Supermarkets account for just 30% of food sales in Turkey but this is changing fast. Local and foreign players are battling for supremacy while independent grocers seek alliances to ensure they survive. Hilmi Toros takes up the story.
Only a recent phenomenon in Turkey, supermarkets are growing at a bewildering speed in a large and expanding domestic market. Major local chains are also venturing into foreign markets, particularly in Eastern Europe.
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In the opinion of industry analysts, Turkish food majors could also penetrate to emerging and energy-rich markets nearby, such as Azerbaijan, Kazakhstan, Turkmenistan and the former Soviet Union’s other Central Asian republics that have affinity to Turkey because of similar language and common heritage.
At home, from the first opening in Istanbul as late as 1993, there are now some 100 hypermarkets and 2,500 supermarkets across the country. Together they generate annual turnover of some US$2bn. They control up to 30% of the market, but their share in large metropolitan areas such as Istanbul, Ankara and Izmir pass 50%, according to Sukru Aslanyurek, a board member of the Turkish Council of Shopping Centres and Retailers.
And this, according to observers, seems to be the beginning rather than the end of further expansion, even if many retailers are still far from making hefty profits. Most are re-investing in their current expansion programmes, focusing on increasing sales volume and number of outlets before the sector undergoes an anticipated shakeout within the next five years.
Russian expansion for Migros, Gima targets Romania
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By GlobalDataTurkish Migros, established by Swiss founders and now belonging to the main industrial holding Koc group, recently opened a US$30m hypermarket named Ramstore in Moscow, billed as the biggest in the country and pushing its hypermarket total to three and Migros outlets to eight in Russia. The new complex is considered a match to many in Europe, boasting a 50-counter area and offering fruit and vegetables from around the world. Shoppers can eat at a 500-seat fast-food restaurant.
The company, which says it plans four additional Migros food centres in Moscow this year, considers Russia a growth area and began investing (so far US$150m) even during the downturn in the Russian economy and now believes that the worst of its economic troubles are over. It sees purchasing power increasing steadily in years to come.
Migros, market leader at home, finished last year with 450 supermarkets, 17 of them Ramstores overseas.
Eastern Europe remains favourite international launch pad
Meanwhile, compatriot rival Gima (annual gross sales: US$250m) plans to grow its store base in Romania from seven to eight, with an investment of US$15m, and open three stores in Ukraine. At home, it says it has a total of 1.9m customers carrying its loyalty card entitling 15% discount, with 78% of these regular shoppers.
“The eastward expansion of European supermarkets mainly involved the Czech Republic, Hungary and Poland,” Aslanyurek said in an interview with just-food.com. “Turkish companies are moving into other emerging nations. They know the mentality there and feel comfortable doing business with them.”
Market share analysis
The growing sector in Turkey is now subject to regular monitoring, for example by the GfK research group. Its recent survey on the shopping preference of 2,500 families in 12 cities put Migros in the lead with 35.9%, followed by others owned by national holdings: 32.9% for BIM, 25.2% Tansas, 20.4% for the Sok hard discounter (owned by Migros’ parent company) and 13.8% for Gima.
Germany’s Metro ranked seventh with 10.3% and French giant Carrefour 10th with 5.4% in the survey that took into account consumers’ habit of shopping in more than one supermarket. Both Metro and Carrefour have fewer outlets and are concentrated in large metropolitan areas such as Istanbul (population over ten million). Carrefour, allied with another main holding (Sabanci) and known in Turkey as CarrefourSa, announced in late January 2001 that it plans to build a score of hypermarkets and some 30 supermarkets by 2003. Metro recently opened a US$85m hypermarket and a shopping centre in the southern city of Adana.
At home, the 30% share of the shopping market accounted for by supermarkets and hypermarkets indicates huge potential for growth as rural-urban migration continues and population steadily grows (already over 65 million). The large new stores also offer convenient outlets for private label items produced by the holding companies of supermarkets. Private label is said to account for up to 20% of sales.
Independents under threat but fighting on
As one result of the inroad of supermarkets, some 1,200 neighbourhood grocers are reported to have closed in the capital of Ankara in 2000. “They are all over,” says the federation of grocery stores, referring to big food stores. “They compete hard and drive prices down. Soon they will be in smaller towns.” But the neighbourhood stores are fighting back. In Istanbul, their association is offering advice and interest-free credit to its 35,000 members to enable them to enrich their product portfolio.
And Migros, which puts its annual turnover at over US$1bn with 2.5 million card holders, is also trying to ally itself with some 100,000 grocery stores across the country, offering to modernise their shops, promising faster delivery of its private label products as well as use of credit cards. The idea is that those who do their weekly shopping at Migros could go to their neighbourhood groceries nearby to pick up top-up Migros items they may have forgotten at the big store.
Mergers & Acquisitions in the pipeline
Currently, analysts say, the supermarket chains, with their loss of profit due to re-investment absorbed by their holding companies, are jockeying for position, aware that mergers and acquisitions are in the offing. The assumption is that those eventually selling out will demand higher prices on account of big business volume and the large number of outlets.
Through eventual re-adjustment, Aslanyurek expects only four large chains to survive, two of which will be Migros and CarrefourSa, since both belong to the country’s top two industrial holding companies. The others will be determined by mergers and acquisitions that may also include other European chains as the market share of large stores rises to 50% in the next five years.
By Hilmi Toros, just-food.com correspondent
