Had its good intentions been realised, the Arab spring would have been a magnet for foreign direct investment. Sadly, the instability that has followed the ousting of some of the region’s most notorious dictators has had the opposite effect, scaring away new entrants and making many foreign businesses with a foothold put their expansion plans on hold.

Which makes the news that BIM, a Turkish discount supermarket giant, is planning a rapid expansion into Egypt all the more significant.

Haluk Dortluoglu, BIM’s chief financial officer, is quick to accept that post-Mubarak Egypt is still decidedly risky. But he says the opportunities are too great to miss.

“We’re well aware of the risks. But we believe the current turmoil is temporary and sooner or later democracy will settle in Egypt,” he tells beyondbrics.

“If FDI is falling and other retailers are withdrawing we believe our approach will be welcomed by the Egyptian people,” he says, pointing to the long historical and cultural ties between Egypt and Turkey. “Our approach is long term – we’re investing in the future of Egypt.”

BIM’s plans are nothing if not ambitious. It plans to open at least 30 stores in the capital, Cairo, by the end of this year, to be followed by expansion into Alexandria and other population centres of the Nile delta.

The new stores will follow the no-frills model BIM developed in Turkey, where it operates more than 3,500 discount outlets carrying a limited portfolio of 600 to 650 items.

“We’ll use a similar concept and similar layout, carrying maybe 500 to 600 lines of food and non-food items, basic items that every family needs,” Dortluoglu explains.

Importantly, BIM intends to source 80 per cent of its products from local small and medium-sized businesses, which it hopes will help please both consumers, by keeping prices competitive, and suppliers, by creating the long term-bonds essential to maintaining a reliable supply chain.

Both are especially important considerations given the continued civil unrest that has followed the overthrow two years ago of former president Hosni Mubarak. Egyptian consumers have endured sharp across-the-board increases in food prices and faced shortages of some products. With Egypt’s poorly developed food retail and logistics sectors unable adequately to meet market needs, BIM hopes its highly organized, heavily discounted model will succeed.

“The Egyptian market is similar to Turkey’s but it is not well organized, so a target of 30 stores in their first year looks very achievable,” says Irem Okutgen, retail analyst at Garanti Yatirim, a Turkish bank, adding that the property leasing system in Egypt is well developed and unlikely to present a block to expansion, unlike BIM’s existing overseas operation in Morocco.

Despite difficulties leasing property in Morocco, where the leasing market is poorly developed, BIM has in just three years managed to build a chain of 116 stores, which it plans to expand to more than 160 this year.

Is this the start of a wider roll-out across the region? Dortluoglu says BIM will go step by step.

“We are looking at other markets both nearby and a little further away but for the coming few years we’ll be concentrating on Egypt and Morocco, and of course Turkey,” he says, pointing out that BIM still has a lot of growth potential in its home market.

BIM added 366 new stores in Turkey during 2012, bringing its domestic operation to 3,655 stores with a turnover of $5.5bn. It plans to add a further 350 to 400 stores this year, as well as six new distribution centres, and is targeting sales growth of 17 to 18 per cent.

In a recent report on global retail, Deloitte listed BIM as the 10th fastest-growing retailer in the world. And BIM aims to become one of Turkey’s top 10 international brands by the 100th anniversary of the Turkish republic in 2023.

But maintaining an edge in the increasingly competitive Turkish market is a challenge. BIM’s fourth quarter net profit last year was TL85m ($47m), markedly lower than its expected TL92m, but still up a healthy 7.6 per cent year-on-year.

“BIM is facing increased competition from other companies using much the same model,” says Okutgen at Garanti, pointing to fast-growing chains such as Ucuz and A101, which have scored rapid success by “cannibalising” existing BIM locations – siting new stores close to existing BIM outlets from which they are able to take business.

Nevertheless, she says, competitors’ activities have yet to show up in BIM’s share price.

“BIM is an expensive share, but deservedly so,” she says pointing to the company’s continued rapid expansion.

Dortluoglu says the business environment is getting tougher. “Competition is very high and there are limited profit opportunities,” he says.

So far, BIM has grown by building its own stores to its own model. That may change, says Dortluoglu, pointing out that a lot of retail chains are up for sale and that mergers and acquisitions are the order of the day.

“Previously we’ve only grown organically but if a really good opportunity comes along, it is something we will evaluate,” he says. But, he says, BIM will not seek to buy any direct competitors in the hard discount sector.

“Given the risks of the market, something a bit different would be more appropriate,” he smiles.

Related reading:
IFC in the Middle East: short of partners, beyondbrics
Egypt sees upswing in mood on economy, FT
Guest post: time to revisit Turkey, beyondbrics
Corporate watch file, beyondbrics

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