Turkish food retail plays catch-up to Russia

By bne IntelliNews August 11, 2011

Justin Vela in Istanbul -

Both Russian and Turkish food retailers have strong growth potential, according to a new study released by Renaissance Capital. While the two countries in many ways have similar markets, structural and cultural practices make Russian retailers stronger, but the Turks are catching up.

Russia and Turkey have strong domestic retailers at the forefront of their markets. These are the X5 Retail Group and Magnit in Russia, and Migros and BIM in Turkey. The X5 Retail Group and Migros are higher-end retailers, while Magnit and BIM are considered discount chains. Spending on food is also similar: 34% of household income in Russia and 33% in Turkey.

In both countries, 2010 saw per-capita consumer incomes in the range of $6,500-7,500. Going forward, real disposal incomes are expected to grow at 4-5% per year. Even though consumers are price conscious following the economic crisis, there is a growing demand for modern retailers, fed by an obsession with status. "Consumers in both countries appear to be in good shape and with a low debt burden," Renaissance notes.

However, the differences between the countries put Russia out on top.

Shopping habits

To start with, Russia simply has a larger population, 142m versus 75m in Turkey. The Russian food retail market is valued higher, at $263bn compared with $175bn in Turkey, and is expected to grow faster as well. Russia's population is also more urban, with 74% living in cities compared with 69% in Turkey. The level of car penetration is higher in Russia than in Turkey, with 204 cars per 1,000 compared with 109 in Turkey. "The sheer size of the Russian food retail market and its growth potential is superior to Turkey's, although the latter has neighbouring [Middle Eastern and North African] and ex-Soviet southern countries as potential expansion markets," says Renaissance Capital.

The differences are also cultural: fewer women drive in Turkey, although women do most of the shopping, making it difficult for them to get to modern retailers that might be further away. Instead, Turks enjoy shopping daily at smaller corner shops in their neighbourhoods, an example of traditional retailing. By contrast, in Russia hypermarkets are already popular, and accounted for 32% of modern retail in 2010. In Turkey, hypermarkets account for only 12% and their development is uncertain.

Euromonitor estimates that the share of modern food retail in Turkey is 41%. Renaissance Capital forecasts this figure to reach 50% in 2015. "Traditional retail in Turkey is and will remain popular due to tradition and cultural preferences. The share of traditional retail in Turkey is unlikely to subside much lower than the current 53%."

Catch-up

Even if the Russian market is ahead in terms of modern retail, Turkey is expected to catch up in the coming years (though its smaller population will make it unable to surpass the Russians), as there is a lot of room for growth

The Turkish food retail market is under penetrated, as are many other sectors in the country. There is no sure consolidation by major players in modern retail in Turkey. This gives strong opportunities for organic growth and development for both already established retailers and newcomers. Renaissance Capital predicts that the Turkish food retail market will reach TRY392bn by 2015, driven "by 7.4% per annum increase in per-capita spending on food and 0.9% per annum population growth."

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