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(Last updated: 05 Aug 2008)
Trends and opportunities
The market
Franchising is a well-known concept with Turkish investors and consumers and there are already many US and European brands in the market. Until now these have mainly been in the food and real estate sectors. However, given Turkey’s strong economic growth over the last five years, there are great opportunities for Australian franchisors of almost all types of goods and services. The availability of bank loans that facilitate business investment in franchising is making Turkey an increasingly attractive market for franchising companies.
It has been over 20 years since franchising arrived in Turkey. The first brand to enter the Turkish market was McDonald’s in 1985 and the influx of foreign brands has continued since then. In order to provide some structure and create cooperation between the franchisor and franchisee communities, the Turkish National Franchising Association (UFRAD) was founded in 1991. UFRAD is now a member of the World Franchise Council.
There is no definitive figure for the size of the franchising market in Turkey. This is mainly because franchising is a developing concept in Turkey and selling or distributing through dealers is also classified as franchising. When this is taken into account, there are approximately 800 brands in the market that generate an annual turnover of $25 billion. Two hundred of these brands are of foreign origin whereas 600 of them are Turkish brands.
However, when companies that work primarily on a ‘dealership’ basis are excluded, the turnover of franchised brands is approximately $1.5 billion. Looking forward, this figure is expected to reach $10 billion by 2015 as domestic and foreign brands gain greater market share.
The current number of brands with master franchises in the Turkish market is around 200, approximately 50 of these being US brands. Some of the major foreign franchising brands are large fast food and coffee chains such as:
- Arby’s
- Burger King
- KFC
- McDonald’s
- Schlotsky’s
- Domino's Pizza
- Little Caesars
- Pizza Hut
- Quizno’s
- Subway
- Gloria Jean’s Coffees
- Starbucks
- Dunkin’ Donuts
Business services include UPS, DHL, Fedex, Office 1 Superstore, and children’s services such as Gymboree and Playbarn.
Opportunities
There are several opportunities in the Turkish market for franchise investments.
Fast-food/casual dining and coffee franchises
Many of the major international franchisors with fast-food/casual dining and coffee concepts are already present in the Turkish market. However, due to the size of the population and the improving economic conditions, demand from Turkish investors for contacts with international franchisors remains strong. Furthermore, improving economic conditions are producing large investments in commercial real estate and shopping mall projects. All of these projects are designed to include food courts, and Turkish companies are always looking for new brands to offer in these new venues.
Real-estate franchises
Construction of housing is expected to be a target for major investments in the coming years. The total housing stock in Turkey is 16.2 million units, 83.8 per cent of which are within the boundaries of towns and cities. Even when only legally-registered houses are taken into account, the number of new houses needed is 2.5 million. By 2015, the urban population is expected to increase by 11 million and this will boost the need for new houses to 2.9 million units. Projections made up to 2015 state that, on an annual basis, 900,000 houses must be built to meet demand during this period.
Another factor that is expected to trigger demand for housing projects is the mortgage law, passed in the Turkish Parliament in February, 2007. This is expected to increase dramatically the base of people who can afford to buy a house.
Non-residential construction is another growth area in this industry. Approximately 30 per cent of the construction permits given are for the construction of commercial buildings.
Childcare/education franchises
Approximately 15 per cent of the population is under school age. The rate of mothers who return to work following their official maternity leave is increasing and, in response, the demand for quality childcare and child development centres is on the rise. This is especially true in the big cities like Istanbul, Ankara, and Izmir, where childcare and educational services have grown rapidly in the last few years.
Retailers/textile/ready-to-wear brands
Domestic and foreign department stores stocking mainly clothing items are growing in number, and are spreading to various parts of the country through their franchisees. Stores that specifically cater to consumer groups with higher purchasing power are increasingly evident in the Turkish market.
Services
There is potential for many types of service enterprises in Turkey. There is demand for maintenance or repair services, stemming largely from the insurance industry.
As the number of commercial offices and residential complexes increase, facility management services of high quality are needed. This is particualrly relevant in the heathcare sector where investment in new hospitals is growing due to the government’s decision to integrate the private sector into the healthcare system.
Tourism is one of the largest sectors in the country and due to increasing tourist figures, tourism investments are on the rise. New hotels are under construction and they are looking for ‘hotel management’ companies. Additionally, spa tourism is growing and provides opportunities for franchisors to further develop the market in Turkey.
Finally, given the increase in purchasing power in the country, demand for personal care services like beauty centres, fitness centres and hair salons is on the rise.
Competitive environment
There is strong competition to foreign entrants from Turkish brands. For example, in response to the aggressive marketing by foreign coffee brands such as Starbuck’s, several Turkish coffee chains have emerged. This is partly in response to competition but also the coffee market in Turkey is growing rapidly. There are new stores being opened by both foreign and Turkish brands almost every week.
Turkish entrepreneurs are also competing by borrowing foreign concepts and copying with similar styles, decoration and menu. For example, competitors to the foreign fast food companies are mainly Turkish fast food chains that serve Turkish cuisine in fast food fashion.
Similarly, Turkish companies are active in competing with foreign franchises in delivering childcare and child educational services.
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