Sector overview - Retailing
Fast moving consumer goods retail market continued its strong growth in 2007.
Revenues increased by 10%, while the number of stores rose by 24%.
Turkish retail market revenue rose by 10% in 2007 to reach USD150 billion, while the number of stores increased by 24%. Total employment in the sector grew by 50% in the last two years, due to the large amount of new investments.
According to market analysis by AC Nielsen, fast moving consumer goods' retail volume reached USD31 billion with a 25% increase. This performance corresponds to a 13% growth in YTL and 4% growth in quantity terms.
As Turkey sustains its economic growth, the retailing sector will benefit from the increasing disposable income of consumers.
Sector overview - Food (tomato products, pasta, fresh meat, and dairy products)
Global warming affects the food sector.
Global climate fluctuations and droughts decreased the supply of raw materials in the food sector, causing price increases above expectations.
The price of tomato and tomato products increased around the world due to adverse climate conditions, decrease in tomato cultivation resulting in world tomato inventories dropping to the lowest level in recent years, EU regulations reducing government incentives to tomato agriculture, and the expectation of an increase in worldwide consumption, especially driven by China.
The shortage in international wheat supply also increased the cost of pasta production.
All these developments, which are also linked to global warming, are expected to continue in 2008.
The increase in the cost of fresh meat and dairy production, based on domestic livestock, was not as high as that of agricultural commodities.
Sector overview - DIY market
Turkey's home improvement market has grown into a USD7 billion business.
The size of the Turkish home improvement market is estimated as USD7 billion. The market is mainly comprised of a traditional network of dealers and small local hardware merchants, with the share of organized retailing estimated at around 12%.
Due to the entrance of foreign participants, the Turkish home improvement market closely follows global trends. This dynamic and innovative sector enables its players to provide customized concepts according to their country of operation, finding ways to motivate consumers to renovate their houses.
The do-it-yourself trend which became popular in Europe and USA, is being replaced by assembling services (do-it-for-me). Accordingly, the world's home improvement retailers are improving their service offerings.
Koç Group food & retailing segment
In 2007
In line with its focusing strategy, Koç Holding has decided to exit food retailing business, and in June 2007, initiated a process to evaluate strategic alternatives for Migros, including the sale of shares. On February 13th, 2008, Koç Holding and Moonlight Capital S.A., controlled by the international venture capital company BC Partners, signed a share purchase agreement for the transfer 50.8% of Migros's shares for YTL1,977 million. The share transfer is finalized on 30 May 2008.
The food processing company Tat has been conducting a comprehensive project in the Southeastern Anatolian Project (GAP) region to create competitive advantages and high growth potential. The project involves tomato cultivation in the region to secure continuous supply of raw material at advantageous costs and to enhance profitability.
Home improvement retailer Koçtaş continued its rapid growth in 2007, experiencing a customer increase of 37% and sales area increase of 42%. More than 5.2 million sales transactions took place in the company's 15 stores in 2007.
KOÇTAŞ
Koçtaş boosted its total sales area by 42% and number of employees by 49% in 2007; as a result the number of customers increased by 37%.
Growth strategy by expanding market demand
As the leader of Turkey's home improvement retailing sector, Koçtaş's corporate target is to enlarge the market and maintain its leadership in this developing business area. The company plans to reach this aim by offering its customers a wide variety of alternatives for every budget, in more locations in Turkey.
Rapid growth
Koçtaş's sales revenue jumped by 46% in 2007, while the number of customers increased by 37%. This growth was supported by an increase of the sales area by 42% and the number of employees by 49%.
The company opened five new stores - in İzmit, Bursa, Eskişehir, Mersin, and Alanya - during the year and moved its Izmir Balçova store to a larger location. By the end of 2007, Koçtaş was operating 15 stores.
Koçtaş differentiates itself by presenting innovative solutions
Koçtaş is a 50-50 joint venture between Koç Group and B&Q, the largest home improvement retailer in Europe and the third largest in the world. With the contribution of its foreign shareholder, Koçtaş has differentiated itself by presenting international trends to the Turkish market, and by adapting those innovations to Turkish consumers' preferences leveraging its local market expertise. This gives Koçtaş a competitive advantage compared to other international players in the market.
Koçtaş stores offer a comfortable shopping experience, spacious display of products, well-known brands at reasonable prices, complete solutions that include assembly and transportation, and valuable human resources.
Koçtaş introduced its new logo in September 2007 and the new advertising campaign increased brand awareness.
The company conducts campaigns supporting Tema (the Turkish Foundation for Combating Soil Erosion, for Reforestation and the Protection of Natural Habitats) and Çevko (Environmental Protection and Packaging Waste Utilization Foundation), and promotes environmentally responsible and energy saving products in its stores.
TAT
Consistent high performance
Tat continued strengthening its performance in 2007.
The tomato paste production facility established in İzmir Torbalı started operations in 2007. This facility is advantageously located for raw material supplies. It therefore incurs lower transportation costs and cheaper tomato supply compared to the Bursa region.
Moving the Maret slaughterhouse from İstanbul to Harranova significantly reduced costs.
In the dairy products segment, Tat increased the sales of high value added products such as pasteurized milk, yogurt, ayran (a yogurt drink), cream and butter. The company plans to continue its growth in these profitable categories in 2008.
The strategy of focusing on high value added products has been supported by the introduction of innovative and healthy products such as vegetable-fruit juices and mixed vegetable juices, produced for the first time in Turkey. In addition to these, Tat introduced additive-free fruit juices including grape, pomegranate, orange, and apple.
As the market leader in the premium pasta segment with its Pastavilla brand, Tat maintained its market share in this segment and continued its high margin strategy in 2007.
Tat achieved a gross profit margin of 17.7% and an operating profit margin of 5.7% in 2007. Tat remained the market leader in tomato paste, ketchup, and tomato products, while holding the number two position for mayonnaise and the number three for pasta and ayran.
A promising region: Southeastern Anatolian Project (GAP)
Tat increased its share in Harranova, the Group's livestock and agricultural products subsidiary in the southeastern province of Şanlıurfa, to 68% in 2007. Tomato cultivation and tomato paste production in the GAP region will be carried out by Harranova. This will create a synergy between livestock and agriculture businesses resulting in increased productivity.
Tat plans to increase exports through its investments in GAP region
Successful trial cultivation
Trial cultivation in the GAP region successfully produced 35,000 tons of tomato in 2007. Targets for 2008 include production and processing of 150.000 tons of tomatoes.
Tat plans to invest USD84 million in tomato agriculture and processing during the next five years. The company aims to reach 10,000 hectares of cultivation area, 10,000 tons of daily processing capacity and 220,000 tons of annual tomato paste production volume by 2012. The project is also expected to bring down raw material costs by 40%.
In the future…
With this project, Harranova is planned to achieve USD150 million annual revenues in 2012, which include exports to Russia and other neighboring countries. Harranova Facility will become the largest tomato processing plant in Europe and one of the five largest in the world.
DÜZEY
Serving thousands of wholesale and retail points across Turkey
Düzey is the sales and distribution company for Tat's food brands and the two rakı brands, Mercan and Fasıl, produced by the Tariş-Tat partnership. Düzey delivered food and alcoholic beverages to 60,000 sales points in 2007.
Together with its distributors, Düzey manages a sales fleet of 360 vehicles and a distribution and delivery fleet of 250 vehicles.
Quoted from 2007 Annual Report