INDEX 1 TURKISH RETAIL SECTOR 11.1 Historical Perspective 11.2 Trade Styles in Turkey 51.2. 1 Traditional Trade 51.2. 2 Modern Trade 51.3 Market Structure 71.4 Distribution Channels 81.5 Competition 81.6 Organized Food Retail Sector 92 MAIN PLAYERS 102.1 Migros T.A. Th. 102.1. 1 History of Migros T.A. Th. 112.1.

2 Objective and Mission of Migros T.A. Th. 132.1. 3 Internal Environment 132.1. 4 SWOT Analysis 172.2 Gima T.A. Th. 182.2. 1 History of Gima T.A. Th.

182.2. 2 Objective and Mission of Gima T.A. Th. 182.2. 3 Internal Environment Gima T.A. Th.

192.2. 4 SWOT Analysis 252.3 Tansath A. Th. 282.3. 1 History of Tansath A. Th. 282.3.

2 Objective and Mission of Tansath A. Th. 312.3. 3 Internal Environment of Tansas A. Th. 312.3. 4 SWOT Analysis of Tansath A. Th. 352.4 Other Main Players in Turkish Retail Sector 392.4.

1 Metro Group 392.4. 2 CarrefourSA 412.4. 3 Tesco Kipa 433 COMPARISON of MIGROS, GIMA and TANSAS 453.1 Customer Profile 453.2 Reasons to be Preferred 473.3 Financial Comparison 484 PROJECTIONS and RECOMMENDATIONS 494.1 Projections 494.2 Recommendations 505 REFERENCES 511 TURKISH RETAIL SECTOR 1.1 Historical Perspective In order to define retailing, it should be considered from various perspectives, to demonstrate its impact, and its special characteristics. Retailing entails the business activities involved in selling goods and services to consumers for their personal, family, or household use. Today, it is at an interesting crossroad, with many challenges ahead. Retailing may be viewed from multiple perspectives.

It includes tangible and intangible items, does not have to use a store, and can be conducted by manufacturers and others -- as well as by retail firms. Retailing is the last stage in a distribution channel, which contains the businesses and people involved in physically moving and transferring ownership of goods and services from producer to consumer. In a channel, retailers perform valuable functions as intermediaries for manufacturers, wholesalers, and final consumers. They collect product assortments from various suppliers and offer them to customers. They communicate with both customers and other channel members. Retailers and their suppliers have complex relationships because the retailers serve two roles.

They are part of a distribution channel aimed at the final consumer; and they are major customers for their suppliers. Channel relations are smoothest with exclusive distribution; they are most volatile with intensive distribution. Selective distribution combines aspects of both in an attempt to balance sales goals and channel member cooperation. Retailing has several special characteristics. The average sales transaction is small. Final consumers make many unplanned purchases.

Most customers visit a store location. The marketing concept should be understood and used by all retailers. This concept requires a firm to have a customer orientation, use a coordinated effort, and be value-driven and goal-oriented. Unfortunately, despite its ease of use, many firms do not adhere to one or more elements of the retailing concept. The total retail experience consists of all the elements in a retail offering that encourage or inhibit consumers during their contact with a given retailer. Some elements are controllable by a retailer; others are not.

Customer service includes identifiable, but sometimes intangible, activities undertaken by a retailer in association with the basic goods and services sold. It has an effect on the total retail experience, and consists of two components -- expected services and augmented services. In relationship retailing, a firm seeks long-term bonds with customers, rather than acting like each sales transaction is a totally new encounter with them. The retailing sector in Turkey has developed rapidly since the 1980's with significant changes both in economic and social structures. Two decades of liberalization of the Turkish economy, stimulated by its Customs Union with the European Union (1996), have freed Turkish entrepreneurial dynamism.

Rising income levels, a high urbanization rate, an increase in the number of working women, the influence of Western life style - all these have caused a radical change in attitudes and consumption patters supporting the development of the retail sector. Up until 1990, the retail sector in Turkey consisted of traditional stores. In the case of food this included grocers and open town bazaars, while for clothing, boutiques, all of which were concentrated within the city centers. After 1990, supermarkets started to be opened, something, which heralded the beginning of an organized retailed sector.

After that, a number of clothing retailers opened e.g. YKM and Carsi. Following this, a number of big retailers began trading in Istanbul. The first of them was Metro, followed by Migros, part of Koc Holding's (one of the biggest companies that operates across almost all sectors including manufacturing and marketing), which started to open hypermarkets. The population of urban areas in Turkey is increasing. Hence, the populations of Istanbul, Ankara, Izmir and Bursa are rising by 10%. Some 35% of retailers are based in these cities and the Marmara Region accounted for 37% of total retail sales in 2002.

The Ic Anadolu and Ege Regions made up 17% and 15% of total retail sales in the same year. Even though the capital city of Turkey, Ankara, in the Ic Anadolu Region, the Marmara Region is the heart of the country. It is the economic center of Turkey, the population center and also accounts for the largest share of the country's GDP. Most of the big companies' management centers and factories are located in this region. Consequently, this area is very attractive to people living in other parts of Turkey. Total retail sales were US$50 billion in 2002 and this sector represents the biggest of all sectors in Turkey.

Retail sales as a percentage of consumer expenditure are 41.4%. The ratio, which was accounted for by GDP, was 29.2% in 2002. The most important sub-sectors of the retail business are food, home furniture and clothing and their retail sales were US$18.8, US$6.2 and US$5.3 billion respectively. Employment in the retail sector represented 13.9% of the country's total employment level in 2002. Total employment decreased by 2.8% in 2001 and 0.5% in 2002.

It is expected to decrease by -5.4% in 2003 since retailers want to increase their productivity. Because of an economical crisis in February 2001, retail sales fell by 9.3% in 2001 and 2.1% in 2002. Firms, who had already begun investing at the end of 2000, were unable to stop. Consequently, although the total retail sales area increased in contrast, retail sales decreased dramatically. This sector felt the effects of the crisis most in 2001 and 2002. Even though retail sales are expected to rise by 4.2%, they will only reach the point at which they stood the year before the crisis.

Multiple retailers had sales of some US$10 billion in 2002. Hypermarkets's hare of total retail sales is 9% but it is expected to rise to 28% by 2005. Hypermarkets, supermarkets and grocery retailers have a retail share of approximately 35%, 15% and 50% respectively. It is expected that the share of grocery retailers will decrease to 38%. Independent grocery retailers have a very big market share and this distribution channel's profit margin is between 10-15%. In contrast, even though multiple retailers have a far smaller market share than independent grocery retailers, they have profit margins typically in the range of 17-25%.

This is because of the strong purchasing power of multiple retailers. In the past, the big retailers received major incomes from non-retailing activities, such as bonds and interest. However, these incomes have been eroded since Turkey signed a stand by agreement with IMF, which has led to a fall in interest rates. Thus, retailers now have to concentrate on increasing their productivity.

According to trade interviews, total retail sales volume should be US$75 billion. But, because of economical and political uncertainties, the full potential of retail sales is unable to be reached. If economical and political stability can be achieved, retail sales are expected to reach US$65 billion by 2005 and the multiple retail sectors is expected to reach US$18 billion. It is expected that there will be US$9-10 billion of investments and US$1 billion of it will be for the retail sector. A number of big retailers are reportedly making feasibility studies to enter the Turkish market including Wal-Mart and Obi, while B&Q has signed an agreement with the retailer KOSTAS. Moreover, UK-owned multiple grocery chain Tesco are continuing their search for a partner to help them enter the Turkish market.

1.2 Trade Styles in Turkey There are two trade styles in Turkey: 1.2. 1 Traditional Trade The most significant traditional retail formats are: - Groceries: Typical traditional, non-specialized outlets which are smaller than 50 square meters. There are almost 130,000 of these grocery stores and they dominate the sector, accounting for 32 percent of FMCG retail revenues. These outlets are usually neighborhood stores where one can purchase daily necessities. Payment transactions are usually on a " " system where the shopping is done throughout the month and payment is made at the end of the month when salaries are received. They sometimes provide extended services like home delivery.

- Markets: Bigger-size independent groceries, larger than 50 square meters, which are located on main arteries, constitute 9 percent of retail revenues. - Specialized outlets: specialized version of groceries, which focus on a single product line (e. g., green grocers, butchers). The number of specialized outlets is estimated to be around 50,000, and they make up 8 percent of FMCG retail revenues. - Snack buffets and dried fruit vendors: small food outlets located on main arteries. They mainly sell impulse purchase food items and constitute 5 percent of retail revenues. 1.2. 2 Modern Trade- Hypermarkets: Self-service stores that have a net sales area larger than 2,500 square meters, 8+ checkout units, and modern service infrastructure like parking lots and ATMs.

These are modern outlets that are very similar to those of the developed countries. They compete on pricing and superior product variety, and they constitute 9 percent of FMCG retail revenues. - Supermarkets: Self-service stores that have a net sales area larger than 100 square meters and 2+ checkout units. These are smaller modern stores, which are usually part of a national retail chain. Within the same chain umbrella, there are different formats, varying in size (small, medium, large) or price and service proposition (shopping centers, discount stores). Supermarket sales constitute 19 percent of FMCG retail revenues.

Modern retailers, although they represent only 28 percent of revenues today, have shown a rapid growth from only 12 percent in 1996, while the traditional segment is contracting. In fact, the number of groceries has declined at a 5 percent compound annual rate since 1996. The growth of modern trade has been fueled by the better value offered to consumers (price plus product range). High non-operating incomes driven by high real interest rates - which have made the segment attractive both for existing players and new entrants - has also accelerated the growth of these players. On the demand side, the unmatchable negotiation power of modern trade, combined with the elimination of wholesaler costs due to direct purchasing from manufacturers, enables modern retailers to offer dramatically lower shelf prices - on average 20 to 30 percent lower than their traditional counterparts. This price benefit, coupled with variety and more appealing stores and presentation formats, explains the rapid penetration of modern retailers New entrants and the resultant increase in competitive activity have also invigorated the rapid growth of the modern segment.

After the entrance of new domestic participants in the early 1990's, competition has further increased with the entrance of Metro group (Metro and Real stores), Carrefour, and Continent. 1.3 Market Structure Hypermarkets have recently become fashionable investments within the retailing sector in Turkey. Sabanc'y, Koc and Doduth - three major conglomerates in Turkey - are heavily involved in this sector. There are about 50 different chains operating in the Turkish retail business. Foreign investors present in the Turkish retail market prefer to form joint ventures with Turkish companies, as seen with Carrefour SA (France) and Sabanc'y JV, Brokers (UK) and Sezginler JV. Large western-style retail outlets have started to flourish in Istanbul, Ankara and 'Yzmir, and other large cities such as Adana, Gaziantep, Bursa, Kocaeli, Konya and Mersin.

Here consumers are more aware of international trends, have higher disposable incomes, and have automobiles to reach large warehouse-sized stores. Middle and upper-middle income shoppers are drawn to these larger stores, especially if they provide imported and specialty items, previously only available at small specialty shops or acquired when traveling abroad. 1.4 Distribution Channels Hypermarkets, major supermarkets and hard discount chains import some of the items directly, whereas smaller outlets use intermediaries as importers, distributors, and agents. A new-to-market exporter can directly approach major supermarket chains' purchasing departments. It is also useful to get in contact with independent importers, especially those with nationwide distribution services. Although distribution options vary depending on the product involved, the typical product goes through the following stages to reach the consumer: Manufacturer / importer - distribution company / department - large-scale wholesales - wholesaler / distributor - retail unit.

1.5 Competition Local food products continue to dominate the Turkish retail market with 98% of market share. In 2003 imported products accounted for only $415 million of the $23 billion retail food market. Confectionery, chocolates, cheese and butter, coffee, coffee and cocoa, snacks, biscuits, canned food, ready-to-eat meals, soft drinks, energy drinks, mineral water, and alcoholic beverages represent the main retail products currently exported to the Turkish market. They mostly consisted of widely known international branded products.

In 2001, Turkey imported about 15.5 million dollars worth of consumer-oriented agricultural products from the US of which processed fruits and vegetables, tree nuts, dairy products and snack foods were among the leading items. Dairy products, breakfast cereals, chocolate and confectionery goods, sauces and beverages (wine, beer) were the major US export items. Additionally there has been a significant amount of US rice, corn, nuts, cereals, vegetable oil and pulses exported to Turkey. The main competition for US food products comes from European countries, which enjoy the advantage of the Customs Union Agreement. European countries have a 65.4% share of total Turkish retail food imports. Investments of major European hypermarket chains such as Carrefour SA of France, Metro and Real of Germany, and Booker of UK have also played a significant role in the dominance of European countries in Turkish imports of retail food products.

Products with strong sales potential not present substantially in the market: Frozen Food: Though there is a limited amount of imported frozen food and frozen seafood in the Turkish retail market, importers believe that there is a good potential in this sub sector over the next five years; Ready-to-eat and Ready-to-cook meals: The ready-to-eat and ready-to-cook meals market has a high potential, linked to the increase in working women and the generally more hectic lifestyle. There are only a few local companies marketing such products. Health Foods, Gourmet / Foreign Foods: There is a growing interest in 'healthy foods. ' Also, as Turkish tastes become more sophisticated, the interest now shown in restaurants featuring novel foods such as Mexican, Chinese and Japanese could spread to retail sales 1.6 Organized Food Retail Sector The total market share of the biggest three retailers is around 13%. Taking into consideration the fact that about 64% of the Turkish Food Retail Market is operated by no organized retailers (groceries, kiosks, local markets) the Turkish Market possesses a great potential for the organized food retailers. With the impact of the positive developments in the economy, 2004 was a satisfactory period for the Organized Food Retail Sector, both in terms of sales growth, and of profit margins.

Increase in confidence of consumers concurrent with the emerging economic stability, resulted in a significant increase in the number of customers and volume of sales. Consequently, the players in the sector continued the expansion of their net sales areas to increase their market share. Hence, while the sector surpassed the revenue peaks that it had achieved in previous years, it continued to implement the efficiency techniques that it developed during the crisis period, and increased its profitability to a considerable extent. Characteristics of Turkish retail sector is that it is a low margin sector where in every company, on average, thousands of employees serve ten thousands of customers, while performing ten thousands of physical tasks". Natural opportunities" that the Retail Sector offers firms: - Ability to create a negative working capital, - Opportunity to use economies of scale by taking advantage of the ability to expand fast, - Ability to bring mass of costumers to the store ("to the door"), - Ability to increase goodwill of the locations, - Opportunity to create a "Database" available for use in very important and diverse targets. 2 MAIN PLAYERS In this case study the main Turkish players - retailers, Migros, Gima and Tansas will be investigated.

2.1 Migros T.A. Th. Migros T"uk, founded in 1954 as a joint initiative of the Swiss Migros Cooperatives Union and Istanbul Municipality, was acquired by Koc Group and became Turkish in 1975. Migros T"uk is the market leader in the Turkish retailing sector with 471 stores operating in 36 cities in and outside the country. With $1 billion in sales in 2000, Migros has averaged an impressive 25 percent real growth per year for the last decade. Koc Holding is the ultimate controlling shareholder of Migros with 51.06% shares, while the remaining 48.94% shares represent free float. 2.1. 1954-1974 Foundation of Migros In 1954, by the joint initiatives of the Swiss Migros Cooperatives Union and Istanbul Migros was founded for the mission of obtaining food supplies and consumables from producers under the supervision of the municipal authorities and to serve these products to Istanbul inhabitants in hygienic conditions and at economic prices.

1975-1979 Dynamism with the Koc Group In 1975, the majority shares of Migros were transferred to the Koc Group. As from this date, Migros initiated a new understanding of operation and rapidly increased the number of stores in Istanbul. Migros, known as 'Honest Retailer' because of its lower prices and hygienic products, has been serving to its consumers. 1990-1991 Expanding Turkish consumer was introduced with the modern stores in international retail standards; MM and Migros stores were opening one after another. Migros has become an open-to-public company in 1991.1992 InitiationMigros offered the advantage of payment with credit card and Migros started to be examined in detail, periodically through the customer satisfaction. 1995 Discounted Stores Migros in 1995 to make broader masses of public benefit from its synergism added the Sok Discount Markets.

Sok markets are the discounted store formats of the company. These, having met the interest of the consumer and increase in the customer portfolio of Migros, and starting from Istanbul very soon they began to render service in Ankara and Izmir... Migros and Sok with the impact of synergism have almost achieved the aim of developing, for the services rendered at home and have already completed the necessary infrastructure for expanding abroad. 1996 International perspective The first international establishment, Ramstore was opened in Baku. Migros has opened a new store per week in 1996, internationally in the second country; Migros was in service with Ramstore Shopping Center in Moscow. Ramstore Shopping Center established by the partnership of Migros Ram and Enka has become the most significant shopping area of 1998 CRM Activities Migros Club Card started to offer new advantages to Migros Club members.

At the end of 1998 the number of Migros Club members exceeded 900.000. Migros opened 50 new stores and shopping centers in 1998. Continuing to expand both at home and abroad, Migros strengthened its leadership in retail sector. Together with Migros, Sok and Ramstore chain.

Migros opened second Ramstore Shopping Center larger then the first one in Moscow Marina Rocha region and increased the number of stores to 7 abroad 1999 all over Turkey Migros started to serve in 7 geographical regions in Turkey. 2000 Online Turkey's first online shopping center Kangurum started operating throughout Turkey. Migros has presented the Bakkalim store format in the first quarter of 2000. Migros, serving more than 160 million customers a year, has opened 128 new stores in various regions both in and outside Turkey, attaining a total store number of 450.2001 Expanding in International After the eastern countries like Russia, Kazakhstan, and Azerbaijan, the first step taken in to West showed itself with the opening of Ramstore Bulgaria. Ramstore Sofia, for which the sole investor is Migros T"uk, is considered the largest investment of Turkey in Bulgaria. Bulgaria is a foothold in Balkans.

2003 New Store per week Achieving its goal of "1 new store per week" by the end of 2003, Migros opened a total of 55 new investments 25 of them which are classified as 3 stores, 10 MM stores and 12 M stores in homeland and the rest being abroad, namely 10 in Russia, 1 in Bulgaria and 1 in Azerbaijan. A new technological communication platform called Paro is a particular way of initiating new sales promotions for the customers. Company posted over 200,000 personal tailor-made discount coupons differentiated according to the customers's pending patterns. 2.1. Objective Migros T"uk strives to offer the right goods at right place and right price with the highest possible quality in order to meet customers' needs effectively and efficiently. In the coming year, Migros T"uk seeks to grow its local and international investments in line with the strategy of being "the group closest to customer" and thus enhance its reputation as a provider of quality goods and services. Mission Migros T"uk is committed to maintaining leadership in the Turkish market and expanding in nearby countries while improving operational profitability and securing a healthy financial structure. 2.1.

3 Internal Environment Domestic MarketMigros is the market leader in organized retailing in Turkey. In the retail sector, most important issue is the number of shops. Total shops year by year; Migros T"uk, the leader of Turkish supermarket sector is serving 11 million customers a week with 182 Migros, 289 Thok, 50 Ramstore, the total sales area has reached 783.380 m^2 Migros Stores are situated within 7 geographical regions, in 41 cities; while Sok Stores stand within 5 geographical regions, in 22 cities. Migros serves Turkish consumers with seven different formats, which are: Migros Stores, Thok Stores, Shopping Centers, Ramstore, Online Shopping and Wholesale Stores. Migros stores the basic consumables and limited number of non-food articles. At Migros stores, you may find a wider range of non-food articles besides the basic consumables.

At Migros stores, you may access to a larger product spectrum ranging from stationery to textile products, electric household appliances to bakeries, books and cosmetics. Discount Store Chain stores are designed to stock all household needs of consumers. Sok offer basic products like meat, fruits and vegetables, non-food products, drinks, detergents paper-products to the consumer at a very reasonable price. Sok 289 Migros Shopping Centers entertainment center and many specialty stores where huge demand and supply meets. Online Shopping From you can obtain all your needs from furniture to flowers wherever you are in Turkey. S ANAL MARKET KANGURUM are in the service all over Turkey International MarketMigros appears to be more aggressive on the international front, - Russia: Especially in Russia Migros has grown rapidly in the Russian market; since Ramen ka, Migros' 50/50 Joint Venture with Enka Insa at of Turkey, launched the first Western style large-scale shopping centre in Russia in 1997.

Its sales amounted to about US$400 mn as of 2004. The Russian market is regarded as one of the most attractive markets for retailers due to rising per capital income, size of the market and relatively sparse retail network to serve the growing market. - Kazakhstan: Kazakh market is one of the most profitable markets for Migros, as disposable income level of the country is rising and competition is weak. - Azerbaijan: Despite the fact that Migros' first store opening outside Turkey was in Azerbaijan, the operations have not been so successful due to low per capital income levels (US$3,400 in, 2004). However, no further expansion is expected in this market. - Bulgaria: Migros is the market leader in the Bulgarian market.

However, the Bulgarian operations will complete the year 2004 with a loss. Anyway, Bulgaria is a Foothold in Balkans. 3 Ramstore in Baku, 8 Ramstore Shopping Center in Moscow, 38 Ramstore in Russia and 1 Ramstore Shopping Center in Kazakhstan, 1 Ramstore one in Astana and 4 in Almaty, 4 Ramstore in Sofia make up a total of 50 Ramstore that are in service. Novelties pioneered by Migros in Turkish retailer sector; - Self-service - Hygienic packaging - Weight and expiration date marking standard - Price labels - Modern large shopping stores - Daily fruit and vegetable supply to the customer directly from the purchasing regions - Meat processing center - Quality control by its own laboratories - Bar-code system - Electronic weighing at cash registers - Consumer-used weighted - 'Select and buy's ervice for fruits and vegetables - Credit card acceptance - Migros Check - Repacked Meat - Periodical Discount Weeks (Migroskop) - Own-brand, Private-label Products - Shopping Trolley and Special Cash Register for disabled - Electronic shelf labels - Cyber Shopping - Migros Club Card - Migros Credit Card - Self Check-out - Shop-Man 2.1. 4 SWOT Analysis Strengths- Market leader- Member of the KOC Group, main precious of the group- Long-term growth opportunities- Diversified portfolio- Having goals and strategic business plans- Domestic and international operations- Well-educated staff Weaknesses- Market leader however cannot lead the market- Bad image on payment terms to the suppliers- Long decision and approval processes Opportunities- Geographical Position- Operations in other cross-border countries- Partnership with Wal-MartThreatsUncertainty in Turkey's Economic Conditions, Aggressive Carrefour Loyalty problems on customer behaviors 2.2 Gima T.A. Th. 2.2. Gima, founded in 1956, was a state-owned enterprise until its privatization in the 1990's as the first national chain store.

After 1996, it started a fast restructuring period and Fiba Group has taken the management over. Unprofitable stores were closed and larger new stores were opened throughout the country. Gima, as the first multi-channel retailing company in Turkey, serves in 31 cities with 81 stores, and the alternative channels like "Sen-al Market"", web " and "Alo-Gima - 444 10 00."Alo-Gima - 444 10 00" has been activated in December 2001 and it is the first system that customers can give orders via phone. This service is available in 5 cities, and payments can be collected during delivery. It is also possible to pay in different periods with different credit cards, when "Sen-al Market" and "Alo-Gima" channels are used. In order to apply CRM in Gima, "Alternative Channels" is working as a subdivision of Marketing Department.

In this division, four employees are dealing with Sen-al Market. Also, customer relations team of the head office is working for Alo-Gima and online ordering applications. Additionally, for IT infrastructure, there is also an "Alternative Channels" division linked to IT Department, and four people are working there. 2.2. Vision:" The customers are our most valuable partners. Our first target is to satisfy the customers' expectations. Our employees' performance is the key point of our success.

We are creating a business environment, which encourages the personal improvement. We maintain a relationship based on openness, honesty and win-win approach with our suppliers. We are also donating a significant part of our sales revenue to a social welfare institution - A CEV, to contribute the social welfare. As a publicly held company, we intend to provide maximum yield to our stockholders". Mission: According to Gima's motto, "Economic shopping is right beside you"; the mission is to serve high quality products with the possible lowest price while providing high quality service. Business Targets: o To generate maximum added value by improving services and applications according to the customers' lifestyles and expectations, o To turn the in-store shopping activity to a pleasure with additional services, o To create a comfortable and attracting shopping environment for the customers. 2.2.

Target Customer Profile: o Mostly in between 25-34 years of age, o Own car and children, o Each person visiting the stores and that alternative channels reach to, o C 2+ S.E.S., regarding the market locations. Ownership and Management Shareholders Share %Finansbank 24.17%Fiba Holding 10.41%Fina Holding 8.26%Fiba Factoring 7.56%Girithim Factoring 2.08%Finals Financial Leasing 2%Publicly traded and others 45.52%After purchasing, these ratios will be changed and CarrefourSA will own 60.178% of shares of Gima. And public have 29.7% of Gima shares. Stores (Gima & Endi) Gima and Endi's total sales area is almost 103 m^2. The company is expanding with an average store size of 1.100 m^2 for Gima and 250 m^2 for Endi. The larger the store size forms the higher profitability and sales efficiency in the sector is general.

As seen the table above, small sized stores still account for the greater part of Gima sales revenues. However Gima try to use mall concept to increase its profits and maximize the efficiency. Gima, which was a highly leveraged retailer, has the highest payable's days and share of private labels among the listed organized retailers. The company's EBITDA margin rose from -0.5% in 2003 to 4.5% in 2004, while the company still continues to post net losses.

Since 1996, Fiba Group has injected a total of US$109 mn into Gima. Financial Between 1999 and 2001 sales of Gima increased by regressive rate and also the profit margins increased. After 2000 Gima began to loose money, and as a result of he financial crisis in 2001 Gima were hit hard as expected as a result of the decreased household spending. Gima didn't loose its customers in terms of headcount, but the amount spent in each shopping went down.

In 2003 the crisis' effects diminished and the sales increased but Gima could not manage the demand and didn't use against its competitor. However the company succeeded to decrease its loss. In 2004 the total sales decreased at 1 percent. It seemed that was not a big loss but operations' costs were too high, as a result of that Gima announced (19.774) loss again. However this plan was very risk because the profit margin of fresh food group is low and the operational and storage costs are high. As shown below the chart Gima was forming its 64 percent of sales from its food sales.

- Non - Food: Especially the textile goods sales were strengthening the non-food power of Gima. As shown above the chart the sales of non-food goods were forming 5 percent of the total sales. In the retail sector the firms mostly see non-food goods sales as a saver group. However it does not seem Gima could gain benefit from its non-food goods sales as expected. - Private Label: Share of Private labels in total retail volume is getting important. The share of Gima Private Label products forms 15 percent of retail market.

Gima is the leader firm of private label products in Turkish retail sector and its sales amount of private label goods formed 9 percent of its sales. - Storage and Distribution: Gima have a successful storage and distribution operation. In 2003 Gima was first to launch WMS system in retail sector. According to the system, each piece of product is followed promptly with a daily inventory reconciliation rate of %99.9 approximately. The products are transported to the stores from 5 different warehouses. The central warehouse is in Geb ze.

These regional warehouses receive products direct from suppliers and schedule deliveries to retail stores. Gima's target was implementing the B 2 B project and reducing their logistic and storage costs. Store Card After 1996, the company has improved its ERP system and initiated the CRM applications for the reasons stated in Section 2, with the launch of a loyalty card program by improving its LAN and establishing a WAN. With Gima Supercard, the customers receive special discounts, benefit from point age method and present promotions via specialized customization from both kiosks (terminal), cash registers and also internet.

Supercard enables the company to create a database and keep track of customer habits. There almost 4 million records in database which is gathered to use for new store locating, campaigns and revising strategy. The 87 percent of sales is being made with Gima super card. Home Shopping In Turkey, the customers begin to spend less time for essential goods so they begin to search for new opportunities for shopping without going to the stores.

With the increase of the usage of internet channeled firms' interest to interactive shopping, this comprises internet, telephone. Gima serves multiple channel retail service for its customers. It conducts both internet and telephone shopping. The advantage that Gima offers its customers is the availability of payment at the door and installment sales via credit cards. Gima take five different awards for three years about its internet services.

The amount of the internet sales forms 6 percent of total sales, but its does not cover the operational costs, so that service does not benefit Gima in its financial tables. CarrefourSA Purchases %61.78 of Gima & Endi 22 April 2005 Koc Group announced IMDB that they were negotiating With Fiba Holding about purchasing Gima. Migros planned to increase its market share and strengthen its market leader position in retail market. Fiba Group sold 60 percent of Gima shares and 55 percent of Endi shares to CarrefourSA 132.5 million $. However Migros acted slowly and made detailed analysis and these two firms, Gima and Migros disagreed on relevance allowances.

Gima have almost 3600 employees and 3000 of them are working in stores. Migros planned to restructure the organization after purchasing Gima's employees would be fired. Because pf the employees who worked for many years from the government term, Migros didn't want to pay the allowances. At that point CarrefourSA appeared on the stage. Carrefour had already decided to strengthen its market power by purchases in Turkey which is an emerging market. Turkish retail market is an appetizing market for foreign investors and it seems that there will be more new entrants.

The possibility of new entrants -especially Wall Mart, K Mart, Casino- and Tesco's desire about growing in Turkey caused Carrefour's rapid decision of buying Gima. Tesco is one of the most powerful competitors for Carrefour in the world. In order to limit Tesco's movement area in the market, Carrefour purchased 10 percent of Gima shares and will purchase more 50 percent in June. So Tesco now have less chance to grow. Carrefour pointed that Turkey retail market is one of the most 5th important market for Carrefour and also number one emerging market in Europe. After that purchase Carrefour become food retail market leader in Turkey and also started a restructuring in Anatolian region.

According to the 31 of December 2004 financial tables of Gima, Carrefour paid 120.36 million $ for 60.178 percent of Gima & Endi. The Gima stores in Romania are not included that purchase. With Gima and Endi, Carrefour's market share in retail sector increase from %3.4 to %5.2. The number of stores doesn't seem to make a significant difference in Carrefour's purchasing power but with that purchase Carrefour can reach the customers in Anatolian region. And also overcome one of the most important problems in Turkish retail sector. In Turkey store places are limited and finding right places is very hard.

Carrefour will probably eliminate Gimas' non-profitable stores and the stores which are not in the right places. Before Purchase After Purchase Number of Stores Number of Stores 253 Dia o 253 Dial 12 CarrefourSA o 81 Gima 7 ChampionS A o 45 Endi o 12 CarrefourSA o 7 ChampionSATotal 272 Stores Total 398 stores Business Volume Business Volume 1.1 billion $ o 1.5 billion $However the number of stores is 398, in that transition period Carrefour probably eliminate 30 percent of Gimas's stores. If the physical structure of the stores is considered that is certain Endi and some of small Gima stores will be turned into Dias, and some of the big Gima stores in Champion Sa. Purchasing Effects on Retail Sector The purchase of Gima mostly suit Tansath's interests.

The value of the firm's shares increased 2 percent after purchasing while Migros shares decreased. The aggressive competition between the foreign investors is freshening so these investors will try not to have Tansath snatched to another firm. 2.2. 4 SWOT Analysis Strengths- Fiba Group and Carrefour: Carrefour has already entered the Turkish market via a partnership with Sabanc'y group in 1996, the company chose to expand in hypermarket format. In the last 8 year Carrefour understood the customer profile in Turkey. The Carrefour Group has a strong marketing infrastructure and IT knowledge. Gima will have Carrefours know-how on marketing, and benefit from its purchasing power.

- Presence in South East Anatolian, Ankara: Gima was found in Ankara as purpose of satisfying needs of government employees and expanded in south east of Turkey. Before expand in Marmara region Gima formed strong presence in south east Anatolian region and still holding it. - Ease of Access: Gima reaches its customers from multi channels like internet, telephone and stores. So the potential amount o f sales can be formed from each channel. The customers can make their shopping from the stores and also with the same opportunities like super card discounts and point age check benefits from the other channels. Gima provides its customers to pay at the door.

Sen-al Market customers can either pay at the door with their credit cards or cash, or they can pay online while ordering. Personalized service is given to the customers, according to their previous shopping behaviors, for providing them the minimum time and effort. Alo Gima provide online shopping service for its customers, who cannot access internet, by making use of the same infrastructure and distribution channels with Sen-al Market. After dialing 444 10 00, the customers can order their requirements by talking an educated customer representative. The customer representative constitutes the shopping basket for the customer, and records the date and time frame that the customer prefers for delivery. - IT Infrastructure: Gima have a strong IT infrastructure.

Firm can monitor its momentary sales and transportation online and can report them. All the stores and other channels are equipped with POS and electronic cash registers. The inventory control and real time accounting systems are also implemented and it form 99.9 percent accuracy of inventory and helps firm to decision about order amounts. Weaknesses- Corporate Communication: Gima didn't reap benefit from its first mover advantage.

Although the customers of Gima were loyal, the firm could not gain new customers. The one of the important reason of that situation was that firm did not give important to its corporate communication and estrange itself from its customers. So the potential customers didn't perceive friendliness. So the deficiency in communication prevented the benefits of marketing and information technology activities. - Organization Structure: Gima had 7 basic units: Purchasing, Marketing, Warehouses & Logistics, Finance, IT, Human Resources, System Development department. All these departments were being managed by their each Assistant of General Manager.

There was a keen specialization in each department and the branches didn't exactly know what the other branches doing. Every employee in the firm focused on their own jobs and was not interested in seeing the big picture. All departments had different targets and the integration between these targets could not be formed. Also the top management is formed with young managers who does not have vision. So Gima was saving today and did not shape its strategies according to the altered circumstances. Opportunities- Purchasing Power: Before the purchasing Gima have less number of stores among its competitors and this made it impossible to race with the competitor on purchasing prices.

After Carrefour purchased Gima, the firm can benefit from Carrefour's purchasing power and can decrease its costs. - Increase in the Internet Usage Ratio: The number of people using internet for shopping is getting higher. If Gima can present more effectively its internet services to the customers it can provide a huge benefit from internet sales. The internet usage ratio is now 14 percent and it is estimated that ratio will reach 30 percent in the next 3 years. - High urbanization and population growth rate: Organized retail growth is driven mainly by two factors: urbanization and working population growth rate. The total population in Turkey reached 75 mn in 2005 and the urbanization rate is also increasing.

The shift in shopping habits of the urban population will continue to boost the market share of organized retailers over traditional corner stores. Turkish food and beverage spending is also on the rise, and together with their gains of market share from family owned grocers the retail chains have a substantial growth aspect. In addition, higher livings standards are increasing the variety of goods demanded, further fuel ling growth for organized retailers. Threats- Intensifying competition: Retailers not only faced competition from local chains but also from foreign joint ventures such as Metro & Real (Metro - Tepe Group). In addition, the decline in interest rates means that the retailers will have reduced profits on the excess cash at hand. All foreign firms comes to Turkey with their target which is being the best and market leader in Turkey.

So the purchasing domestic firms is important. Now Carrefour and Gima will probably focus not to have a domestic firm snatched to another competitor. If Migros or Tesco purchases Tansath, Carrefour-Gima will loose its position as a market share. - New law: A draft bill imposing restrictions on supermarkets, which was recently prepared by the government, will be sent to the members of the cabinet for approval. The aim of the draft was rather political, and is stated to be the protection of the grocery stores and middlemen. According to the information we have obtained, the legislation suggests that any store with a selling space between 400-1,000's qm will be subject to an approval by a local authority committee.

The committee will take into consideration the economic conditions in the area, the demand & supply, and the competition level of the resident tradesmen. The draft also forces stores with a selling space more than 2,500's qm to be built away from the center of town. However, the law is not expected to be retroactive, which is the good news. - The Organizational Problems of Acquisition: Making acquisition with a foreign firm is harder than making it with a domestic firm. Some problems will probably be existed between the French management-employees with Gimas' confirmed employees. And there will probably be formed a cultural chaos.

2.3 Tansath A. Th. 2.3. Tansath was initially founded with the name "Tansas" in 'Yzmir in 1973, aiming to supply cheaper food and household goods to the inhabitants of 'Yzmir and smaller cities in Western Turkey. In 1976, the first store was opened in Kodak, related to the "Tanz im Sat' M"ud " url"ud"u". There were 12 stores in 1986, which considered a possible company constitution.

On December 15, 1986, "Tansath 'Yzmir B"uy" Belediyesi 'Yc ve D'y th Ti caret A. Th". was established. 32.98% of the Tansath shares, which belonged to 'Yzmir Municipality, have been opened to the public in 1996 to find cheaper loans and increase the corporate identity. The Company was privatized in 1997 through a tender won by Fiba Group. However, a court cancelled the privatization tender. The Municipality opened a second tender, which was won by Doduth Group in January 1999. Doduth Group paid US$64 mn for 29% of Tansath, which represented a market capitalization of US$221 mn for the Company at the time.

A few weeks later, Doduth Group paid another US$46.3 mn for 22% of Tansath, which represented a market capitalization of US$210 mn for the Company. The difference between two implied values is due to the disparity of the related shares' voting rights. 1999 was a milestone for Tansath. 57.5% of its shares were sold to Doduth Holding and Garanti Bank on January 12, 1999 and shortly after, 10% more of the shares were again taken by Doduth Holding. A rapid change and reorganization period has started within the company. In a short time, Tansath has become a national brand spreading out all over Turkey.

In 2000, a court decided to transfer privatized Tansath shares back from Doduth Group to 'Yzmir Municipality. However, Doduth Group claimed that cancellation of the privatization was an internal problem of the Municipality, and that it could not change the ownership structure of Tansath. The case has been off the agenda since then, and we do not expect any negative outcome for Tansath' ownership in the future. Tansath was a regional chain in Western Turkey with a total of 90 stores operating on a total net sales area of 60,000's qm in mid-1999. Following the acquisition by Doduth Group, the Company initiated a heavy investment plan, aiming expansion of the operations nationwide. Consequently, in the 4th quarter of 2000, Tansath reached 201 stores, operating on a net sales area of 140,000's qm.

The new stores were mainly located in Istanbul and Ankara, which required an additional logistics network. Accordingly, Tansath' most profitable stores remain to be the ones in the Aegean Region, where the Company has an established logistics and sales network. Following the aggressive expansion in 1999 and 2000, during which the number of stores were more than doubled, Tansath was hard hit by the crises due to its high fixed leverage and high costs, and deteriorating sales performance related with battered consumption only aggravated the situation. As a result of serious operational losses, severe cost-cutting measures were implemented in 2001, in terms of reorganization: - The labor force was reduced, and it was aimed to lower the share of personnel expenses in total sales.

- Net sales area dropped, as the company closed down 13 inefficient stores and changed the locations of ten stores. - Two of the five warehouses were closed and the IT activities were outsourced to Garanti. Despite the cost-cutting measures, the contraction in the economy resulted in worsening sales performance, which shadowed the improvement on operational costs side. At the end of 2002, Tansath was operating in Aegean, Marmara, Mediterranean and Anatolian regions with 193 stores and 113,000 m 2 of sales area. It had 3895 employees and it was serving for 75 million customers annually, with a $364 million of sales revenues. In order to increase the service level and enhance efficiency, Tansath decided to acquire another subsidiary of Doduth Holding, Macrocenter in 2002.

This decision empowered Tansath's position in the market, for Doduth Holding was giving all its efforts on Tansath. On the other hand, Doduth Group is active in finance, construction, automotive, food, retail, tourism, and media sectors. The first food retail concern of Doduth Group was Peral, a partnership with French Promodes. Peral operated a Continent-branded hypermarket in 1998, when Doduth Group transferred its 36% stake to Promodes, leaving the partnership. Peral, which opened two more hypermarkets in 1999, merged with CarrefourSA as a result of the global Carrefour and Promodes merger.

Tansath is operating in Aegean, Marmara, Mediterranean and Anatolian regions with 206 stores and 123,000 m 2 of net sales area, and it had approximately 5000 employees, which were serving for 78 million customers annually at the end of 2004. As of 2004, the distribution of shares is displayed below: 2.3. The vision of Tansath is to be differentiated with; - The fresh product basket and the cheapest Tansath branded products in its own category, - The store formats that are easily perceived and liked by the customers, - The unique pre, instant and after sales services offered, - The communication between its customers, shareholders, employees, suppliers and the public. Also, the mission of Tansath is; - Not to sacrifice from the product diversity, quality and freshness, which make the company to be positioned at the top of the market, - Always to be the approved and economical store against its competitors, within the region it is located, - To provide the products and services in the stores that is promised in the promotions, - To keep the stores clean and illuminated and the departments should be easily understood by the customers, - To mobilize every opportunity to make its customers to shop comfortably, - Always to be sensitive to the social responsibilities and to the problems going around. 2.3. Tansath operates in three regions of Turkey: Aegean, the only operational pre-privatization region, Marmara, and Central Anatolia regions, which totally cover almost 80% of the total food retail market in Turkey. Tansath generates 65% of its sales in the Aegean, where the company is estimated to have a market share of 24%.

Areas of operation are shown in the following figure: The strategy of Tansath is based on the three principles, which are segmentation, differentiation and operational efficiency or efficient development. Segmentation can be defined in terms of the four types of store formats, basically. These are; - Tansath Mini ( 400 m 2), - Tansath Midi (400-1000 m 2), - Tansath Maxi (1000-2500 m 2), - Tansath Exclusive Macrocenter ( 1000 m 2, imported and special featured products). The target customer profile is A-D S.E. S, that is habituated in Aegean, Marmara, Anatolian and Mediterranean regions. On the other hand, fresh product concept (fruit and vegetables, meat and delicatessen products, floury products and fish), Tansath branded products, standard packaging, being the cheapest store in its own category, store and service concepts and the communication between the customers, shareholders, suppliers and public constitute the basis of its differentiation strategy. Specializing, standardizing and utilizing economies of scale are taken into consideration for development under operational efficiency.

The competitive formula of Tansath, which is also named as "March 16th, 2002 Concept", is shown below: The procedure and philosophy lying beneath Tansath's processes are based on the standards, principles and systems that are accepted by the global retailing industry. The basic principle is "absolute customer satisfaction" for each store. In order to do that, they adapted to the idea of knowing the customers needs better and thereby develop the services accordingly and developed a system named "Incredible Customer Rights". They are utilizing customer focused approach instead of being competitor focused.

The product types are optimized according to the regional customer profile and requirements, where the store is located in. The warm atmosphere, cleanliness and illumination are important in the stores. Interior decorations and settling characteristics are standardized. The planned applications and numeric targets are defined on a schedule and the assessments are shared periodically with the public.

Tansath is using the "realistic conservatism" approach, which is determining the most reachable target and utilizing the time, human and physical resources as efficient as possible. Relying on trust and principles, being loyal to the ethical values, working without sacrificing from the targets, keeping the customer focused approach as the basis of corporate culture are forming the corporate values of Tansath. 2.3. Strengths- Doduth Group: The group's know-how in IT (Garanti Technology) and lower cost of funding increases the operational and financial performance of the company. Besides, the group has undertaken two cash injections (in March and December 2001) when Tansath's equity turned red. In late 2001, the group announced that Doduth Holding's strategy would be to expand in food, retail and construction areas.

If can be completed, the sale of part of Garanti Bank could end up in a cash injection to Doduth Holding, which in turn is likely to be utilized in the expansion of supermarket operations. - Presence in Aegean: Tansath has established recognition as well as its strong presence in the Aegean region. As the company's initial mission was public, the residents still feel an emotional loyalty to Tansath. Competitors have stepped up efforts to break the company's presence; however, they have not succeeded especially in 'Yzmir. - Established infrastructure: In the expansion period, the company achieved significant improvement in its infrastructure terms.

All the stores were equipped with POS and electronic cash registers. The inventory control and real time accounting systems were also implemented with the aid of Garanti Technologies; to which all of Tansath's IT and infrastructure operations are outsourced in 2001. The establishment on the systems is forecast to improve the gross and operating margins. Another advantage of Tansath is that the company would no longer have to invest substantial funds in infrastructural projects. Weaknesses- High leverage / weak equity: Tansath' expansion strategy in 1999-2000 period was quite aggressive when the company's resources are considered. Tansath management nearly doubled the sales area in a year while completing most of the infrastructural c apex.

As a regional retailer, Tansath could not generate the cash to fund such a growth. The company, therefore, had chance but to borrow. The investments of Tansath were funded by short-term debt - a lethal mistake sometimes made by Turkish companies. The debt could not be totally cleared with various rights issues undertaken and still results in most of Tansath's loss. We do not expect the company to realize profits until 2004, mainly because of the high leverage.

- Still not nationwide: While Tansath's brand is arguably the strongest in the Aegean region, and is a definite known in the Marmara and Central Anatolian region, elsewhere - mainly because of a lack of stores - it is still unknown. However, we feel that this can be rectified through the same successful strategy used to establish the brand in the Marmara region. The company's operations in Central Anatolia (mainly Ankara) are also growing lucratively. We believe that the company requires a long period to be a nationwide chain, as the expansion entails infrastructural investments, and Tansath has slowed its growth after 2000. - Margin problems: Tansath's ongoing problems with suppliers and late implementation of storage and distribution systems are the current pressures on the company's gross profitability. In addition to poor gross profitability, significantly high operating expenses related to new store openings and layoffs leads to huge operating losses for Tansath.

Besides, the c apex financed via ST debt causes huge financial expenses augmenting the net loss figure. We do not expect the company to reach operating and net profitability before 2004. Opportunities- Sector is still a safe haven in crisis times: By their very nature, the food and food retailing sectors are least affected by downturns in the economy. The contraction in food and beverage spending has always been under the contraction of income and general spending figures.

Another advantage of the supermarkets is their customer segment, which is quite above that of grocery stores. 2001, however, was an exceptional year for the retailers as Turkey went through the worst economic turmoil in its history with c 9% contraction. - Market potential: When compared with European countries' averages, Turkish retail chains have considerable space for expansion. The expected change in shopping habits in smaller tons and cities as well as lower prices offered by the chains are expected to attract potential customers in those regions.

The total population in Turkey reached approximately to 70 million, with a very high growth rate according to Europe. Even more importantly, the number of households has increased. Although it is expected that Turkey's population growth rate will slow down in the long run, the present level of population as well as increasing urbanization is good enough to increase demand for organized retailing. The rate of urban population growth is around 2%, and the number of working women is rapidly increasing, leaving limited time for shopping. Turkish food and beverage spending is also on the rise, and together with their gains of market share from family owned grocers (which still hold 80% of the market) the retail chains have a substantial growth aspect. In addition, higher living standards are increasing the variety of goods demanded, further fuel ling growth for organized retailers.

Threats- Intensifying competition: Retailers not only faced competition from local chains (e.g. Gima & Migros) but also from foreign joint ventures such as CarrefourSA (Carrefour - Sabanc'y) and Metro & Real (Metro - Tepe Group). Thus, they have to extend operating margins in a low-interest environment. However, increasing competition is an obstacle which is difficult to surmount, and will not allow sufficient increases in the operating margins of the retailers. According to the information we have obtained, the legislation suggests that any store with a selling space between 400-1,000 m^2 will be subject to an approval by a local authority committee. The draft also forces stores with a selling space more than 2,500 m^2 to be built away from the centre of town. If approved without any change, the law would erect a barrier against retailers, especially rapidly expanding chains via increased red tape.

The organized retailers, who plan to open a significant number of stores, will be affected (e.g. Tansath). However, the big players have nearly completed their growth in the big cities. Still, the legislation might also lead to an expansion in Anatolian regions, where the penetration rate of organized retailers is considerably lower. The draft has many unclear details such as the composition of the committee of supervision, the definition of the centre of the town and sales area.

We believe that the draft could be changed one more time in the commissions. - Foreign entry by acquisition of a competitor: The foreign retailers' intention in the Turkish food retail market is obvious. If realized, such an entry into the supermarket segment is likely to cause distress for the local chains. The foreign groups' available funds and their know-how would possibly lead to unexpectedly quick market share losses for the competing locals. Turkish retailers, with their current frail structures, would most probably have hard times against a global player. 2.4 Other Main Players in Turkish Retail Sector There are also Metro Group, CarrefourSA and Tesco Kipa in the Turkish retail sector as seen in the below table. 2.4.

1 Metro Group Up until 1990, the retail sector in Turkey consisted of traditional stores. The first of them was Metro, followed by Migros, part of Koc Holding's (one of the biggest companies that operate across almost all sectors including manufacturing and marketing) which started to open hypermarkets. METRO AG is Germany's largest retailer and the fifth largest retailer in the world. Metro operates more than 2,300 retail stores in 28 countries, including supermarkets, hypermarkets, department stores, home improvement stores, and consumer electronics stores under the Cash & Carry, Real, Extra, Media Market, Praktiker, and Galeria Kaufhof banners. The company employs 235,000 people.

METRO's growth in recent decades has been fueled by aggressive acquisition of smaller retail chains around the globe. While the company lists 'internationalization' as a key objective, METRO CEO, Dr. Hans-Joachim Koerber, denies that METRO is 'building an empire. ' Given its wide reach, METRO's policies have the potential to impact tens of millions of consumers around the world. The following is a list of country.