Turkey Food and Drink Report Q4 2009

With increasingly bleak news on the current state of the Turkish economy, it comes as no surprise that consumer confidence in the country is taking a knock, which in turn is having a negative impact on the country's food and drink sector. However, as discussed in BMI's new Turkey Food & Drink Report for Q409, some companies are benefiting from the downturn; in particular, discount retailers.

According to the latest data from the Turkish Statistical Institute, the Turkish economy contracted by 13.8% y-o-y in Q109 as net capital outflows and contracting external demand continued to prompt a sharp adjustment in domestic demand, while private consumption fell by 9.2% y-o-y in the quarter. With consumer confidence falling, Turkish consumers have been making changes in their daily shopping habits. Over the past decade, mass grocery retail (MGR) has become increasingly popular in Turkey, with the retail industry shifting towards Western trends, and new MGR formats such as supermarkets and hypermarkets showing strong growth.

Along with the downturn, consumers who may have previously met their daily shopping needs in supermarkets are increasingly turning to discount stores, with this trend reflected by this subsector's leading retailers. For example, in May domestic discount chain BIM announced that its first quarter net income was up by 57.4% to TRY55.1mn compared to TRY35.0mn during the same period last year. BIM pioneered the discount store model in Turkey and has been very successful, allowing it to pursue an aggressive store opening strategy, with 1,400 outlets planned by the end of 2009.

Meanwhile, rival discount chain Dia (a joint venture between France's Carrefour Group and Sabanci Holding) announced its own plans to increase store numbers from 620 to 700 this year alone. President of Sabanci Holding's retail group Haluk Din??er said that expansion activities will focus on the Marmara and Aegean regions, saying that the policy is to open supermarkets no further than 350km from the company's warehouses in Istanbul and Izmir. Clearly, while higher-end retailers will struggle with this current economic climate, others will benefit from the rising price consciousness among consumers. For this reason, BMI is currently forecasting growth of 54.8% in the discount sector between 2008 and 2013, compared to a forecast growth rate of 42.9% for overall MGR sales.

It should also be noted that despite the very weak Q109 figure, we maintain that Turkey remains among the best-positioned economies in emerging Europe to recover in late 2010 and hold to the view that H109 will be the trough of the current recession. Furthermore, we believe that the record low headline Q109 real GDP growth figure belies an economic performance, at least in domestic demand terms, that is on par (if not better) than that seen in Turkey's previous recessions over the past two decades. Therefore, companies that are willing to invest now and defer gains to a later date could find themselves in a very strong position to benefit from Turkey's favourable long-term economic outlook.