Turkey

Key trends and issues

Significant growth potential: Overall GDP growth is a clear driver of expanding retail and consumer sales. The main attractions in this sector are the potential due to a large and growing population, large cities, increasing purchasing power of the local population and unsaturated market conditions. Only 40% of the market consists of modern retailers, which is another major source of growth for retail and consumer companies. There has been significant foreign direct investment in the last three years in this sector, and there are strong indicators that foreign retail and consumer companies are still interested in Turkey for possible acquisitions. With lower interest rates and smarter competition, Turkey is likely to be more comparable to other markets, which would make the decision-making process easier. Modernisation of traditional retailers such as franchising, buying groups and specialisation and penetration of modern retailers prevents traditional retailers from hobbling the industry and reducing the total sector.

Consolidation and increased bargaining power: It has been observed that the fast growth and potential has been driven by the transition towards modern retailing and the consolidation of the Turkish retail sector. There will be an increase in the bargaining power of retailers with consumer goods suppliers. Modern retailers are increasing their shares at the expense of traditional retailers. The purchasing power of modern retailers enables them to offer lower prices while achieving higher margins.

Out of town shopping centers, while well developed in Western Europe, are slated to develop rapidly in Turkey, demonstrating a particular phase of transition from traditional to modern retailing.

The most important segment of the market is food and beverage, which accounts for more than half of total sales activity. Developments of the macro economic environment, such as inflation figures and interest rates affect consumers’ disposable income.

Increasing interest in own-label products: Companies have been putting more emphasis on private label products in order to provide customers a cost-efficient product, since private label products tend to have a price advantage. The share of consumers buying private label products has increased significantly in the last five years.

Customer Relationship Management (“CRM”) activities: Organised retailers have started to concentrate on CRM activities and to monitor consumer behavior in order to create brand loyalty and retain customers. They have initiated store cards, which bring extra benefits (mostly discounts) to consumers holding the card of that store. Strategic partnerships with banks to increase the use of credit cards and that provide extra benefits or discounts for consumers have also been widely implemented by retailers.

Challenges faced by companies entering the market

The Draft Retail Law: This has been included on the government’s agenda from time to time over the past three years and will bring certain restrictions to store openings and shopping hours. According to the new Draft Retail Law, existing stores will be allowed to remain at their current locations, but the establishment of new stores larger than 400 square meters in metropolitan areas will require the approval of the governor’s office. In addition, there will be some limitations for working hours/days for stores larger than 400 square meters and some restrictions regarding payment terms to suppliers.

Real estate issues: Finding the required land is becoming difficult in major cities like Istanbul, Ankara and Izmir.

Low broadband penetration: Broadband internet penetration remains relatively low in some regions but is expected to grow rapidly, which should contribute to the increase in online sales.

US consumer products company

PwC Turkey tax team supported a US consumer products company to enlarge their business in Turkey. The client required financial and tax due diligence on the target companies. In addition, PwC Turkey was appointed to work on tax structuring of the companies. After the finalisation of the share transfers, the PwC Turkey team also demonstrated its expertise in various fields, such as:

• HR consultancy: PwC Turkey supported the client to recruit a CFO and accounting chief and also organised several training sessions to upgrade employees’ skills.

• Customs and indirect tax consultancy: Regarding customs regulations we identified the various obstacles and the major areas that could be improved. Accordingly the client developed a system whereby they can now import their goods in a more practical and cost effective way.

• Transfer pricing consultancy: PwC Turkey provided analysis on transactions performed between the related parties regarding new regulations adopted in the new corporate income tax law and helped the client avoid potential tax penalties.

• Tax certification services: Under Turkish tax regulations, companies are encouraged to have tax certification services from Sworn Financial Advisers. Within the scope of tax certification services PwC Turkey performed regular tax audits for the client to verify the accuracy of the corporate income tax calculations.

• VAT refund services: PwC Turkey supported the client in meeting their legal obligations in order to obtain a VAT refund.

Our team also identified other development areas which needed to be considered in financial analysis and calculating client profitability. This resulted in the costing system and store management facilities being revised. In addition, to support management reporting, the Turkish Statutory Accounting Principles and US GAAP were mapped in the costing system of the company.

The client stated that: “before meeting PwC Turkey specialists we were thinking that it was almost impossible to change and correct the problems in the system as we were unaware of where and how to start. But now with the support of various teams from PwC Turkey, we are able to control our business more efficiently and effectively”.

Chocolate and snacks manufacturer

In order to attain global and Turkish market goals, one of the leading chocolate and snacks manufacturers operating in the Turkish market required effective processes, organisational structure, human resources and information systems aligned with its strategies. The goal of this project was to define improvement opportunities and develop recommendations by detecting risks that the company might face and assess the areas which affect corporate processes and performance.

The company was established in late 1980s and has been listed in Turkey's TOP 500 manufacturers for the last six years. The company's portfolio consists of more than 200 products, and it has a strategy of expanding its portfolio. It is growing rapidly and penetrating international markets by exporting its products to more than 100 countries.

Targeted benefits for the company were:

• Achieving an effective sales organisation structured in accordance with strategy, in order to attain growth goals.
• Reaching revenue and market share goals by using the sales channels effectively Measuring and evaluating sales performance and taking necessary action steps in order to sustain growth.

Our team assessed the sales and distribution processes, sales organisation and information systems structures. We:

• Identified key improvement areas for sales processes, organisational structure, operating model and IT systems.
• Redesigned the organisational structure, sales and distribution processes in accordance with the related improvement areas.
• Identified key performance indicators and performance objectives in terms of processes.
• Redefined roles and responsibilities of key business units and staff.
• Developed improvement recommendations for channel optimisation.
  
  

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