Market Overview

Euromonitor reports that Turkey’s economy slowed in 2016 but still grew at a moderate pace. Real Gross Domestic Product (GDP) grew by 2.9% in 2016 – down from 4% in 2015. Government spending and modest gains in private final consumption support the economy. Both exports and tourist receipts are contracting. Security concerns following the attempted coup and the recent extension of the state of emergency undermine the confidence of both investors and consumers. Inflation is uncomfortably high. The economy should slowly strengthen with growth reaching 4% per year by 2020.

The economy was already slowing but Turkey’s failed military coup and the subsequent state of emergency accentuates investors’ fears and compounds the degree of political instability. Prices rose by 7.7% in 2015 – well above the central bank’s target rate. Inflation will rise to 8% in 2016. Persistently high food costs coupled with a steep fall in the value of the lira puts upward pressure on prices. Private investment has been declining for several years, pointing to structural rather than cyclical problems. Corporate leverage has risen rapidly, leaving little room for debt-financed growth. Investors also fear that Turkey’s economy will be increasingly damaged by events in Syria and Iraq.

USDA’s Office of Agricultural Affairs, OAA, in Ankara, hereinafter referred to as “Post” reports that Turkey has a young population, rising middle-class incomes and rising female labor force participation are driving Turkish consumerism. There is high export potential due to geographic proximity to EU, Russian, and Middle Eastern markets. The growing food processing industry is looking for new, high quality, imported food ingredients. There is recognition of high-quality product and growth of high-end retail to support new product marketing. A young and urban population creates demand for and welcomes new products as they are open to trying novel tastes. International retailers that market a wide range of imported products in the sector have a great influence on purchasing patterns. Nearly all importers speak English and are well versed in international trade.

2016 U.S. exports of agricultural products to Turkey totaled nearly US$1.4 billion and an increase of 3% from the prior year, ranking it 18th. Of that amount, nearly 33% or US$454.5 million, an increase of 14%, were of the consumer-oriented variety. Turkey also imports processed foods from the U.S. totaling US$93.9 million, down 31% from 2015. Top U.S. processed food exports in 2016 included food preparations, fats and oils, processed vegetables and pulses, distilled spirits and other alcoholic beverages, snack foods, processed fruit, and non-alcoholic beverages.

The long term potential as a market for U.S. foods will remain promising but there are some other distinct challenges as well. The U.S. dollar appreciated 20% against the Turkish lira in 2016, making American goods comparatively more expensive than in previous years. With a growing population of more than 2 million refugees, unrest in some parts of Turkey, and regional hazards, safety concerns are increasing. European Union (EU) U exporters enjoy lower transport costs and better cold chain infrastructure given their proximity. They also enjoy first-mover advantage and have preferential tariff rates given their EU trading relationship. They also enjoy a regulatory advantage due to their harmonization of regulations. The tariffs on both commodities and processed products can be higher than expected, and there are high shelf stocking fees charged by large chains which lead to high costs for new product introduction. The import procedures can be complex and extensive and are also subject to seasonal changes depending on the local production of certain items.

Post advises is that the Republic of Turkey is a complex and challenging market requiring adaptability and persistence. Careful planning and patience are the keys to success in Turkey. U.S. exporters face many of the same challenges that exist in other semi-developed countries, such as contradictory policies, a lack of transparency in regulations and documentation requirements, and an unpredictable judiciary, legal, and regulatory framework. The currency is the Turkish Lira (TL) which is above 3.02 TL/$1 in September 2016 and reached 3.50 TL/$1 in early December 2016. The TL has lost roughly half of its value to the dollar since 2012. Currency fluctuations have caused serious financial problems, especially in the feed and related sectors where companies import raw materials for feed-in U.S. dollars which they then sell to the sector in Turkish Lira in credit sales. As a result, many companies have lost money because of the fluctuation in exchange rates and the recent general downturn of the Lira against many other currencies.

Retail Sector

According to Euromonitor, retail sales in the packaged food market in Turkey reached US$33 billion in 2016.  That represents a growth rate of 43.8% or US$10 billion since 2012. That also made Turkey the 14th largest packaged food market in the world and the 6th largest in all of Europe. By the year 2021, the retail sales in the packaged food market in Turkey are expected to reach nearly US$58 billion, a growth rate of 55.5% and US$20 billion. High growth products in the forecast include savory snacks, sweet biscuits snack bars and fruit snacks, confectionery, baby food, ice cream and frozen desserts, baked goods, ready meals, and processed meat and seafood.

Post reports that despite the slowdown in the growth of the Turkish economy in general, the food retail sector is expected to grow 8% annually. The total retail sector in Turkey reached US$214 billion in 2015 and is expected to reach US$290 billion by 2018, fueled by increasing disposable income levels and strong consumer demand. The share of food in the total retail sector is roughly 62% worth US$137 billion. Discount supermarket chains continue to dominate the food retail sector. Private label products are increasing their share against branded products and the number of discount stores is still increasing at a fast pace. Meanwhile, as profit margins get smaller, some players are seeking growth by concentrating on sales rather than high-profit shares, increasing efficiency and cutting costs, and via mergers and acquisitions.

The food retail sector in Turkey can be classified into two major groups: organized and unorganized retailers. Organized retailers include multi-format retailers, local (regional) supermarkets, discount retailers, and gas station stores. Unorganized retailers also called the traditional market, constitute smaller, individual convenience stores called “bakkal” in Turkish and open-air bazaars.

Another classification that helps to explain the Turkish food retail sector is local versus national and international supermarket chains. As of the end of November 2016, the top 141 supermarket chains with 10 or more outlets in Turkey have a total of 24,671 outlets. Even though the national chains rule the market with a sheer number of outlets, once the top 4 national discount chains (which account for 70% of the total number) are removed, we can see a large number of local chain store companies with fewer outlets penetrating the market outside the big cities. This also reflects the trend of switching to organized retail throughout Turkey.

Imported food products are generally not found in local supermarket chains or discount stores due to their relatively higher prices, with the exception of seasonal fruits and commodities like rice, walnuts, and almonds. On the other hand, high value imported items are increasing in number and variety in national and international super and hypermarkets like Migros, Metro, Carrefour, and others which cater to higher-income consumers.

Migros stands out as the largest multi-format retailer in Turkey with more than 1500 stores. It converted the Jet-Cashier application that it had been using in its larger markets since 2009 into a store concept and created M-Jet stores that vary between 250-300 m². These M-Jet stores include the best-selling brands from the Migros stores, and customers can make their own payments without a cashier. In 2014, Migros collaborated with a prominent gas station “Petrol Ofisi” (PO) to open M-Jet stores in select gas stations, replacing the PO’s own markets. This is the first instance in the sector of a nationwide supermarket chain opening up stores in a nationwide gas station chain.

Carrefour, on the other hand, introduced a concept that it previously only used in Paris where brands have their own little stores within the 13,000 m² complex, which also incorporates a lounge and library, a make-up atelier, and an art corner. The store also has a gourmet product variety that competes with Macro Center (the high-end grocery retailer under Migros group) and specialty cellars for wine, cheese, meat, and delicatessen product groups.

Best Product Prospects

The best products for the imported food markets are internationally recognized branded food products. These types of products in general account for 30% of overall imported food items. These include cocoa and instant coffee, chocolate and confectionery goods, cookies and crackers, breakfast cereal, cheese, alcoholic beverages, sauces, seafood, and pet foods. The change in wine and beer import and distribution regulations now allow imported products to be sold in the retail market, which have created new opportunities for U.S. wine and beer to be sold in the Turkish market, although taxes still remain high. Functional food items such as food supplements and sports drinks are a relatively new sub-sector with rapid growth and represent a new opportunity for U.S. exports.

Food Service Sector

Post reports that 2016 has been very difficult for Turkey's Hotel, Restaurant, and Institutional food service (HRI) sector due to political, security, and economic instability. This is expected to result in a steep decline in the growth rate of the sector compared to 2015, and sector representatives do not expect a full recovery in 2017. The downturn is reflected as a decrease in the number of people dining out, as well as traveling and staying at hotels, though fast food consumption has increased as consumers switch from full-service restaurants to fast food outlets. In 2016 the major drop in tourists, particularly from Russia, was significant, as is the depreciation of the local currency, which has made imported goods more expensive.

Despite the negative atmosphere and events of this year, food consumption outside of the home is increasing in general. There are currently more than 3,800 hotels, 5,000 catering companies, and 150,000 restaurants/cafes in Turkey. Despite the slowing in investments, Turkey has 360 shopping malls, 130 of which are located in Istanbul and Istanbul currently generates 43% of the food and beverage service revenues according to the Restaurant Investors and Managers Association.

In 2016, there has been a substantial decrease in hotel and restaurant expenditures throughout Turkey. While fine dining restaurants lost more of their customers, fast food consumption has increased as consumers switched from full-service restaurants to fast food outlets. The institutional foodservice market also felt the negative impacts of the economic shrinkage in 2016. This sector saw some companies being closed, a decrease in the number of employees, and the tightening of cash flows.

Due to the saturation in large urban centers, leading chain restaurants have started to shift their investments towards second and third-tier cities in which the infrastructure in terms of shopping malls and universities is set to see further development. Additionally, rent is usually relatively low in those cities compared to Istanbul, Izmir, and Ankara, which further increases the appeal of these cities. This trend is most evident in categories such as fast food, home delivery/takeaway restaurants, and cafés/bars. An increasing number of university students are staying in their home towns for their university education rather than migrating to big cities, which creates a good potential for the above-mentioned categories as their main target audience is the country’s young population, especially students. To benefit from this potential, leading fast-food chains such as McDonald’s, Burger King and KFC are increasingly considering these second and third-tier cities for outlet expansion.

Best Product Prospects

Post reports that products now present in the market with good sales potential includes: cocoa and chocolate, coffee, dry nuts and confectionery, beer and wine, non-alcoholic beverages, sauces and syrups, and whisky.

Food-Processing Sector

Post reports that according to the Turkish Federation of Food and Beverage Industry Associations, there are 41,000 registered producers operating in the Turkish food and beverage sector. Roughly 95% of these companies are small or medium-sized companies. When we look at the distribution of the food processing companies to sub-sectors: 80% are in the flour, milling and bakery sector, 4% are in the fruit and vegetable processing sector, 5% are in the milk and dairy processing sector, 3% are in the vegetable oils and margarine sector, 4% are in sugar confectionery, 2% are in the fish and meat processing sector, and 2% are in beverages

The food and beverage sector is one of the few sectors where exports exceed imports. However, Turkey is very importing dependent in terms of food additives (such as enzymes, processing aids, etc.) due to the lack of such high-end R&D studies and the necessary technology. The government tends to keep the net exporter status by causing difficulties for imports in the form of high duty taxes, extensive customs procedures, and lengthy bureaucratic requirements.

Large food processors in Turkey have direct access to ingredient suppliers, and they are generally direct importers. On the other hand, small and medium-sized processors, as well as the service sector (i.e. hotels, restaurants, catering companies) receive their products/ingredients from importers who are also the wholesalers/distributors of these products. These importers prefer to make exclusive distributorship agreements with foreign brands, and act as the representatives or agents of such international companies in Turkey and sometimes in the Middle East as well.

Turkey has a developed food processing industry but only 15% of the raw material of additives used in the food processing sector are locally produced (such as calcium carbonate and citric acid) and the remaining 85% are imported. However, recently new production industries have started to emerge such as bovine gelatin, aromas, and colorings. The developed nature of the industry shows the potential for the export of end products to neighboring countries.

Best Product Prospects

Post reports that for the food processing sector the top processed food ingredient products exported to Turkey from the U.S. include: baking inputs, vegetable oils, beverage bases, protein concentrate, lactose syrup, animal fats and oils, soybean oil and flavoring.