We current you the second article on the Turkish fruit and vegetable enterprise and its specifics by the FAO worldwide advisor Fedir Rybalko. We hope that the data will assist all contributors within the fruit and vegetable enterprise of our area to seek out new concepts for additional improvement, whereas we give attention to its most essential hyperlink – gross sales. You’ll be able to learn the primary article by Bakhtiyor Abduvokhidov right here.
Recall {that a} group of consultants of the EastFruit mission and representatives of the retail commerce visited Turkey in November 2022 to trade expertise in organizing commerce in fruit and veggies.
We visited the distribution facilities (DCs) of the nation’s main grocery store chains, the biggest wholesale market in Istanbul, evaluated the format, assortment, high quality, and costs for greens and fruits within the nation’s retail chains, met with the biggest fruit producers and logistics firms, noticed the distribution facilities of enormous farmers and representatives of on-line buying and selling.
The steadiness between exports and the home market
Turkey has a big home market of 85 million individuals, with greater than 15 million residing in Istanbul. Due to this fact, regardless of Turkey being one of many world’s largest exporters of fruit and veggies, the home market can also be extraordinarily essential for it.
In keeping with our estimates, home gross sales of greens and fruits in Turkey offered about $10-12 billion in income, and export income was about $6 billion in 2021. Due to this fact, the home market was no much less, and much more essential, than exports.
There’s a related state of affairs solely in Ukraine of the international locations of our mission. There’s additionally a fairly massive, however not dominant, home market in Uzbekistan. In different international locations, Georgia, Moldova, and Tajikistan, the export market is decisive for the event of the trade.
True, it ought to be famous that there’s an lively upward pattern in exports in Turkey, whereas the quantity of the home market isn’t rising a lot. Due to this fact, the significance of exports has a direct affect on the construction and state of the home market.
Who’s the customer of greens and fruits, and why is it essential?
If exports are an essential supply of revenue, you will need to perceive who the principle purchaser is and what requirements are utilized in the important thing market.
Turkey has the identical downside as Moldova, Georgia, Uzbekistan, and Tajikistan – the principle marketplace for contemporary fruit and veggies is the least dependable accomplice on the earth – Russia. Along with fixed crises and unpredictable commerce insurance policies that rely on the political whims of the nation’s management, Russia has an outdated and intensely low stage of necessities for meals high quality and security. On the one hand, that is good, because it permits one to promote all the things and doesn’t require massive investments in manufacturing and refinement. Alternatively, specializing in such low high quality requirements as in Russia makes it unattainable to export to different international locations. And which means the nation turns into too extremely depending on a particularly unstable gross sales market.
We noticed the outcomes of this on the cabinets of supermarkets in Istanbul – there have been too many greens and fruits that didn’t meet the minimal high quality requirements. Nonetheless, there’s additionally the affect of the home market – removed from all Turkish residents have a excessive stage of revenue – in 2019, greater than 10% of residents lived under the poverty line. Furthermore, in accordance with the World Financial institution, the nation has seen a rising variety of poor individuals amid excessive inflation and plenty of financial disasters related to the transition to a “handbook mode” of financial administration since 2019.
It isn’t shocking that lately Turkish farmers have began investing in selection renewal and elevating product high quality requirements to have the ability to export the utmost outdoors our area, focusing totally on India and Southeast Asian international locations, the EU, and wealthy international locations of the Center East.
Interplay between authorities companies and all contributors within the fruit and vegetable market
Turkish authorities authorities use a really complete method when interacting with the fruit and vegetable enterprise utilizing tax incentives equivalent to:
– Diminished VAT fee of 1%;
– A payment of 1% for gross sales within the wholesale market in Turkey, appearing as a tax agent and amassing tax when the provider enters the wholesale market. When offered bypassing the market, the tax fee will increase to 2%;;
– A zero fee is utilized if the market sells merchandise licensed with GAP or Natural Customary;
– Low lease within the wholesale market. The Istanbul Municipality units rental charges for wholesale retailer tenants and commissioners, that are not more than $500 per 30 days. Provided that the common space of a wholesale retailer exceeds 50 sq. meters, the low lease is a big measure to help small and medium-sized companies by native authorities.
– On the stage of municipalities, direct subsidies are offered to producers. Alternatively, companies have an obligation to offer essential statistical data for the state on the time of the wholesale sale of fruit and veggies, which permits the state to plan tax revenues, in addition to analyze adjustments in market consumption and home manufacturing of fruit and veggies.
– The Turkish state has created equal aggressive situations for all contributors within the current provide chain, making use of, specifically, a lowered VAT fee. The usage of totally different VAT charges for retail chains and wholesale markets, as is at present the case in Uzbekistan and Tajikistan, the place retail chains pay 15% and market operators are exempt from VAT, results in market imbalances, decreasing competitors. The usage of totally different VAT charges relying on the origin of fruit and greens results in unfavorable penalties within the Georgian market – if native merchandise are offered on the home market, they aren’t topic to VAT, and when promoting imported merchandise, the retail chain pays 18% VAT, which additionally reduces competitors. That’s why the Turkish expertise has as soon as once more proved the significance of equal tax situations for the profitable enchancment of retail.
Traceability and security of greens and fruit
One other essential purpose for making a system for registering gross sales of fruit and veggies is traceability for the aim of state management of meals security of fruit and veggies.
An essential side of state regulation is making certain temperature regimes by all contributors within the fruit and vegetable enterprise when transporting, for instance, berries and mushrooms. Though different fruit and veggies are transported and offered in wholesale markets with out refrigeration, the requirement to refrigerate even a restricted vary is a large step in comparison with present follow within the fruit and vegetable markets of the Caucasus and Central Asia, the place most retailers violate the temperature regimes.
In fact, the system isn’t excellent, and there is part of market consumption that’s not mirrored in authorities statistics, however the mannequin remains to be extra environment friendly than in our area. Due to this fact, it’s advisable to check in additional depth the Turkish expertise to implement it within the international locations of the area.
Market pricing and enterprise financing system
The mannequin of wholesale gross sales within the home market of Turkey permits fruit and vegetable market contributors to react promptly in case of an overproduction disaster or scarcity of a product. An important aspect of the mannequin is a two-level system of fee brokers forming a every day wholesale worth within the area of manufacturing, and within the area of consumption, growing or lowering it relying on provide and demand within the home and/or international markets.
In keeping with the authorities, service fee brokers cost a fee of 8-12% of gross sales, however farmers report greater charges. Moreover, fee brokers act as a form of monetary middleman for producers, as it is vitally frequent for fee brokers to offer monetary help to their suppliers a number of months earlier than the beginning of the harvest.
This mannequin makes it attainable to create a market infrastructure for a small Turkish producer that can’t independently promote his merchandise for export or to a retail chain or can not get a mortgage to replenish working capital on time. Due to this fact, fee brokers kind wholesale tons and are always on the lookout for new clients, whereas producers give attention to growing yields and product high quality, manufacturing effectivity, and security.
The mannequin may be very related for all international locations with small-scale manufacturing and a share of contemporary retail codecs within the fruit and vegetable commerce of lower than 50%. Examples of the work of fee brokers are discovered within the fruit and vegetable markets of the Caucasus and Central Asia. Nonetheless, their affect in the marketplace isn’t as massive as in Turkey, as these international locations are extra depending on producers within the Russian market, and the home market remains to be underdeveloped. Due to this fact, wholesale market operators in Georgia, Moldova, Ukraine, Uzbekistan, and Tajikistan shopping for merchandise from farmers on a pay as you go foundation for resale typically endure losses. This impacts your complete chain and its stability.
On the identical time, within the Istanbul fruit and vegetable retail market, the share of contemporary retail codecs, together with on-line buying and selling, exceeds 50% of all gross sales, so the two-tier system of fee brokers may even bear appreciable adjustments within the subsequent few years. Giant producers will more and more attempt to promote on to retail chains, forcing out fee brokers, utilizing the mechanism of contracting the long run harvest.
Wholesale markets and their function within the fruit and vegetable distribution system
The foremost aspect of the fruit and vegetable distribution system in Istanbul are two wholesale markets (one within the Asian half and one within the European half) managed by the municipality. Greater than 3 million tonnes of fruit and veggies are offered yearly solely by one wholesale market, Bayrampasa, which we visited – this exceeds 50% of the annual consumption of the Istanbul retail market.
The share of capital wholesale markets within the international locations of the Caucasus and Central Asia exceeds 80% of annual consumption, whereas retail chains are crucial clients in these markets. Nonetheless, retail chains in Turkey attempt to not purchase in wholesale markets. The commerce margin of an unorganized retailer (vendor in a bazaar, market, or avenue vegetable kiosk), which is the principle shopper of the Istanbul Wholesale Market, is about 100% on common. Excessive commerce margins cowl the price of flashy merchandising, with which retailers attempt to entice as many purchasers as attainable.
The common commerce margin of an unorganized retail operator within the international locations of the Caucasus and Central Asia doesn’t exceed 50%. Due to this fact, fixed monitoring of commerce margins will enable retail chains in these international locations to extend the financial effectivity of fruit and vegetable departments.
Merchandising of fruit and vegetable departments of retail chains
Regardless of the very excessive competitors from non-chain fruit and vegetable retailers, all Turkish retail chains pay nice consideration to their fruit and vegetable departments. Fruit and vegetable departments are fairly often situated on the entrance to the shop on the road, and for a lot of regional or native chains, that is necessary. This enables for the enlargement of the retail house, since actual property is dear, and each meter of it should be used as effectively as attainable.
That is now actively utilized by unorganized fruit and vegetable retailers in Georgia, however nationwide retail chains place their fruit and vegetable departments inside shops, lacking out on a superb alternative to successfully use their promoting house. And the climate in Georgia permits utilizing it virtually all yr spherical.
Turkish discounters have their departments inside however on the retailer entrance. On the identical time, fruit and vegetable departments should not hemmed in by different departments. There is a superb format in shops of all codecs.
Product high quality may be very typically common, however that is often as a result of total aim of decreasing the worth notion of the produce division by decreasing costs and thus growing buyer visitors. A couple of extra causes for this phenomenon have been mentioned above within the “Who’s the customer and why is it essential” part.
Because of efficient merchandising, the share of fruit and veggies within the whole gross sales of the very best grocery store chains reaches 15%, which is massive for retail chains in most EU international locations. Retail applied sciences utilized by Turkish chains can and ought to be used within the international locations of the Caucasus and Central Asia, the place the share of fruit and vegetable merchandise in the very best retail chains not often exceeds 8%.
Discounterization of Turkey
Previously 10 years, the Turkish retail market has continued to develop quickly within the discounter phase, whereas different segments have maintained their positions and even declined. In keeping with numerous estimates, discounters at present account for at the least 70% of the organized Turkish retail market. The three greatest operators alone, BIM, A101, and SOK function greater than 20 000 shops on this market. In whole, there are about 35 000 discounters in Turkey and the variety of shops continues to extend yearly. Having visited the shops of all three nationwide operators of the discounter phase as a part of the retail tour, we single out the next options:
– the variety of fruit and vegetable SKU discounters in Turkey not often exceeds 20;
– the fruit and vegetable division is at all times on the entrance, however not in entrance of the shop outdoors, like a lot of the regional retailers they compete with;
– aggressive promotional gives of low costs are at all times used;
– optimization of processes in your complete provide chain, together with the utilization of pooling service;
– probably the most environment friendly logistics, as a result of supply instantly from the closest distribution heart with out using cross-docking warehouses;
– the commerce margin is 30-50% on common, excluding promotional gives.
Why are our discounters totally different?
In all international locations of the Caucasus and Central Asia, many retail chains say they function within the discounter format, however they fairly often don’t adjust to this format. To adjust to the discounter format, retail costs in most main classes should differ from opponents of different codecs by at the least 20%. Nonetheless, to realize such buying energy, it’s essential to abandon purchases in wholesale markets, creating as a lot as attainable direct imports and contract manufacturing.
The essential situation for the profitable improvement of the discounter format within the international locations of the area is a excessive stage of commerce margins in different retail codecs, which ought to be greater than 50%. If the extent of commerce margin is decrease, the discounter format will be unable to compete successfully and develop rapidly. And to use such margins, it’s essential to have an acceptable revenue stage for a major variety of customers in a rustic or a selected metropolis.
Turkish discounters achieved the acknowledged objectives because of environment friendly logistics, buying coverage, and optimization of enterprise. On the identical time, it is vitally tough for them to compete within the fruit and vegetable class, however they’re making an attempt. Due to this fact, the expertise of creating Turkish discounters will probably be very related.
Growth of E-Grocery or on-line gross sales of fruit and veggies
The Turkish E-Grocery trade is actively creating in Istanbul and different main cities. Turkish on-line retail is rising quickly. Many of the offline retailers are current on this phase, however there are just a few on-line retailers which have managed to take a distinct segment within the Turkish market and develop into different markets.
Though it’s tough to discover a nation with no quickly rising on-line grocery retail after the COVID-19 pandemic, the Turkish E-Grocery market in the course of the retail tour confirmed alternatives for enchancment in different international locations of the area, since all current enterprise fashions are represented in the marketplace. Amongst them are the next:
– scheduled supply by an internet retailer from a distribution heart,
– quick supply in quarter-hour from a darkish retailer,
– supply from the closest offline retailer,
– supply by an internet retailer from the closest market.
Whereas on-line grocery retail within the international locations of Central Asia and the Caucasus is underdeveloped, not even reaching 1% of the entire gross sales of outlets and bringing retailers solely losses, the share of on-line orders within the whole gross sales of retail chains in Turkey of 9% is frequent. This enables us to imagine that this route is worthwhile for Turkish offline retailers which have their very own on-line order supply system.
Due to this fact, an evaluation of the enterprise fashions of the Turkish E-Grocery market, particularly the technical parameters of distribution facilities and darkish shops, will enable, for instance, Georgian retailers to seek out the very best enterprise mannequin to realize excessive on-line gross sales charges within the subsequent few years and turn out to be worthwhile. Establishing on-line retailers impartial of current retail operators would require important investments, that are almost definitely to not repay over a protracted interval in international locations with a small home market, equivalent to Georgia and Tajikistan. However for the fast-growing retail market in Uzbekistan, a lot of the Turkish enterprise fashions will be fascinating.
Logistics – the circulatory system of the fruit and vegetable commerce
The fast progress of Turkish retail chains over the previous 10 years has created a steady demand for the providers of logistics suppliers who’re making an attempt to combine with retail chains, fruit and vegetable suppliers, transport firms, and builders as a lot as attainable. You’ll be able to learn how a logistics supplier works right here.
Logistics suppliers are always introducing improvements like semi-trailers used for max transport loading, with the flexibility to load pallets in 2 tiers. These semi-trailers are outfitted with a shifting partition to concurrently load merchandise with a temperature regime of each -18C and +4C into one car.
Such improvements and long-term partnerships with massive retail chains make it attainable to extend the effectivity of using transport and warehouses, and, because of this, scale back the price of logistics providers for retail chains. By the best way, due to the fast progress, the chains always expertise an acute scarcity of their very own automobiles and distribution warehouses.
These partnerships may even be related for retail chains in Uzbekistan, Georgia, and Tajikistan, which at present have a scarcity of environment friendly distribution warehouses.
The event of pooling
The pooling service has been working on the Turkish marketplace for greater than 20 years and has turn out to be a normal, whereas in our area the pooling system operates partly solely in Ukraine.
Retail chains have been the principle driver of pooling improvement in Turkey. The introduction of the service allowed retail chains to extend their competitiveness with unorganized retail, scale back mechanical harm to merchandise all through the availability chain, scale back the acquisition worth by direct buy from producers, enhance the workload and effectivity of transport, and the effectivity of utilizing warehouse house in distribution facilities and buying and selling house in retailers.
Presently, there are the next pooling enterprise fashions within the Turkish market:
- worldwide pooling operators offering providers not solely to retail chains but additionally to exporters;
- native pooling operators offering providers solely to retail chains;
- reusable plastic packaging, which is offered for lease by producing crops to everybody;
- reusable plastic containers that belong to the retail chain and are utilized by its suppliers;
- reusable plastic containers owned by suppliers of fruit and veggies;
- native pooling operators offering a pallet rental service.
Such quite a lot of enterprise fashions permits every operator to discover a area of interest within the massive rising Turkish market, because the distinctive characteristic of the Turkish market is the event of pooling providers not solely in retail chains but additionally in casual retail.
The Turkish pooling expertise will undoubtedly be related for the international locations of Central Asia and the Caucasus, the place there’s a want for such a service as a result of excessive losses within the fruit and vegetable provide chain and costly transport packaging. Nonetheless, the dimensions of the market remains to be inadequate for worldwide pooling operators to enter these markets. On the identical time, there’s now a market area of interest for creating native pooling providers within the international locations of the Caucasus and Central Asia.
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