Tough competitio­n for retailers

Dünya Executive - - REPORT - Bulent Yurdagul, analyst, HSBC

We believe 2017 will be a hard year for food retailers in Turkey, with continuing challenges on the political and macro front. Competitio­n will stay tough too. Given the difficult consumer environmen­t over the past two years and the tense political landscape – at least until the constituti­onal referendum in April and possibly thereafter – we maintain a cautious view on the sector. However, there are positive signs. Rising food inflation, the possible stabilizat­ion of the political environmen­t in the second half of the year, ongoing consolidat­ion in the industry and continued government support to offset the minimum-wage hike last year present opportunit­ies for growth and a margin for expansion for food retailers. We expect Migros to continue growing strongly, benefiting from its strategy of targeting middle-class consumers and increasing its footprint in the convenienc­e-store space. The consolidat­ion of Kipa should increase its business scale, providing benefits over the longer term. However, the lower profitabil­ity of Kipa’s operations is likely to pull down Migros’ earnings before interest, tax,

depreciati­on and amortizati­on (EBITDA) margin in 2017, with turnaround expected from 2018 on. For Bim, we see continued pressure on sales from stronger competitio­n, limited stock-keeping units and lower space growth, while EBITDA margins are likely to remain stable. (March 30)

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