Multinationals Increase Investment in Turkish Manufacturing Capacity

In 2011, a number of global packaged food companies have increased their investment in expanding their manufacturing capacity in Turkey. Most recently, Ferrero announced investment of €90 million in a new confectionery factory in the province of Manisa, following in the footsteps of rival multinationals Nestlé and Unilever, which are also focusing on enhancing their production capabilities in the country.

Unilever is set to build a new ice cream plant in central Turkey at an initial cost of around US$100 million while Nestlé has announced plans to invest US$54.8 million in a new breakfast cereals factory in Karacabey, Bursa by the end of 2011.

Growth drivers of packaged food in Turkey

Certain categories in the Turkish packaged food market are expected to grow rapidly over the 2011-2016 period, for example confectionery, ice cream and breakfast cereals, with CAGRs of 3%, 6% and 7%, respectively. These are therefore attractive categories for expanding multinational players.

There are several economic factors driving multinationals to invest substantial amounts in expansion in emerging markets such as Turkey, the most significant being strong population and overall GDP growth, with a 4% CAGR anticipated over 2010-2015, and still relatively low per capita consumption in most FMCG categories. Turkey’s population, based on 2010 data, is approaching 73 million and is expected to reach 77 million by 2015.

Various packaged food categories are benefiting from the general economic recovery and strong growth-driving trends, particularly snacking and health and wellness. The highest number of new product launches in Turkey during 2010 and 2011 has been seen in chocolate confectionery, biscuits, packaged/industrial cakes and ice cream. These products are not only being targeted at children, as in previous years, but also adults. A number of new product developments even in categories not readily associated with wellness, e.g. confectionery or biscuits, show that health and wellness is becoming a key trend in urban Turkey.

Multinationals in Turkey

The overall packaged food market in Turkey continues to be led by Turkish conglomerate Yildiz Holding with a 7% value share, while the largest multinational player, Unilever, commands only a 3.5% share and more than half of the top 10 players are local Turkish companies. This high level of market fragmentation presents multinationals with opportunities for expansion either organically, via the acquisition of local players or by forming partnerships to access local infrastructure and market knowledge.

In terms of the most recent activities of international companies, organic expansion has been the preferred option via investment in enhanced manufacturing capabilities.

Ferrero, currently the seventh largest confectionery player in Turkey, has been steadily gaining ground, moving up from ninth position in 2006. The company’s largest brand is its Kinder range, while the more premium positioned Ferrero Rocher only accounts for some 0.2% of confectionery value sales.

In Turkey, manufacturers are expected to widen their product ranges and increase their advertising and marketing activities to stimulate sales. Companies are expected to launch more sophisticated products with higher quality ingredients and a richer content, for example featuring pistachios/hazelnuts or a higher cocoa and milk content. Given Ferrero’s historic growth, experience and portfolio, the company is well placed to respond to these market trends.

Unilever generates and satisfies growing demand for ice cream in Turkey

Unilever’s new ice cream plant in Turkey will further consolidate its leading position in the category, in which it already held a dominant 69% value share in 2010. The plant will produce Algida ice cream, which commanded retail value sales of US$$128 million in 2010.

Ice cream in Turkey is a rapidly expanding category, enjoying a CAGR of 18% over the 2006-2011 period. This was mainly the result of the launch of a number of sophisticated and value-added products, for example Magnum Gold, which is covered in a golden coating, and Magnum Temptation, available in various flavours in carton box packaging and launched in 2011.

Over the review period Unilever also completely updated its Algida ice cream brand for the Turkish market. All the elements of the brand, such as flavour, packaging, visual identity and strapline, were given a significant makeover. In Turkey, the brand posted a 22% CAGR over the 2006-2010 period. With its enhanced production capabilities Unilever will be able to satisfy the country’s rising demand for ice cream in the wake of improving economic conditions.

Over the 2011-2016 forecast period Unilever will face increasing competition in the premium segment as new upper-end brands such as Häagen-Dazs, Mövenpick and Royal Venexia (from local player Yildiz Holding) enter the market, although it is unlikely that any of them could challenge Unilever’s dominance in ice cream. It remains the best positioned company to benefit from the dynamic growth rate forecast for the ice cream category in Turkey.

Turkey an expansion target market

In their recent financial statements multinational food companies reported positive results with regard to their strategy to launch or expand their flagship international labels in attractive emerging economies via market-specific innovations. Many companies are investing heavily in production facilities in identified priority markets to satisfy and generate consumer demand and build strong positions to benefit from expected dynamic growth rates over the medium to long term. Turkey has become one of these focus markets for expanding multinationals thanks to its positive macro-economic indicators and growth forecasts for selected packaged food categories.