Required Report - Public distribution

**Date:** 7/22/2008

**GAIN Report Number:** TU8034

TU8034

**Turkey**

**HRI Food Service Sector**

**Annual**

**2008**

**Approved by:**

Rachel Nelson![](media/image1.wmf), Agricultural Attaché

U.S. Embassy, Ankara

**Prepared by:**

Osman Cakiroglu, Agricultural Marketing Assistant

**Report Highlights:**

Total 2007 food service revenues were about USD 19.5 billion. The
tourism industry is optimistic about the 2008 season and based on early
reservation numbers the Mediterranean Touristic Hotel Association
predicts a 5 to 10 percent increase in 2008 revenues. Major changes in
the lifestyles, incomes and consumption patterns of Turks in the last
decade have resulted in increased tendencies to eat outside of the home.
These trends have led to a growth in the HRI sector, particularly for
fast food and institutional food service

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Ankara \[TU1\]

\[TU\]

Table of Contents

**Section I. Market Summary**

Macroeconomic Factors . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
[3](#food-service-revenues-by-sub-sector-2007-usd-billion)

Key Demand Drivers Affecting the Food Service Market. . . . . . . . . .3

Subsectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .4

Advantages and Challenges . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .[5](#advantages)

**Section II. Roadmap for Market Entry . . . . . . . . . . . . . . . . .
. . . . .[5](#section-ii.-road-map-for-market-entry)**

A. Entry Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . [5](#section-ii.-road-map-for-market-entry)

B. Market Structure. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . [6](#c.-sub-sector-profiles)

C. Sub-Sector Profiles. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .[6](#c.-sub-sector-profiles)

**Section III. Competition. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .[13](#section-iii.-competition)**

**Section IV. Best Product Prospects. . . . . . . . . . . . . . . . . .
. . . . . .[14](#_HRI_Food_Service)**

**Section V. Post Contact and Further Information. . . . . . . . . . . .
. 15**

Section I. MARKET SUMMARY

**Overall Macroeconomic Factors**

After a crisis in 2001, the Turkish economy has shown steady
improvement. GDP is expected to grow by 4 percent in 2008, imports have
increased by 21.8 percent since 2006, and Turkey was recently ranked
16^th^ in the world in terms of FDI. The inflation rate at the end of
2007 was 8.39 percent, much better than in 2002 when it was 29.7
percent. Price inflation on some products was higher, for example
tobacco and alcohol product prices went up 17.2 percent in 2007. In 2007
the official unemployment rate was 9.7 percent, up from 9.33 percent in
2006.

In October 2005, EU accession negotiations were started on 35 chapters,
but the road has been a rocky one and in 2007 the negotiations were
temporarily put on hold. Also, a power struggle between the hard-line
secularists and the current ruling party has been negatively affecting
domestic and worldwide confidence in the Turkish economy. A recent
lawsuit to close down the ruling party has increased uncertainty. This
environment has caused consumers to be cautious about their spending
habits, resulting in a decrease in spending in many industries. The
retail and apparel industries have lowered their growth estimates for
2008 by 10 percent and more industry leaders are expected to follow.
These signs of recession have not seemed to affect the food market.

**Key Demand Drivers Affecting the Food Service Market**

In Turkey about 40 percent of income is spent on food, compared to 10
percent in developed countries. Socialization over food is an important
aspect of Turkish culture, whether at home or elsewhere. Major changes
in the lifestyles, incomes and consumption patterns of Turks in the last
decade have resulted in an increased tendency to eat outside of the
home. In addition, a new and faster pace of life has led people to find
quicker meal solutions for their shortened lunch hours. These trends
have led to a growth in the HRI industry of Turkey, particularly two
sectors; fast food and institutional food service. An increasing number
of fast food chains and restaurants in newly established shopping
centers and hypermarket complexes are evidence of this newly emerging
trend. Turkey's fast food industry is now a USD 3.5 billion market.

In addition to the overall economic growth of Turkey, four main factors
have helped to drive the growth in the HRI sector:

[Increased income levels]{.underline}- Despite sporadic downturns in the
economy, per capita income in Turkey has increased to USD 6,470 in 2007.
However, according to purchasing power parity per capita income is
actually much higher - approximately USD 8,385.

[Urbanization and smaller household size]{.underline}**-** The share of
the urban population increased from 44 to 70.5 percent in the last few
decades. In Istanbul (population 12.5 million), Ankara (population 4.5
million), and Izmir (population 3.7 million) there was a sharp decrease
in household size from 5.5 to 4.5 individuals per household between 1978
and 2000 and this trend is expected to continue. These trends should
stimulate expenditure in the HRI sector.

[Growing number of working women]{.underline}**-** The share of working
women has increased from 15 to 28 percent of the workforce during the
last two decades. Also, the percentage of families with female heads of
household has increased from 8.7 percent in 1990 to 12.8 percent in
2006. As a result, home cooking decreased and recreational and social
dining increased.

[Growth in tourism]{.underline}**-** Turkey has a strong and rapidly
growing tourism industry. The number of foreign tourists (mostly
European) increased by 18.6 percent to 23.5 million tourists in 2007
compared with the year before. Tourism revenues followed the same trend
with a 10 percent increase to 18.4 billion in 2007 compared to 2006.
However, in the same period spending per tourist decreased from USD 728
to USD 679 in 2007. Despite political uncertainty, the tourism industry
is optimistic about the 2008 season and based on early reservation
numbers the Mediterranean Tourism Hotel Association predicted a 5 to 10
percent increase in 2008 revenues compared to 2007

A major problem for the HRI industry in Turkey is the volume of
unregistered establishments. For example, according to official figures
from the Ministry of Culture & Tourism, as of 2006 the were 3,344 hotels
and resorts in Turkey. However according to unofficial estimates from
the Turkish Hotel Federation this number is actually around 6000.

# ![](media/image3.wmf)Food Service Revenues by Sub-sector 2007 (USD Billion)

2007 total food service revenue is estimated to be about USD 19.5
billion. The major trend in HRI food service is a shift away from the
traditional type of restaurants towards catered meals and fast food. The
institutional catering sector has shown rapid growth in recent years and
reached USD 6.5 billion in 2007. The fast food market in Turkey is
currently USD 3.5 billion.

Another trend that is catching on quickly in pastry shops, cafes, and
restaurants is offering a Turkish style breakfast or brunch, which has
traditionally been eaten at home. This developing sector of the
restaurant market usually offers open buffets or all inclusive fixed
prices. So far, most of the menu items for these breakfasts and brunches
have been domestically procured. A small amount of imported food items
are served in 5 star hotel's brunch menus but their share is negligible.

Though there is promising growth in the HRI sector as a whole,
opportunities for U.S. food imports in large quantities remain limited,
since it is possible to supply most food ingredients through domestic
production and because imports are limited by high duties and
complicated procedures. For example, meat imports are banned due to
phytosanitary concerns and import and consumption taxes on wine are over
200 percent.

As a result, imported food and food ingredient consumption remains at
only 3 percent for the local HRI food service industry. This number is
only slightly higher (10 percent) for hotels and restaurants that
feature foreign cuisine. Imported products include bulk items such as
rice, corn, pulses, chickpeas, vegetable oil (corn oil, soy oil), and
beans as well as other items used in catering such as specialty cheeses,
hams, sauces, pastries, tropical fruits, seafood and alcoholic
beverages.

The following is a summary of the advantages and challenges facing U.S.
food products in Turkey:

+----------------------------------+-----------------------------------+
| ## Advantages                    | **Challenges**                    |
+----------------------------------+-----------------------------------+
| The number of western fast food  | A Customs Union with the EU       |
| outlets is continuing to         | created a privileged position for |
| increase.                        | EU country imports to Turkey.     |
+----------------------------------+-----------------------------------+
| Some U.S. products are more      | Transportation costs are less for |
| competitively priced than local  | products from neighboring         |
| products.                        | countries, compared to products   |
|                                  | from the United States.           |
+----------------------------------+-----------------------------------+
| Branded foreign products do well | Many import tariff rates are      |
| in the Turkish market due to     | high.                             |
| changing consumption patterns,   |                                   |
| western influence and high       | (Between 6% to 140% on processed  |
| quality labeling.                | food products and 12% to 240% on  |
|                                  | agricultural commodities).        |
+----------------------------------+-----------------------------------+
| The young and urban segments of  | There is a well-developed local   |
| Turkish society are receptive to | food-processing sector providing  |
| new products & western tastes.   | most needed items.                |
+----------------------------------+-----------------------------------+
| The number of foreign cuisine    | European (French & Italian) and   |
| restaurants (Asian, Fusion,      | Far East cuisine are still        |
| Italian etc.) and international  | dominant in restaurants and       |
| hotel chains is increasing.      | hotels. High tariffs prevent the  |
|                                  | import of many specialty          |
|                                  | ingredients.                      |
+----------------------------------+-----------------------------------+

## 

# Section II. ROAD MAP FOR MARKET ENTRY

# 

## 

**A. Entry Strategy**

Since import procedures are complex and volume is low in this sector,
very few HRI companies handle the direct importation of food service
products. Most domestic distribution companies, with the exception of
some of the large concerns, also do not deal with imports. Imported food
products are generally handled by specialized import distribution
companies. Therefore, the best approach for new--to--market exporters is
to first contact importers and distributors through specialized
institutions such a TUGIDER (Association of Food Importers) and DEIK
(Foreign Economic Relations Board) who are involved in trade servicing.
TUGIDER has 150 members, which include the majority of food importing
companies in Turkey. This organization can be contacted by phone at
(+90-212) 347 2560; by Fax at (+90-212) 347- 2570 or via their website
at [www.tugider.org.tr](http://www.tugider.org.tr/). DEIK is an
organization that assists Turkish businesses that are interested in
moving into international commerce. DEIK can be contact by phone at
(+90-212) 339 5000, by fax at (+90-212) 270 3092, or via their website
at [www.deik.org.tr](http://www.deik.org.tr/).

**B. Market Structure**

The distribution system in Turkey is shifting from the wholesaler/dealer
model to one with large-scale networks backed by large distribution
companies. There are also a large number of food manufacturers with
their own distribution companies.

The following chart illustrates how the distribution network operates
for HRI food service purchasers. The most common pattern is exporter to
import agent, import agent to retailer.

## 

## C. Sub-sector Profiles

**1. Shopping Malls**

By the end of 2007 the total area of western style shopping malls
reached 1.5 million square meters. There is a significant amount of
construction in this sector and the area is expected to reach 3 million
square meters in the next few years. In Istanbul alone there are 59
existing shopping malls and 46 that are currently being built, plus an
additional 37 in the project planning phase. While the food courts in
the shopping malls usually attract both domestic and foreign fast food
restaurants, recently built higher-end malls also include full service
restaurants which serve foreign dishes.

## 

### 2. Hotels and Resorts

Approximately 23.5 million tourists visited Turkey in 2007. The number
of tourists is expected to increase by 10 percent in 2008 and reach 30
million by 2010. By 2010 annual income from tourism is expected to grow
from USD 18.4 billion to USD 27 billion. Along with the tourism sector,
hotel and resort food service is also expected to grow by 15-20 percent
per year in the next few years. By 2013 Turkish investors are planning
to invest a total of USD 15 billion in tourism and to increase the
number of modern hotel rooms from 600,000 to 1 million.

In order to further stimulate the tourism sector the government reduced
the consumption tax by 10 percent on motels, restaurants, and other
tourist complexes that don\'t sell alcohol. The new consumption tax for
these establishments is 8 percent. This change in the consumption tax
has caused confusion in the industry, as different parts of hotels now
need to charge different tax rates based on whether or not they serve
alcoholic drinks. Also, while consumers expected drastic price
reductions due to this tax adjustment, hotel room rates virtually
remained unchanged and there were only token price reductions in the
food service sector. For example, at Mc Donald's the price of a standard
Big Mac meal decreased by approximately USD 0.25 to USD 6.3.

The hotel sector accounts for 23 percent of the total food service
market and 21 percent of the total beverage market (including alcoholic
and non-alcoholic beverages). About one-fourth of the hotel sector's
total revenues are estimated to come from food & beverages, with 73
percent of this subsector coming from food and 27 percent from
beverages. There are approximately 6000 hotels and resorts in Turkey, of
which 3344 are registered. There are 369 registered 5 star hotels, which
account for approximately 32 percent of total bed capacity. In 2008 an
additional 125 hotels --of which 40 will be 5 star hotels- are planned
to open.

Four and five star hotels and holiday resorts with foreign dining
options form the major target group for imported food & beverage items.
These hotels cater not only to foreign tourists but also to domestic
tourists, business meetings and conferences. Hotels contact importers
and distributors for their imported food and beverages needs. It is rare
for hotels and restaurants to purchase imported items from cash and
carry outlets or hypermarkets since these businesses generally require
cash payments and do not offer delivery services. Luxury hotels have
expressed an interest in importing high-value food items, but high
tariffs and complicated import procedures make many imports impractical.
Many resorts offer all-inclusive packages and buffet style dining.
Currently, imported foods rarely find their way into these buffets due
to prohibitively high costs, however it remains to be seen if domestic
production can continue to satisfy the demand in terms of both quantity
and quality.

In the last 2 decades tourism has become one of the fastest growing
sectors in the unstable Turkish economy. Turkey is an attractive and
affordable destination, particularly for tourists from Europe and the
former Soviet republics.

### 3. Restaurants

  ---------------------------- ------------------------- -----------------
  **Foreign Cuisine Restaurant                           
  Profiles**                                             

  **Restaurant Name**          **Location**              **Type of
                                                         Cuisine**

  Broadway Diner               Istanbul                  American

  Polat Champions The American Polat Renaissance Hotel,  American
  Sports                       Istanbul                  

  Tribeca                      Istanbul                  American

  Woo                          Istanbul                  American /
                                                         Californian

  Sunset                       Istanbul                  American /
                                                         Californian

  Wine\'n Roses                Istanbul                  American /
                                                         Californian

  The Brasserie                Ceylan Intercontinental   American /
                               Hotel                     Californian

  TGI Friday's                 Istanbul, Ankara          American &
                                                         Mexican

  Dragon                       Hilton Hotel, Istanbul    Chinese

  Dynasty                      Istanbul                  Chinese

  Great Hong Kong              Istanbul                  Chinese

  Ku Kong                      Swissotel, Istanbul       Chinese

  Royal China                  Polat Renaissance Hotel,  Chinese
                               Istanbul                  

  Yuen Çin Lokantası           Istanbul                  Chinese

  Citronelle                   Ceylan Intercontinental   French
                               Hotel, Istanbul           

  La Corne D'or                Swissotel, Istanbul       French

  Panorama                     The Marmara Hotel,        French
                               Istanbul                  

  L\'appart                    Istanbul                  French

  Boğaziçi Paysage             Istanbul                  French

  Cafe De Paris/O Bar          Istanbul                  French

  Cafe Du Levant               Istanbul                  French

  Chez Pelit                   Istanbul                  French

  Divers Palais Restaurant     Istanbul                  French

  Flambe Restaurant            Istanbul                  French

  Les Bons Restaurant          Richmond Hotel / Istanbul French

  Divan                        Divan Hotel, Istanbul     French & Turkish

  Turkuaz                      Dedeman Hotel, Istanbul   French & Turkish

  Tandoori                     Istanbul                  Indian

  Bellini                      Ciragan Palace Hotel,     Italian
                               Istanbul                  

  Bice                         Istanbul                  Italian

  Coco Pazzo                   Istanbul                  Italian

  Blue Cat                     Richmond Hotel Istanbul   Italian

  Circus                       Istanbul                  Italian

  Da Umberto                   Istanbul                  Italian

  Il Padrino Ristorante        Istanbul                  Italian

  Il Piccolo                   Istanbul                  Italian

  Il Sole                      Istanbul                  Italian

  La Vecchia Torretta          Istanbul                  Italian

  Porto Venere                 Istanbul                  Italian

  Pucci Plus                   Istanbul                  Italian

  Ristorante Italiano          Istanbul                  Italian
  D\'Argento                                             

  Ristorante Rosa              Istanbul                  Italian

  Sapore                       Istanbul                  Italian

  La Select                    Istanbul                  Italian

  Mezza Luna                   Istanbul, Ankara          Italian

  Paper Moon                   Istanbul, Ankara          Italian

  Royal Garden                 Falez Hotel, Antalya      Italian

  Santini                      Sheraton Hotel, Ankara    Italian

  Spasso                       Hyatt Regency Hotel,      Italian
                               Istanbul                  

  Mikado                       Ankara                    Japanese

  Miyako                       Swissotel, Istanbul       Japanese

  Takarabune Japanese          Hyatt Regency Hotel,      Japanese
                               Istanbul                  

  Cafe Bunka                   Istanbul                  Japanese

  Hai! Sushi Bar               Divan Hote / Istanbul     Japanese

  Itsme                        Istanbul                  Japanese

  Maki Sushi                   Istanbul                  Japanese

  Mori Restaurant              Istanbul                  Japanese

  Ninja                        Istanbul                  Japanese

  Udonya                       Point Hotel / Istanbul    Japanese

  Seoul Restaurant             Istanbul                  Korean

  El Torito                    Istanbul                  Mexican

  Meksikana                    Istanbul                  Mexican

  Picante                      Bodrum / Mugla            Mexican

  Mexican Cantina              Istanbul                  Mexican

  Rio Bravo                    Istanbul                  Mexican

  Machka                       Istanbul                  Russian

  Havyar Bar                   Ciragan Palace Hotel,     Russian
                               Istanbul                  

  Rejans                       Istanbul                  Russian

  Amandine                     Ceylan Intercontinental   Swiss
                               Hotel                     

  ÇokÇok                        Istanbul                 Thai

  Ladda\'s                     Bodrum / Mugla            Thai

  Pera Thai                    Istanbul                  Thai

  Sai-Thai                     Istanbul                  Thai
  ---------------------------- ------------------------- -----------------

As of 2007 there was an estimated 200,000 restaurants in Turkey.
Restaurants used to comprise the leading market segment in the food
service sector, accounting for 36 percent of total food service revenues
in 2004. However the exponential growth in institutional food service
caused the share of restaurants in the market to decline to 25.5 percent
of total food service revenues in 2007. Three quarters of total
restaurant revenues come from food sales and the remainder comes from
beverages. This category covers all kinds of outlets from traditional
kebab and *pide* (similar to pizza) houses to luxury restaurants
offering a wide variety of international menus.

Increasing purchasing power in Turkey has been encouraging many
consumers to eat out for dinner and socialize over prolonged meals. The
growing popularity of restaurants offering foreign menu items has
increased per unit food prices and total transaction prices. In response
to the popularity of foreign restaurants, restaurants with traditional
Turkish menus have been strategically lowering their prices.

The use of imported food and beverages by traditional restaurants is
negligibly small, as the high import tariffs are a major deterrent. In
addition, since these restaurants specialize in traditional cuisine all
of the food inputs are available locally. An average 10 percent yearly
growth is expected in the restaurant food service.

Luxury restaurants comprise the main market for imported food and
beverages, but only 5 to 10 percent of the total restaurant market.
Along with a great many restaurants specializing in Turkish cuisine,
there are a considerable number that specialize in foreign food. There
are now more than 300 foreign cuisine restaurants in Turkey. Italian,
French, Far Eastern and Mexican cuisines are particularly popular. Of
the current full-service restaurants 95% serve traditional Turkish
dishes using of course mainly domestic ingredients. The remaining 5%
serve foreign food and these restaurants are clustered around Istanbul,
Ankara, and Izmir.

Foreign cuisine restaurants procure their imported items either through
importers or wholesalers. In the case of urgent or specialty needs,
hypermarkets are used. Few international chains import directly. The
main imported items are wine, beer, fish products, specialty cheeses,
sauces, pastries and staple items like rice. Many restaurant owners have
expressed an interest in buying imported meat products if the government
would lift its current ban on such items. Food purchasing managers
complain about cumbersome import procedures preventing them from
importing specialized ingredients.

Restaurant chains in general have not become very popular yet in Turkey
-- most are single entity businesses. An exception to this is fast food
chains, discussed in the next section. A recent trend in the restaurant
industry is the emergence of high quality deli and butcher shops
establishing high end full service restaurants under their own brand
names. Formerly these butcher and deli shops used to supply raw
materials to luxury beef restaurants such as Beyti, Vouge, and TGI
Fridays. These new restaurants usually focus on beef products and
differentiate themselves through better tasting red meat dishes. Due to
import regulations, such restaurants supply their beef from domestic
sources.

### 

### 

### 4. Fast Food Restaurants

  ------------------- ----------- ------------- ------------- ----------------- --------------
  **Top Fast Food                                                               
  Restaurant Company                                                            
  Profiles**                                                                    

  **Company /         **Sales CY  **Current     **Expansion   **Nationality**   **Purchasing
  Restaurant Name**   2007 \$     Number of     Plan (Total                     Agent**
                      Million**   Restaurants   Outlet                          
                                  (2007)**      Target)**                       

  Arby\'s             8           7             25 in 1010    US                Broker /
                                                                                Direct

  Burger King         300         193           500 in 2010   UK                Direct

  Suchico / Chinese   N/A         12            14 in 2008    Turkish           Broker /
  In Town                                                                       Direct

  Dominos Pizza       40          93            200 in 2010   US                Broker

  Dunkin Donuts       N/A         20            50 in 2010    US                Wholesaler

  Duran Sandwiches    3           10            14 in 2008    Austria           Broker /
                                                                                Direct

  My Fish / North     N/A         13            25 in 2008    Turkish           Direct
  Fish                                                                          

  Gloria Jean\'s      N/A         60            85 in 2008    Australia         Direct /
                                                                                Broker

  Kahve Dunyasi       N/A         21            N/A           Turkish           Broker /
                                                                                Direct

  Kentucky Fried      40          36            72 in 2010    US                Broker
  Chicken                                                                       

  Little Caesars      6           23            48 in 2008    US                Broker
  Pizza                                                                         

  McDonald\'s         125         104           120 in 2008   US                Direct

  Pizza Hut           42          32            74 in 2010    US                Broker

  Pizza Pizza         15          112                         Turkish           Wholesaler

  Starbucks           N/A         99            +200 by 2010  US                Direct,
                                                                                Wholesaler

  Sultanahmet         70          72            100 in 2008   Turkish           Direct
  Koftecisi                                                                     

  Subway              N/A         6             80 in 7 years US                Direct
  ------------------- ----------- ------------- ------------- ----------------- --------------

Fast food chains are a relatively new concept in Turkey, emerging only
in the last 20 years. With the entrance of foreign chains like
McDonald's and Burger King, Turkey's fast food market reached about USD
1.2 billion in 2004 and increased to USD 3.5 in 2007. The market is
predicted to grow by 25 percent per year for the next few years.

The potential of the fast food industry has been encouraging not only
new players to enter the market but also has encouraged existing
businesses to expand their operations. The Subway representative agency
in Turkey, which currently has 6 restaurants in Turkey, recently
announced that within the next 7 years it would like to expand to 80
locations.

Same potential exist in high end coffee shops. Predominantly a tea
drinking culture, prior to Starbucks' entry to the market Turks were
familiar with only two coffee types: Turkish traditional coffee and
instant coffee such as Nescafe. After Starbucks entered the market, many
similar specialty coffee shops quickly began emerging. Specialty coffees
and flavored coffees are becoming more wide spread and this trend is
being promoted both by international café chains as well as their
Turkish counterparts. In the EU for every 100 people there is 1 coffee
machine while in Turkey for every 5000 people there is 1 coffee machine.
Hence, there is still a high growth potential in the high-end coffee
shop market. The international coffee chain called Dallymayr Coffee is
planning to capitalize on this potential by expanding from 6 to 35
locations. Turkish competitors such as Kahve Dunyasi, which has 21 shops
and is expanding steadily, are capitalizing on the growth of the sector
by offering similar services at much lower prices.

The fast food sector has good prospects for future growth due to
Turkey's relatively young population that is open to new tastes. Fifty
percent of Turkey's population is younger than the age of 28. Fast food
sector growth has also helped decrease operational costs, increase the
number of shopping malls, and decrease the amount of households that
rely on home cooking.

The great majority (about 75 percent) of fast food restaurants are
located in big cities like Istanbul, Ankara, and Izmir. At first fast
food companies choose to expand their operations only in larger cities,
however the growth has recently been expanding to Anatolian cites. For
example the Pizza Hut and KFC franchiser, Turkent, is planning to expand
not only in the three large cities but also in smaller Anatolian cities
such as [Eskişehir](http://www.tumgazeteler.com/haberleri/eskisehir/),
[Kocaeli](http://www.tumgazeteler.com/haberleri/kocaeli/),
[Konya](http://www.tumgazeteler.com/haberleri/konya/),
[Kayseri](http://www.tumgazeteler.com/haberleri/kayseri/), and
[Antalya](http://www.tumgazeteler.com/haberleri/antalya/).

Though Turkey's fast food consumption is climbing fast, it lags far
behind European levels. In 2004 per capita fast food consumption is
estimated to be about USD 16 compared to USD 40 in France and USD 160 in
the UK. In 2007 an average meal price in McDonalds is about USD 5.0-5.5
for a Cheeseburger, French fries and soft drink.

U.S. fast food franchises are dominant in Turkey, with an estimated 50
percent market share. Turkish chains have about a 30 percent share.
European chains, primarily a Burger King franchiser, hold the remainder.
Turkish fast food restaurants are gaining popularity but the fragmented
competition from Turkish companies, where there are no established large
chains, causes no real threat to foreign brands. According to a survey
conducted among university students however, the most popular fast food
item is *durum* (a kind of Turkish burrito with meat) and hamburgers are
in second place. University students also said that half of their approx
USD 200 monthly incomes are spent on fast foods.

Traditional Turkish restaurants specializing in fast food service
continue to emerge. These restaurants serve traditional chicken, beef
and lamb kebabs and other Turkish dishes, but in a new fast food style.
All fast food companies use local products due to difficulties in
importing. Burger King primarily sources food items locally, importing
only paper products directly from the UK. Mc Donald's not only prefers
to work with local food manufacturers for some items like Pinar (for
condiments), Tat (for other sauces and ketchup), McCormick (for
condiments), and Bolpat (frozen potatoes), but it also produces its own
beef to insure quality and price competitiveness.

5\. Home Delivery and Takeout

While Turkish restaurants also offer home delivery and take out
services, their share in this sector is negligible compared to that of
fast food companies. In 2006 the sector reached USD 440 million in
revenues. Even foreign fast food chain restaurants such as Mc Donald's
and Burger King that do not traditionally offer home delivery have
established delivery services. Fast food pizza companies dominate the
sector, with Dominos being the current sector leader. The main reason
for this trend is the increasing number of women in the workforce.
Another factor is the increasing work hours, especially in Istanbul, and
the increase in companies offering financial support for food for their
employees working overtime. In the future the popularity of internet
based meal order companies is expected to fuel the sector, as some
internet order companies such as Yemek Sepeti have already reached USD
40 million in orders in 2007.

### 6. Institutional Food Service 

In the 1980s, institutional food service providers began emerging in
Turkey to provide food service to factories, schools, hospitals, private
companies and public sector organizations. The institutional food
service sector developed rapidly, sometimes with the help of foreign
joint venture investments. It is now a USD 6.5 billion market compared
to USD 2.25 billion in 2004, accounting for over 30 percent of the
overall HRI sector. The size of the institutional food service market
will continue to enlarge as the military has started contracting out an
increasing number of catering services at its premises. Another driver
is Turkish business laws, which require some employers to provide lunch
and dinner to their employees. About half of the places that provide
lunch and dinner do so with self produced meal and sometimes provide
dining coupons for employees to use in their choice of restaurants that
are participating in the meal ticket systems. There are about 5,000
institutional food service enterprises in Turkey, of which about 2,700
are located in Istanbul. The institutional food sector provides meals to
about 7 million people daily, half of which live in Istanbul. The sector
is growing 10 percent annually and is composed mostly of small- to
medium-sized private enterprises with mostly local customers. Larger
foreign catering companies such as Sodexho of France, Compass of England
and Kluh of Germany are also in the market. Unregistered companies
exist, and they have an unfair advantage over registered companies
because they do not pay taxes and also do not have to meet the same
hygiene standards.

Following the usual pattern, the institutional food service industry has
spread from Istanbul to other industrialized cities such as Ankara,
Izmir, Adana, Bursa and Eskisehir. The main food inputs of this sector
are meat, grains, fruits and vegetables. The use of imported food items
is mostly limited to bulk commodity agricultural products such as rice,
pulses and vegetables oils. There is less demand for catered food from
public sector organizations, with the exception of the armed forces,
than from companies in the private sector. Many public sector
organizations have cafeteria services on their premises or offer meal
vouchers that are good at nearby restaurants.

A major problem for the industry is a lack of qualified labor. Currently
only 3 percent of the 350,000 employees in this industry are educated in
the culinary arts. High meat prices are another problem. While 1 kg of
red meat costs 1.5 USD Europe, in Turkey it costs USD 7.5.

7\. Turkish Style (or Local) Deli Shops

An orphan sector of the food industry according to size and variety of
services, these delis are usually considered part of fast food,
restaurant or institutional food service. They offer home-style Turkish
foods and also distribute in bulk to neighboring business establishments
and offer decent prices. An increasing part of the working population
has been eating in these establishments. In fact these delis are the
restaurant type of choice for employees of small- to mid-sized companies
that do not have their own cafeterias. This sector is expected to grow
by 3 percent on a yearly basis and is considered a part of the
institutional food sector in this report.

## SECTION III. COMPETITION

Because of customer preferences for familiar foods, high duties and
other restrictions on imports, most of the HRI market's needs are met by
domestic products. Higher-value imported products are mainly branded
products (sprits, dairy products, sauces) and certain products that are
either not available in Turkey or that cost much more than domestic
products (sea food, exotic and tropical fruits, spices, etc.).

The majority of Turkey's imports in the food service sector are from
European countries, due to proximity, the Customs Union with the EU
(which provides for quota-free access and lower duties), and the
dominant position of European cuisines such as French and Italian among
foreign cuisines in Turkey. Other leading suppliers are Brazil for fruit
juice, Egypt for rice and Ecuador for bananas. The United States
continues to be another leading supplier for the food service sector,
selling mainly vegetable oil (corn), rice, almonds and processed fruits
and vegetables.

Since June 2006 the Turkish government stopped publishing complete
import and export data due to a new policy. Accord to the policy, if a
given item is traded by three or fewer companies in any month, trade
figures will be shown as zero. Consequently it has become impossible to
find accurate import numbers. The table below shows major suppliers for
some of the leading food imports to Turkey.

+-----------------------------+----------------------------------------+
| ###### Product              | **Supplier Countries**                 |
+-----------------------------+----------------------------------------+
| Juices                      | Brazil, Holland                        |
+-----------------------------+----------------------------------------+
| Cacao                       | Ghana, Ivory Coast, Cameroon           |
+-----------------------------+----------------------------------------+
| Chocolate                   | Italy, Germany, Holland                |
+-----------------------------+----------------------------------------+
| Coffee                      | Brazil, Germany                        |
+-----------------------------+----------------------------------------+
| Banana                      | Ecuador, Costa Rica                    |
+-----------------------------+----------------------------------------+
| Corn Oil                    | USA, Brazil, Bulgaria, Argentina       |
+-----------------------------+----------------------------------------+
| Sun Oil                     | Ukraine, Romania, Russia, Bulgaria     |
+-----------------------------+----------------------------------------+
| Rice                        | Egypt, USA, China, Italy               |
+-----------------------------+----------------------------------------+
| Milk and Crème Concentrate  | France, Germany, Ukraine, Switzerland  |
+-----------------------------+----------------------------------------+
| Cheese                      | N. Cyprus, Poland, Holland             |
+-----------------------------+----------------------------------------+
| Butter                      | Sweden, Germany, Holland               |
+-----------------------------+----------------------------------------+
| Sauces                      | Macedonia, Germany, France, England    |
+-----------------------------+----------------------------------------+
| Soy oil                     | Spain, Portugal, Greece, Italy         |
+-----------------------------+----------------------------------------+
| Pulses                      | Canada, Kyrgyzstan, Iraq               |
+-----------------------------+----------------------------------------+
| Almond                      | USA, Iran                              |
+-----------------------------+----------------------------------------+
| Breakfast cereals           | Spain, Germany, Italy, France          |
+-----------------------------+----------------------------------------+
| Baby formulas               | Germany, France, Spain                 |
+-----------------------------+----------------------------------------+
| Jams                        | Germany, Czech Republic                |
+-----------------------------+----------------------------------------+
| Biscuits                    | Belgium, Italy, Holland                |
+-----------------------------+----------------------------------------+
| Pasta                       | Italy, Switzerland, Korea              |
+-----------------------------+----------------------------------------+
| Sea food                    | Norway, Spain, Mauritania, Ghana       |
+-----------------------------+----------------------------------------+

**SECTION IV. BEST PRODUCT PROSPECTS**

**Beer:** A majority of the beer consumed in Turkey is produced in local
breweries. The dominance of Turkish companies in this market is due to
years of protectionist trade policies and regulations on alcoholic
beverages by Turkish Government via TEKEL organization (literally
translated as "monopoly"). However, changes in 2004 and the
privatization of the alcoholic beverages industry have allowed imported
beer to enter the market. Imported beer, like wine, competes in the high
priced premium beverage sector, however the younger population still
prefers Turkish brands. The microbrewery sector is still in its infancy.
The first microbrewery, Taps Microbrewery, emerged in 2002 in Nisantasi,
Istanbul. Imported microbrews and exotic beers are rarely found in the
market, since they are still relatively expensive and tend to taste
different than the typical beers that are preferred in Turkey. The
dominant beer varieties in the market are Lager and Pilsner.

**Wine:** Recent changes in local wine import and distribution
regulations allow importers to import, distribute and sell wine at
retail markets. The popularity of wine as an alcoholic beverage has
increased in recent years. Local consumption has doubled during the last
four years and Turkish consumers are more and more willing to try new
varieties. Due to high import taxes, premium wines from Europe and the
United States are sold at astronomical prices and therefore appeal only
to a very small market segment. Cheaper foreign wines are sold at much
more competitive prices and are slowly establishing themselves as
alternatives to Turkish brands. The wine culture is also growing in
Turkey and the number of educational courses/events about wine
varieties, manufacturing and culture are growing. French and Californian
wines are held in high esteem compared to other imports from Eastern
Europe, Spain, South America, and Italy. Due to the price advantage of
domestic wines and decades of protection of the industry, imported wine
accounts for only 1.2 percent of domestic consumption.

**Whiskey:** Single malt scotch is rarely found in the Turkish market,
as blended scotch is the whisky of choice. Because whisky is viewed as
an expensive drink, it is not popular among the young population and the
established taste preferences of the middle aged and older consumers are
very difficult to change. Having realized this, two American bourbon
brands in the market, Jack Daniels and Jim Beam, are targeting the
younger generation through rock concerts and motor-rally sponsorships.

**Seafood:** Turkey is a promising market for various seafood products.
In addition to local fresh fish, frozen, preserved and ready to eat
seafood products are welcomed by Turkish consumers. The governments of
Turkey and the United States have agreed on a seafood health certificate
that should facilitate market access.

**Dairy products:** Specialty cheeses and butter from the United States
have potential in the Turkish market, however imports from EU countries
currently dominate.

**Breakfast Cereals:** Sales of breakfast cereals are increasing not
only in the HRI sector but also in the retail market. Chocolate cereals,
corn flakes, bran flakes with raisins and cereals mixed with fruit or
chocolate are becoming popular with Turkish consumers.

**Sauces and syrups:** Various brands of sauces for salads, meat and
international cuisines are popular in Turkey and form an important part
of the HRI sector. In particular, the increasing popularity of Asian
cuisine is promoting demand for specialty herbs, sauces, and syrups.
Most sauces are currently being imported from Germany, the UK, France,
Asian countries and the United States.

The adoption of products popular in the West is a large part of modern
Turkish life, so internationally known brand names are particularly well
received. Exporters should be sensitive to brand positioning and be
ready to invest in research and marketing to help their importing
partners have a successful entry into the market.

**SECTION V. POST CONTACT AND FURTHER INFORMATION**

For further information you may contact our office at the following
location:

Office Mailing Address:

Office of Agricultural Affairs

U.S. Embassy, Ankara

Ataturk Bulvari No. 110

Kavaklidere, 06100

Ankara, Turkey

Phone Number: +90-312-468-6129

Fax: +90-312-467-0056

E-mail: <agankara@fas.usda.gov>

For more information on high value food and other agricultural sector
reports for Turkey or other countries around the world, please refer to
the FAS homepage, at the following URL address: http://www.fas.usda.gov

#