
GDP: US$508.7 billion
GDP growth rate: 8.2%
GDP per capita: US$7,400
GDP by sector:
Agriculture 12%
Industry 30%
Services 58%
Source: CIA World Factbook 2005
Major food retailers in Turkey
Tansas
Tansas, founded in 1986, operates with three brand names, Tansas, Tansas Exclusive and Macrocenter throughout Turkey. With 206 shops, 123,000-m² retail area and 5000 employees, Tansas serves 78 million customers every year. Tansas stores are organised under four formats: Mini, Midi, Maxi and Exclusive-Macrocenter. In July 2005, Migros Türk acquired a 71 per cent stake in Tansas.
Metro Group
German retailer Metro Group operates in 24 countries and 850 locations. It set up shop in Turkey in 1990. Metro Cash & Carry system offers customers low price advantage due to minimised operational costs. Metro Turkey serves at nine locations in the Marmora, Aegean and Central Anatolia regions. It also operates seven hypermarkets under the Real banner.
Gima
Established in 1965, it was a state-owned retailing chain until the Fiba Group acquired the company in 1996. Net indoor selling space is 119,636 m². The total number of stores is 82. The company's full sales turnover was 661 million Turkish lira in 2003. Gima employs 2,815 people. In May 2005, the world's third largest food retailer, Carrefour, bought Gima and its subchain Endi for US$132.5 million.
Carrefour
The first Carrefour megastore was opened in 1996 by Sabanci Group and Carrefour. The first Carrefour shopping centre opened a year later and was named CarrefourSa. Today, there are 12 CarrefourSa's throughout Turkey. In May 2005, CarrefourSa acquired Gima and Endi. With a market share of 5.6 per cent, CarrefourSa is leader in the Turkish food-retailing sector. The company employs 4,000 people. The total sales area is 120,000m². Every year more than 30 million customers visit Carrefour stores.
Migros Türk
In 1954, Migros was founded by the joint venture of the Swiss Migros Cooperatives Union and Istanbul Municipality. In 1975, the Koç Group acquired the majority shares of the company. According to the 2003 annual report, Migros' net sales were over US$1.3 billion, with a gross profit of US$290 million. Migros is the preferred store of 160 million consumers every year. Today it has 7,000 domestic employees. Migros stores are located throughout Turkey in seven regions and 41 cities. By the summer of 2005, the sales area reached 806,529m². Migros stores come in three formats: M (mini), MM (maxi), MMM (mega). The total number of stores is 190. Migros also has a discount chain called Sok.
Tesco-Kipa
Kipa was established in Izmir in 1992. On November 2003, Tesco PLC acquired 81.52 per cent of the total share capital of the Company. Tesco-Kipa's 2003 net profit was over 800 billion Turkish lira. It has six supermarkets around the Aegean region. Its store in Bodrum has recently opened in summer 2005 and is the first store to be opened after the Tesco acquisition. Over 1500 employees work for the company. Net sales area is 42,000 m².
Turkish trends
• Modern retail market shares will continue to climb in Turkey, especially in the hypermarket and hard discount store segments.
• Consolidation will continue (e.g. Carrefour acquiring Gima).
• Wal-Mart is expected to enter the market.
• Turkish supermarket chains will invest more in the neighbouring countries where local chains with a weak capital base will be targeted (Migros Türk is already an example to the other chains).
• Bazaars and souks will continue to be major outlets for a very long time as they are the masters of fresh food distribution.
Teuta Narazan is co-founder of More Solutions, an agency specialised in strategic planning, retail intelligence and the development of new concepts for retailers and shopping centres.
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