Probably the best lager in Turkey set to quit

By bne IntelliNews May 21, 2008

Nicholas Birch in Istanbul -

Worries about the secularist credentials of Turkey's mildly Islamist government were already running high when a new law on alcohol that could stop bars and restaurants from selling drinks by the glass came into force in May. And now citing high taxes, Danish brewer Carlsberg is pulling out of the Turkish market, which will add more fuel to claims that alcohol has a diminishing place in a country governed by former Islamists.

The Ankara representative of Tuborg Carlsberg, as the Turkish company is known, confirmed that Carslberg had signed a letter of intent to sell its 95.65% stake in Tuborg Carlsberg to CBC Group, its partner in Romania and Israel.

Second-placed in a $1.6bn market with an 18% share, Tuborg Carlsberg Turkey has found the going difficult since 2001, when it bought the 47% share of a Turkish firm that had partnered it locally since 1967. And then steep tax rises after the Justice and Development Party (AKP) came to power in 2002 reduced its profit margins to zero, according to the company's CEO. Until the tax hikes of 2005, "the [Turkish] beer market had been growing annually at around 3%", Damla Birol told the daily Sabah. "In 2006, it shrank."

Turkish beer drinkers today pay a 35% private consumption tax and 18% VAT for their pint, rates higher than anywhere in Europe apart from Scandinavia and the British Isles. "When you consider the purchasing power of Turkish citizens, we rank first", says Nejat Esen, chairman of the Beer and Malt Producers' Association.

400% tax hikes since 2002 have also left Turkey's millenia-old wine-making industry, small but full of potential, feeing the pinch. Owner of a winery on the coast of the Marmara Sea west of Istanbul, Cem Cetintas says reduced income has forced him to put plans to extend his vineyards on hold. "Making wine these days is like selling snails in a Muslim neighborhood", he adds, using a common Turkish phrase for something that flies in the face of religious and cultural norms.

Battleground

Alcohol has been a potent symbol in Turkey since secularists staged wine-drinking street protests when an Islamist party swept to power in municipal elections in 1994. With tensions over secularism again sky-high, AKP sparked outrage in February when plans to make it illegal to broadcast scenes that "encourage consumption of alcohol" were made public. "Drink was always an issue for conservative opinion, but until now no government paid attention to it", says Mehmet Ali Birand, a prominent commentator. "Now the AKP seems to be saying 'come on, let's give them a hand.'"

An analyst at the brokers Finans Invest, Osman Memisoglu agrees taxes are very high, and doubts there'll be any reduction in them while AKP is in power. But he doesn't think they are the only reason for Carlsberg's withdrawal from the market.

"High taxes in many way protected the brewers from new rivals. Carlsberg's misfortune was that its only competitor in a restricted market was one of Turkey's best-run companies - Anadolu Efes," says Memisoglu. "Efes has been in this market for 40 years and knows it like the back of its hand. Side-stepping advertising bans by sponsoring Turkey's biggest basketball team made it a household name."

With an 80% share of the Turkish market, Efes has dodged domestic restrictions by expanding into Central and Eastern Europe, including Russia.

Carlsberg's replacement will find it as difficult to combat it as Carlsberg did.


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Probably the best lager in Turkey set to quit

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