Can Turkish hard discount giant and market leader BIM make a success of its forthcoming supermarket format?
Turkish hard discount giant and market leader BIM recently announced that it is considering entry into the supermarket channel with a new banner called File.
BIM is strictly modelled on German hard discounter Aldi, but the inspiration for its latest venture is Mediterranean: namely Spanish market leader and EDLP advocate Mercadona. With German roots and Spanish inspiration, how can BIM shape the future of Turkish retail?
BIM owes its successful growth to aggressive expansion, a strong supplier base and continuous investment in supply chain efficiencies. As of the second quarter of 2014, it had 4,344 discount stores in Turkey, 195 in Morocco and 62 in Egypt. The retailer’s primary target is to reach 6,000 stores in Turkey by 2018. Domestically, BIM has pretty much perfected the art of private-label retailing, and own-brand now accounts for 70% of total sales. Financially, the business is also on sound footing, reporting quarter after quarter of both revenue and income growth.
Why branch into supermarkets?
Despite BIM’s market leadership, Turkey essentially remains a supermarket country. Supermarkets had a share of around 50% in modern food retail format sales in 2013. In fact, in the early 1990s, the hard discount model did not even exist in the country - the modern grocery retail scene was shaped by supermarkets, neighbourhood stores and hypermarkets.
For all its success, BIM increasingly finds itself in a Catch-22 situation. It is still looking to grow through aggressive organic expansion, but its network has expanded so far that every new outlet attracts consumers from its own stores, and that cannibalisation results in lower sales per store. It may still attract shoppers from soft discounters, but BIM’s current target of 6,000 stores by 2018 means it will eventually saturate its own market. And what happens then? BIM has been quick to adapt accordingly.
Why Mercadona as a role model?
In many ways, the Spanish operator is already a distant cousin to BIM. Mercadona’s EDLP focus and strong private label base are only two of the many traits they share. Mercadona has made continuous efforts to lower its prices, as evidenced in its targeted 1% price cut for 2014, as well as doubling sales of fresh produce. To keep prices competitive, the retailer optimised its product offer in 2010 by eliminating duplication (same-supplier products sold both under its brand name and under Mercadona’s private label), phasing out around 1,000 items from its private-label and branded product offer respectively.
According to local media reports, File stores are likely to have a sales area of around 10,000 sq ft (compared with BIM’s average footprint of 3,000 sq ft) with counters for bakery, fish, meat, and charcuterie. There will be strong fresh focus, which is a must-have for any supermarket operator in the Turkish market. While private-label will remain a key tool, the current 600-SKU offer will need to expanded significantly and there will also be a wider assortment of branded products.
BIM is reportedly looking to launch the File banner in high-income districts to attract the A/A+ consumer group. Herein may lie the biggest challenge for BIM, namely finding good locations, especially in Istanbul. Unlike its small stores located in the back streets, a File store will require a larger sales area as well as more visibility to attract affluent consumer groups. Suburban housing estates may be a target, but older players have already been there, done that. Especially in Istanbul, the acquisition of smaller local players may prove the best strategic option.
All in all, BIM’s File banner is expected to see much slower expansion than BIM’s discount stores. Mercadona may be a good role model, but the characteristics of the Spanish and Turkish market are very different, from the depth of modern retail penetration to patterns of consumer spending. BIM knows there is a need to localise this model, as it did when co-opting Aldi’s concept back in the day. The supermarket channel requires not only good locations and well-executed store concepts, but also constant investment in innovation to remain competitive. That said, if anything like a discount supermarket is actually possible in Turkey, BIM is probably the only retailer that can pull it off.
- Stephen Springham and Derya Yildiz are analysts at Planet Retail