When executives from Walmart visited Turkey recently to look at acquiring Migros Ticaret, the country’s biggest supermarket chain by sales, in a possible deal worth some $2.65 billion, they set foot in a land that has frustrated the ambitions of more than one foreign retailer.
With a population of 75 million that likes to spend, and a per-capita income that has tripled in dollar terms over a decade, Turkey is an appetising market.
But its food retail sector, with TL122bn ($68.4 billion) of sales, has challenging specifics of its own. The country has the world’s highest petrol prices, severe traffic problems in the biggest cities, and the custom of buying fresh produce every day. Driving to the supermarket is far from a universal way of life.
Instead, local stores and discount chains are a force to be reckoned with, while bigger supermarkets and hypermarkets grow at slower rates.
“Discounters are growing and the locals are getting stronger,” says Izzet Karaca, who as head of Unilever for Turkey and 34 other countries keeps a keen eye on the retail trade.
“Locals are learning how to be better supermarkets — learning about positioning, about what to put on the shelf. With petrol prices where they are people don’t want to drive 20km to do their shopping.”
Organised retail has to contend with a resilient traditional competitor — the corner shops known as bakkals, renowned for their attractive displays of fruit and vegetables, their ties to their neighbourhoods and their willingness to extend credit.
The bakkals’ market share is declining by a percentage point or so a year. But they still account for at least half of all food sales and are anything but a spent force.
Meanwhile, discounters are elbowing their way into the market. Bim, a discount group listed on the Istanbul Stock Exchange, pushed past Migros in 2010 to become the biggest single food retailer in the country.
Melda Agirdas at Ekspres Invest in Istanbul points out that, although the two groups have roughly the same floorspace, about 900,000 square metres, Bim racked up TL7.3bn in sales for the first nine months of 2012 compared to Migros’s TL4.8bn. Bim has 3,584 stores to Migros’s 874.
Cem Karakas, chief financial officer of Yildiz Holding, a Turkish conglomerate that in 2011 bought Sok, a 1,200 store discount chain, from Migros for TL600m, says a key consideration is Turkey’s urban topography.
“The key thing is that you can increase the prevalence of small-size hard-to-soft discounters much faster than you can larger hypermarkets or supermarkets,” he says.
“It is very difficult to find smaller sized stores anywhere in Turkish cities, let alone sites of 5,000 or 10,000 square metres.”
Karakas emphasises that local store groups — with bigger networks than the bakkals but far from national in scope — are also an important player, and are consolidating by merging or selling out.
It is a process that offers opportunities and pitfalls for foreign groups. In November Uyum, an Istanbul-based retailer, announced that talks had collapsed with Tesco’s Turkish unit Kipa, which remains a relatively small player with 185 stores.
Kipa has only nine stores in Istanbul, even though the megacity accounts for almost 30 per cent of Turkey’s national income. Tesco says that Istanbul remains “an important future growth market”.
Other foreign companies have also experienced frustrations in Turkey. Last summer four board members of Carrefour’s Turkish subsidiary, CarrefourSA, resigned, saying they had not “received the necessary support and assistance” from the French parent company.
All four had been appointed by Sabanci Holding, the Turkish conglomerate that is the minority shareholder in what remains a relatively distant third in the Turkish food retail market.
Carrefour later began talks with BC Partners, the London-based private equity group that controls Migros Ticaret, with one possibility a Migros merger with CarrefourSA. But weeks later a deal was not done and Walmart is now on the horizon. Industry watchers say Tesco has also been interested in Migros.
Migros itself downplays the Walmart talks. “It is only natural for the leading institutions of the national and international retail market to monitor Migros,” it said in a statement in December. “The discussions at this time fall within the framework of the ordinary course of BC Partners’ business.”
But four years after BC Partners bought its 51 per cent stake, the private equity group is widely expected to make its exit, paving a way for a new group to enter Turkey’s promising but far from straightforward retail world.