Carrefour is set to acquire Turkish supermarket chain Ipek(70121)

Carrefour eyes Turkish delight

In a signal of Carrefour's increased focus on growth markets , the French retailer is set to buy a local supermarket chain in Turkey. Over the past two years, Carrefour has embarked on a number of initiatives to expand in the market. However, with increasing competition and economic uncertainty, a number of challenges await. Katy Humphries reports.

French retail giant Carrefour revealed this morning (18 May) that it has entered into an agreement to acquire 100% of Turkish supermarket chain Ipek through its local subsidiary CarrefourSA.

The deal, valued at about EUR24m (US$29.8m), will see Carrefour take control of 27 supermarkets in and around Istanbul.

Upon completion, these outlets will then be rebranded to Carrefour's convenience and supermarket banners, Carrefour Market and Carrefour Expres (pictured).

Announcing the move, the company said that the acquisition was in-line with Carrefour's strategy of investing in high-growth regions as it looks to offset increasing weakness in the developed markets of western Europe.

This transaction illustrates Carrefour's strategy of reinforcing its presence in growth countries where the group has leadership positions, the company said in a statement.

Over the past two years, Carrefour has looked to drive the growth of its Turkich business, which operates 26 hypermarkets, 165 supermarkets and 675 discount stores and generated revenues of EUR1.3bn in 2009.

In 2008, the company first indicated that it was plotting a serious growth drive in the market when it revealed its target to double the number of outlets it operates in Turkey by 2010.

Carrefour has since worked tirelessly to increase its share of Turkey's grocery retailing market and to win the leading position from its primary rival Migros.

"Turkey is one of the key markets where the Carrefour group intends to occupy a leader position thanks to a policy of low prices and a multiformat portfolio," a spokesperson for the company revealed.

Carrefour has expanded its presence in the market through new store openings - 123 new outlets in 2008 and another 187 outlets in 2009 - and bolt-on acquisitions, such as its 2009 takeover of local retailer Pinar Market ilik.

The company has focused its expansion efforts on Turkey's rapidly growing urban areas and maintained a focus on delivering low prices in order to attract new customers, particularly in the wake of the global economic crisis.

While the economic downturn and ensuing uncertainty has prompted Turkey's growing horde of middle-class shoppers to reduce spending, organised retail chains have looked to continue to woo new shoppers with investments in pricing, assortment and store expansion.

The result is that chains have been able to increase their share of the sluggish grocery retail market, with independent grocers who have a limited ability to offer price promotions now accounting for around 60% of sales.

According to market research firm Datamonitor, the retail sector is expected to see a slight decline between now and 2014.

Categories dominated by independent retailers, such as independent small grocery retailers and health and beauty specialists, are expected to see negative constant value performance, as these will fall behind chained companies in terms of customer satisfaction, product variety and price, the researchers suggest in their latest report on retailing in Turkey.

However, even as Turkey's grocery sector slips into decline, the proportion of it controlled by retail chains looks set to grow meaning that the country still offers good growth potential to the likes of Carrefour.

Competition in Turkey's modern retail sector is likely to intensify in the years to come.

Competition currently centres on price positioning and assortment and Carrefour was able to grow its market share last year thanks to its well-promoted price campaigns and wide product range.

As elsewhere, the company has also focused on fostering customer loyalty through the development of its loyalty scheme and private label offering.

Nevertheless, Carrefour is facing steep competition from the likes of market leader Migros.

Migros has indicated that it aims to increase its sales to YTL10bn this year.

Like Carrefour, the group has expanded through acquisitive activity and new store openings. And, like Carrefour, the company is focused on attracting new shoppers through an aggressive stance on price, which has been communicated through effective marketing and the development of private label and loyalty schemes.

In this fashion, both Carrefour and Migros have been able to expand their market share without effectively differentiating themselves or developing points of difference.

This is a reflection of the decline of the independent retail sector.

However, when organised retail chains do go head-to-head, Carrefour will likely be forced to think outside the box as it attempts to get the march on its main rivals.

Carrefour is set to acquire Turkish supermarket chain Ipek

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