Turkey for a long time has largely been self-sufficient where food is concerned. Statistics of 2002 shows that out of the estimated $23 billion in retail food sales only 2 per cent were imports (Sirtioglu, 2004). Though Turkey has eschewed imports for a long time, the recent trends in food consumption is likely to revolutionalize the retailing food industry considering the increasing income, high rates of urbanization and also increasing number of women in the workplace which constitute factors that are influencing food trends in the country. Further numerous changes in the country’s economic and social structure that has seen liberalization of economy has opened doors for international competitors specifically from those who have established hyper and super markets chains and discount stores, a situation that is leading to a slow death of the traditional bakkals and open-air bazaars.
Therefore this paper will largely investigate and evaluate how the food retail industry in Turkey specifically paying attention to the food retail structure, the transformation of Turkey’s economy that in turn has led to growth of food retailing industry, factors promoting food retail industry in the country, specific anti-competitive practices in the food retail industry before making a conclusion. The information will be generated from literature reviews of journals, case studies, and website articles.
Turkey is a nation that is located at the crossroads of Europe and Asia. Historically the country has played a very important role acting as a bridge between the East and the West (PricewaterhouseCoopers p.
179). It is a relatively large country in terms of population and land as compared to other European countries. For instance it is estimated that the country’s population has doubled from 36.2 million people in 1970 to almost 71.1 million people in the year 2008 while demographic predictions shows that by the year 2020, the country’s population will have reached 80.
3 million people (Koc, Boluk and Kovaci p.2). Economically Turkey is categorized as an upper middle-income country, which has a mix of modern industry that is coupled with a vibrant tourism business and a growing modern agro-food sector. The country’s location places it at the nexus of numerous cultures an opportunity it has utilized to grow and develop the potentials of becoming an exporting country hub market through an initiated re-export program a situation that has attracted many global retailers of the region (Boluk and Kovaci p.2). For many years, Turkey’s has manifested to have a dynamic economy that is very complex comprising a mix of modern industry and commerce together with a traditional agriculture economy which in 2003, estimates showed that it accounted for 39 per cent of the country’s total employment (PricewaterhouseCoopers p.
179). Notable industries I the country include: textile and clothing industries, which have become the major exporters in the country; following textile and clothing in terms of volume of export is the white goods sector, then brown goods and lastly automotive sector. Private investors own almost all the later sectors; however, recent times have seen the economic situation of the country manifest an irregular economic growth and grim imbalances (PricewaterhouseCoopers p.179). Today, Turkey’s economy is undergoing transformation whereby it is changing from a characterized high degree dependence on agriculture and heavy industry to a more sundry economy that constitute global services sector and global retailers (Koc, Boluk and Kovaci p.2).
Before graduating to its current position, Turkey’s economy has not been immune to constant and noteworthy problems characterized by vulnerable national income, high inflation rate, and financial deficit that affected the country in the last three decades of 20th century. However, as from 2001 when the country witnessed one of the severe economic crises because of recession, government immediately embarked on a road path of initiating major economic reforms that were largely witnessed in the monetary and fiscal policies and structure.
In order to effectively sail through this period of economic reforms, the government received support from key international organizations such as International Monetary Fund (IMF) and the World Bank. As a result, the country’s economy got some ‘fresh oxygen’ and has maintained a “stable growth since 2002 with an annual growth rate of 6.8 per cent in its GDP” (Boluk and Kovaci p.2). Just like other countries in the region Turkey has not been spared the consequences of global recession and financial crisis that were experience as from late 2008, despite the effects, Turkey shows signs of recovery where the country’s GDP is expected to grow by 5.5 per cent every year for the nest ten years (Koc, Boluk and Kovaci p.2).
Other manifestation of the country’s economy have been high unemployment rate, skewed income distribution and institutional impediments but these are being reduced by major structural reforms being undertaken in the country. Therefore, evidence shows that constant endeavor in the policy formulation and structural reforms are expected to draw more foreign investments and to kindle the growth in all economic sectors in future.
It has been established hat food retail sector of a country is composed of generally “hyper and super markets, hard discounters, city center and department stores and the traditional outlets” (Synergyst Para. 1). The last few decades food retail sector in many countries of the world especially in developed countries has been shifting towards market consolidation and movements towards a more organized industry. This new trends are being energized by liberalization policy in most emerging markets of the world.
The genesis of profound transformation in retail industry especially in developed countries was started after the Second World War (Kompil and Celik p.1). As a result, urban sector and retail environments have been undergoing constant radical changes where in the last few decades they have been enormous. The radical changes have not happened in vacuum, they have largely been stimulated by the fast changing demographic, social, economic, and physical conditions taking place in the world (Kompil and Celik p.1). Therefore, what is seen in many countries are the introduction and emergence of new-inventive store formats, the growth of large-scale out-of-town retail environments and the appearance of new consumptions patterns among the population. The food retailing in Turkey has started to undergo transformation specifically due to change and emerging socio-economic situations.
Today there are large national and multinational retail corporations being established in the major cities of the country such as Istanbul, Ankara, and Izmir (Kompil and Celik p.1). As food continues to constitute the vital consumer expenditure in most developed countries, Turkey’s retail has continued to grow at a faster pace since 1980 and this has been attributed to numerous economic and social structure changes that have been taking place in the country.
At the same time, liberalization of economy spurred by the Customs Union and the European Union has seen the country record more development in retail sector. Turkey is experiencing proliferation of many supermarkets and hypermarkets that at the same time are fast-paced changing the retail environment of the country. Many multi-purpose shopping malls designed with large freestanding outlets coupled with numerous specialty stores are being developed in the country and they have restructured Turkish urban geography and hierarchy.
Food retailing in Turkey has evolved as a potential area for foreign direct investment (FDI) and in 2007 the food retail sales in the country was approximately $ 86.6 billion, which was 52 per cent of total retail in that year (Koc, Boluk and Kovaci p.2). In 2008, modern grocery distribution (MGD) estimates showed that food retail sales in Turkey were estimated at $ 103.4 representing 51 per cent of all total retail sales (Koc, Boluk and Kovaci p.2).
Today food retail sector in Turkey is composed of a dual structure involving both traditional small-scale and modern large-scale retailers. On observation, the traditional retailers still dominates the Turkish retail system and they are still very vibrant. For instance when they are considered small-scale, independent, single location retailers such as grocery, butcher, green grocery and small buffets coupled by open-air bazaars, traditional food retailers control 64.5 per cent of sector leaving 35.5 per cent in the hands of hypermarkets and supermarkets of total food retailing market (Koc, Boluk and Kovaci p.3). The traditional small-scale retails are favored by customers from non-metropolitan and rural areas of the country together with the low-income metropolitan neighborhoods.
Open air bazaars are efficient specifically due to their ability to display a variety of products, fresh fruits and vegetables and also their subsequent proximity and accessibility to most home an aspect that makes them continue being popular. Nevertheless, the share of hypermarkets and supermarkets especially in metropolitan areas has continued to increase as from 1996 to current period. This increase in organized food retailers has seen the market share of the large-scale retailers increase rapidly from 17.4 per cent to almost 41 per cent between 1996 and 2001 (Koc, Boluk and Kovaci p.3). Economic trends and prediction done for some time have vividly showed that Turkish organized retailing sector manifests prospects of high growth potential due to a growing population and presence of unsaturated market conditions.
As a result for the decades to come the retail structure in the country will be subjected to enormous and continuous changes as compared to the past.
Many factors have been identified as the main drivers influencing food retailing in Turkey. Such identified factors include rapid urbanization, income growth, education, changing life style, participation of women in workforce, development in transportation and economic crises (Koc, Boluk and Kovaci p.3).
1) Urbanization, Turkey continues to experience high and fast growth its urban population resulting largely from rural-urban migration. This urbanization has led to profound changes witnessed in the area of socioeconomic and culture whereby more women have become economically empowered and more families are becoming nuclear constituted (Koc, Boluk and Kovaci p.3). 2) Changing lifestyles, because of urbanization, individual’s demand for products has changed as more people consume more ready-to-eat or user-friendly processed food-drinks. The changing consumer behavior and preference for high quality products is because of urbanization, increasing levels of education among the population, growth in per capita income and increasing number of women earners (Koc, Boluk and Kovaci p.4). 3) Increased per capita income, 2009 economic statistics showed that GDP stood at $10,000, which is 4.7 times higher than GDP of 1980, and as a result, most Turkish urban dwellers have had a positive impact on global consumption (Koc, Boluk and Kovaci p.
4). 4) Growing level of education, the overall levels of education in Turkey have improved from as compared to those of 1980s. By 2009, the rate of schooling among female stand at 102.6, 80.7, and 33.6 percent respectively for primary, secondary and higher education (Koc, Boluk and Kovaci p.). 5) Foreign direct investment (FDI), whereby important changes have been realized both at macro-level and in most policies initiated by the government and as such the agrifood sector has changed and improved due to the coming of foreign companies from developed countries such as France, Germany, Holland, and Belgium (Koc, Boluk and Kovaci p.
4). 6) Favorable Government policies towards retail sector, since 1985, successive governments have shown interests and efforts in promoting the retail sector and among the different retail players, and hypermarkets have benefited a lot from government support together with supermarkets and other players (Koc, Boluk and Kovaci p.4). At the same time, numerous studies indicate that economy and population will continue to grow in future hence purchasing and consumption among many household consumers is likely to continue changing where many will favor ready-to-eat foods, away from home and sundry differentiated foods.
As such, food retail sector is likely to grow largely depending on high population, urbanization, increasing disposable income and changing consumer behaviors.
The current retail environment in Turkey is characterized by restructuring and concentration, which has led to changes in marketing system and conditions that most suppliers have to accept. Tokath and Eldener, carrying out a study in 2002, noted that there was existence of vertical conflicts between manufacturer-wholesaler, wholesaler-retailer, and manufacturer-retailer, which has persisted in the country since 1980s (cited in Koc, Boluk and Kovaci p.4). At the same time the study established that, manufacturers had lost their power to retailers and that retailers were putting much pressure on manufacturers to manufacture products of their own brands. In 2005, Celen et al.
, carried out a study of 51 retailers and 79 suppliers with aim of finding out if retailers practiced some anticompetitive tactics against suppliers and they found out that, “price flexing, requesting listing fees and requesting shelf fees” (Koc, Boluk and Kovaci p.3) constituted the most anticompetitive practices in the country. In 2007, Kovaci again undertook a similar study where he conducted a survey among 15 food manufacturers and identified specific anticompetitive practices in the country to be mainly exercised by retailers against food manufacturers. They included: “price and quality pressure for commodity, unconditioned product restoration, forces to supply with its own private brand package, request for exhibition fee on shelf, listing fee, advertising and announcing fees, and many more” (Koc, Boluk and Kovaci p.
3). During the years 1998 and 2008, there were about 23 complaints logged against retail firms to the Turkish Competition Authority and most complains addressed the issue of sales below cost or what is popularly known as predatory pricing, and discriminatory practices (Koc, Boluk and Kovaci p.8). Among the identified and investigated anticompetitive tactics by the commission involved cases where: suppliers are required to make payments as a condition of stocking and displaying their products or as a pre-condition for appearing in the supplier’s list. In addition, suppliers are required to pay the retailers in order for the retailers to position the supplier’s products in their stores; recognize and subsequently make some payments to retailers when they increase the range or depth of distribution of the supplier’s products within their stores; and make financial contribution as compensation for his or her products being promoted within the retailer’s stores during the year, popularly described as, ‘pay to play’. Moreover, suppliers are forced to give over-riding or ‘in anticipation’ discounts to the retailers while retailers have a tendency to seek discounts from suppliers, which after being given they later reduce the price of product contravening their earlier accepted agreement at the time of sale. Retailers also require the suppliers to compensate them when the profits from the product are less than they expected as well as being compelled by their retailers to place a lower retail price of a particular product in order to win consumers from a similar competing retailer.
In most cases, retailers force suppliers to buy back unsold items or in some cases fail to pay for them as agreed in the written agreement postulating that ‘sale or return’ was part of the terms of sales. In addition, some retailers totally fail to compensate suppliers for costs caused through the retailer’s company forecasting errors or order changes; suppliers are forced by the retailers to contribute towards the costs of refurbishing the store or in some cases costs of opening a new store. There is also a tendency by retailers to delay payments for suppliers contravening the agreed period and in some cases, the retailers initiate promotion of the product without conducting or agreeing with the supplier and later on require the supplier to fund the promotion. Moreover, retailers force suppliers to contribute to promotional activities carried out by the retailer company but fail to meet expected target; suppliers are forced to contribute to charitable organizations. Lastly, suppliers are required to make contribution towards specific promotion where in some cases the payments exceeds the actual costs of the company (Competition Commission, Kovaci, Celen et al, TESK cited in Koc, Boluk and Kovaci p.
It is evident that Turkey as a country has been experiencing economic, social and physical transformation, a scenario that has exposed the country to numerous problems specifically within the urban areas. Retailing in the past has not been doing well in the country but since early 1990s major changes started taking place where retailing introduced numerous spatial and social transformations in retail environments and the traditional retail activity. Turkey is a victim of globalization and concentration whereby the two aspects have increased food retailing in the country.
Other notable factors that have seen increased food retailing in Turkey are identified as urbanization, changing lifestyle, increasing per capita income, rising educational levels, which are regarded as demand side drivers of expansion of food retail sector in Turkey. On the other hand, factors such as foreign direct investments and government policies that favor the food retail sector have been regarded as supply side drivers. Turkey’s food retailing industry continues to encourage concentration, resulting into proliferation of unfair competition in food supply chain in the country initiated by the players in the field. These anti-competitive practices continue to lock out and discourage some potential players who can lift this growing sector in Turkey to higher levels. Therefore, what is needed is a comprehensive competition policy that can be instrumental in achieving efficiency in food retailing sector. The objectives of the comprehensive competition policy should be to promote competition by discouraging anti-competitive behaviors in the sector.
There should be freedom of choice, access to market, and enhancement of supplier, wholesaler, retailer, and consumer welfare that in turn should guarantee sanity in the food retailing industry of the country.
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