Know yourself,

know the enemy.

A thousand battles,
a thousand victories.
Sun Tzu, Art of War

The Art of War

Dr. Ahmet D. ERELÇİN MFIN 803
Outline

The Challenge

The Model & Some Tips

The Grocery Retail in Turkey

Economy

Dr. Ahmet Erelçin Art of War 2

Outline

The Challenge

The Model & Some Tips

The Grocery Retail in Turkey

Economy

Dr. Ahmet Erelçin Art of War 3

 D404
The Good News

We care for YOU!

CONGRATULATIONS

You are recently hired as

Head of Business Strategy at
D404, a hard discount
retailer operating in Turkey.

Dr. Ahmet Erelçin Art of War 4

 The Not So Good News L

• The Board commissioned you

to develop a 5-year business
strategy addressing:
• How to grow this business
forward
• How many stores to open and
when
• How to finance this growth

Dr. Ahmet Erelçin Art of War 5

The Company D404
We care for YOU!

Pretax Income (48.651)

Pretax Margin % -3%

Corporate Taxes 0
Tax Loss Carry Forward (9.875)
Net Income (48.651)

GROW FAST or DIE SLOWLY:

• Cannot afford yet another loss-making year
• To reach the break-even, the company has to
attain the optimum scale, but it is not there yet.
• Need to finance a massive growth plan as well as
the accompanying operational losses.

Dr. Ahmet Erelçin Art of War 6

The Company D404We care for YOU!

Paid-in-Capital 90.500
Retained Earnings (58.526)
Shareholders' Equity 31.974

BUT HOW?:
• Equity is rapidly deteriorating
• Shareholders do not have much ammunition left
• A cash-rich PE waits eagerly at our doorsteps

Dr. Ahmet Erelçin Art of War 7

Path to Success

Top Line Growth

# of Stores
Revenue per Store
Revenue
Bottom Line Growth Digitalization:
Warehouse Automation
(-) COGS ERP
Product Mix
Economies of Scale

Gross Profits

Dr. Ahmet Erelçin Art of War 8

Outline

The Challenge

The Model & Some Tips

The Grocery Retail in Turkey

Economy

Dr. Ahmet Erelçin Art of War 9

 Planning a Flexible Model Structure
Currency Periodicity Planning Period
TL Annual 5-Years

MODULES
INPUTS CALCULATIONS OUTPUTS
Historical Financials Calculations Proforma Financials
Assumptions Ratio Analysis

SCENARIOS
FINANCING BOTTOM-LINE GROWTH TOP-LINE GROWTH
CAPEX USD Loan W/house Optimization Marketing Budget
L-T TL Bank Loan ERP # of New Stores
Equity Injection Share of Private Label
MACROECONOMIC
State of Economy
Dr. Ahmet Erelçin Art of War 10
Creating Scenarios
Limit the choices & minimize data entry errors

Data Validation

Dr. Ahmet Erelçin Art of War 11

Data Validation

2020E
0
20
40
60
80
100
120
140
160
180

Excel Data Validation Guide

https://exceljet.net/articles/excel-data-validation-guide
Data validation with an Excel table (video) Consolidated Sample
https://exceljet.net/videos/data-validation-with-an-excel-table

Dr. Ahmet Erelçin Art of War 12

XLOOKUP Function

Warehouse Optimization Gains First, create a table,

Cum Inv-TL COGS W/H OPEX Shrinkage where all the columns
₺0 0,00% 0,00% 0,00% are filled in an
₺10.000 0,10% 0,50% 0,10%
ascending order
₺15.000 0,20% 1,00% 0,20%
₺25.000 0,30% 1,40% 0,30%
₺40.000 0,35% 1,75% 0,40%
Calculations!C107 = TL Value of Cumulative Warehouse Investment up to that year
Assumptions!$D$89:$E$93 = Input Array, always anchor your address
Assumptions!$E$89:$E$93 = Output Array, always anchor your address

Excel IF Function
https://exceljet.net/functions/if-function
Try to do this with IF function
Excel XLOOKUP Function
https://exceljet.net/functions/xlookup-function
Dr. Ahmet Erelçin Art of War 13
MATCH
Handy to work with non-quantitative parameters

Returns the row of the Value selected

Excel MATCH Function

https://exceljet.net/functions/match-function

Dr. Ahmet Erelçin Art of War 14

CHOOSE / INDEX

$E$15 = 3 State of Economy

Returns the value of the 3rd row
Real Growth in Basket Size 4% 4% 4% 4% 4%
Bullish 2% 2% 2% 2% 2%
Steady State 3% 3% 3% 3% 3%
Bearish 4% 4% 4% 4% 4%

Excel CHOOSE Function Excel INDEX Function

https://exceljet.net/functions/choose-function https://exceljet.net/functions/index-function
How to use the CHOOSE function (video)
https://exceljet.net/videos/how-to-use-the-choose-function

Dr. Ahmet Erelçin Art of War 15

Alternative to XLOOKUP

You can replicate XLOOKUP with:

INDEX & MATCH Functions

How to use INDEX and MATCH

https://exceljet.net/articles/index-and-match
How to use INDEX and MATCH with a table (video)
https://exceljet.net/videos/how-to-use-index-and-match-with-a-table

Dr. Ahmet Erelçin Art of War 16

Scenarios Spreadsheet
You will start with a blank canvas:

When completed, your Scenarios Spreadsheet will look as follows:

FINANCING BOTTOM LINE GROWTH
2023E 2024E 2025E 2026E 2027E
USD CAPEX Loan 0 W/house Optimization 0,00% 0,00% 0,00% 0,00% 0,00%

L-Term TL Bank Loan 0 ERP Sysytem 0

Equity Injection None Change in Private Label Share 0,00% 0,00% 0,00% 0,00% 0,00%

MACROECONOMIC INDICATORS TOP LINE GROWTH 2023E 2024E 2025E 2026E 2027E

State of Economy Steady State Marketing Budget 1,00% 1,00% 1,00% 1,00% 1,00%

New Stores Opened 0 0 0 0 0

Max # of New Stores 71 71 71 71 71

Dr. Ahmet Erelçin Art of War 17

Outline

The Challenge

The Model & Some Tips

The Grocery Retail in Turkey

Economy

Dr. Ahmet Erelçin Art of War 18

The Country
World’s 13th largest Urban
Population (54m)
üIstanbul: 15m
ü75% Urbanization

Source: World Bank, Rise of Anatolian Tigers, 2015; EEMEA Food Retailers, HSBC, May 2017
Dr. Ahmet Erelçin Art of War 19
 The Country
EEMEA

$1.000 $14.000
$900
$12.000
$800
$700 $10.000
$600 $8.000
$500
$400 $6.000
GDP per capita 2015 (constant 2010 USD) GDP per capita growth (X-axis) vs. modern
$300 $4.000 food retail growth (y-axis) over 2006-2015
$200
$2.000
$100
60,000 20% Russia
$0 $0

50,000

TD
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18

22 0
20 2
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
/Y
Turkey
15%
40,000 GDP GDP per Capita Saudi Egy pt
Arabia
GDP 30,000
Poland
üAvg growth rate: 4,7% (2003-2022) 10%
20,000 $9,960 South
üGDP per Capita Africa
10,000 5% UK
USA
Germany
0
France
Germany

S Africa
Russia

Egypt
USA
UK

France

Poland
Turkey
Saudi

0%
0% 5% 10% 15% 20%

Source: : World Bank Source: World Bank, Euromonitor

Source: TurkStat;

mentum provides Inflation momentum and consumer

Dr. Ahmet Erelçin Art ofbehaviour
War 20
indicator of Inflation is critical for the food retail market as it not only influences sales and margins but also
 Turkish customers increasingly prefer to shop in areas where their homes or workplaces are located, especial
traffic-clogged metropolitan areas like Istanbul, Ankara, and Izmir. Turkey is also a very price sensitive mark
enetration
dern
Growing with of Grocery
Penetration
Share with Retailers
Consumers have started to prefer hard discounters or discounters offering private label products, which are on
average 30 percent cheaper than the name brand. Discount Grocery Retailers such as BIM and A101, are
mmentumtransforming the market and are opening up compact stores everywhere (usually sized around 100 to 400 squ
meters) in neighborhoods and side streets. An increasing number of bakkals (traditional stand-alone small gro

High growth
shops), are either closing due to competition, or transforming into smaller size outlets of organized grocery ch
such as convenience stores or discounters. Grocery supermarket retailers such as Migros and CarrefourSA a
opening smaller convenience stores like M-Jet and CarrefourSA Express to compete.
ange in Turkey Turkey Behind Turkey Other European As a result
Behind Markets
of lowEuropean
Other presence of organized
Markets o
modern retailers in smaller cities and villag
Share of Grocery Market (value)
Share of Grocery Market (value)
traditional grocery retailers such as bakkal
Forecast (traditional small grocery shops) and pazar

Winning
Forecast
240 (street produce markets), are still the main

15%
19%

19%
203 203 of grocery shopping. Euromonitor

34%

34%
International forecasts that the market shar

55%
165

60%

55%
165

60%
68%
72%

68%
72%
traditional grocery retailers in Turkey will

Operational
down from 50 percent today to 43 percent

85%
81%

81%
2021, giving the reins to modern organized

66%

66%
45%
40% grocery retailers.

45%
40%
32%
28%

32%
2008 28%
The discounter model operated by BIM
2012 Source:
2017Euromonitor
2012 International. then followed by A101 and Şok has sho

Russia
2023P

Poland

Germany
2008

2012

2017

2008 2017

Russia
2023P

Poland
2012

2017
a particular ability to meet Turkish consumers’ preference for proximity shopping and lower prices,

Superior
while international
itional Retail Traditional Retail retailers’ focus on larger supermarket formats may be reaching its limits. As the
retail market is very price-sensitive and Turkeythe profit margins are low, Post forecasts
Turkey 2017 that domestic2017 groc
store chains will continue to dominate the Turkish market Modern at least for the
Traditional near term.
Modern During the last f
Traditional

re growth
yearsTurkish
Source:
till exists thereFoodhas been
Retail a trend
Industry, for international
USDA Foreign retailers
Agricultural Service, toFeb
GAIN Report, either leave Presentation,
2018; Investor the market Şok or sell 2018
Markets, to local partn
onal stores
Industry
still exists
specialists speculate that beyond
Dr. Ahmet Erelçin Modern Artprice
of War sensitivity,
penetration it has been hard
significantly for foreign
lower than grocery
21 retai
to understand and manage the Turkish market and consumer. Between 2012 and 2017 Tescolower
Modern penetration significantly (UK), R
Fragmented Market Creates Major
Market Players
Market Share Opportunity

High growth
market
Modern Channel Traditional Channel

Supermarket Supermarket Discounters

(As of 2017)

proposition
National Players Local Players Mom & Pop’s / Others

Winning
Number of
Players(1) 2 c.400 3 c.166,000

Number of
Stores(1) 2,271 8,100 18,250 c.166,000

Operational
excellence
Total Selling Area
(‘000 sqm)(1) 2,265 5,500 4,340 7,111

Average Store Size

performance
(sqm)(1)(2)
c.1,000 c.680 c.240 c.45

Superior
Revenue (TLbn)(1) 19 37 45 154

Revenue Growth

Future growth
2012-2017
17% 12% 28% 11%

Market Share(1) 7.5% 14.5% 18.0% 60.0%

Market Share
1.1% (1.3%) 8.0% (7.8%)
Change 2012-2017

Source: MK Novo Analysis.

(1) Data as of 2017.
(2) Average Store Size figures represents an average selling area for each retail model consisting of multiple formats with different store sizes. National supermarket have multiple retail formats that include 7
hypermarkets and large supermarkets (>1000 sqm), supermarkets (>400sqm) and small store formats (<400 sqm). Local supermarkets and mom & pop also include a wide range of different store formats.

Source: Investor Presentation, Şok Markets, 2018

Dr. Ahmet Erelçin Art of War 22
 but not for imported processed goods. National grocery chains are supermarket chains with stores across Turkey,
with stores in most cities, if not all. They can be discount, regular or premium stores. International grocery chains
are companies with international ownership and international presence of stores. They have stores around Turkey,

Top Grocery Retailers in Turkey

but usually not east of Ankara. In total there are 211 grocery chains in Turkey with more than 5 stores.
d. TOP FOOD RETAILERS IN TURKEY & COMPANY PROFILES
Table 1: Top 10 Grocery Store Chains by Number of Stores
Number of Stores Number of Stores New Stores # of Stores
Grocery Chain Chain Type Dec. 31, 2017 Dec. 31, 2016 in 2017 in 2022
1 A 101 National Discount 7,084 6,400 684 11,306
2 BIM National Discount 6,065 5,601 464 10,661
3 Sok National Discount 5,080 4,000 1,080 9,324
4 Ekomini National Discount 1,804 1,610 194
5 Migros National 1,647 1,528 119
6 Hakmar Ekspres Discount - Istanbul 473 382 91
7 UCZ Discount - Istanbul 390 390 0
8 CarrefourSA Super National (Int. owned) 382 390 -8
9 UCZ Sistem -Sec National Discount 303 303 0
10 CarrefourSA Mini National (Int. owned) 200 212 -12
Total of Top 10 All types 23,428 20,816 2,612
Source: www.ortakalan.com.tr

RETAIL FOOD REPORT: TURKEY 4

Market Share of Retailers as of 2020

Source: Turkish Food Retail Industry, USDA Foreign Agricultural Service, GAIN Report, Feb 2018
Dr. Ahmet Erelçin Art of War 23
Bible of a Hard-Discounter

Stores:
ü Rent, do not buy
ü Avoid main streets
ü Simple & plain decoration, nothing fancy
ü Minimum staff at stores

Cost Management:
ü Monitor costs on a day-to-day basis
ü Manage human resources effectively: prefer part-time personnel
ü Minimize advertising and promotion expenditures
ü Seek out new ways to economize and put them into practice.

Dr. Ahmet Erelçin Art of War 24

Bible of a Hard-Discounter

Procurement:
ü Maximize private label products
ü Minimize SKU
ü Minimize number of suppliers

Logistics:
ü Just-in-time Inventory Management
ü Route Optimization
ü Establish own logistic infrastructure of warehouses and truck fleet

Dr. Ahmet Erelçin Art of War 25

Outline

The Challenge

The Model & Some Tips

The Grocery Retail in Turkey

Economy

Dr. Ahmet Erelçin Art of War 26

Million $ Question:
On a cruise ship that sails with 12 nm/h,
you are running on its deck with 20 nm/h.
In how many hours will you reach to the
next port 120 nm away?

Dr. Ahmet Erelçin Art of War 27

Business Cycles

Economies
recurrently
experience
periods of
expansion
and
contraction

Dr. Ahmet Erelçin Art of War 28

Macroeconomic Assumptions

• GDP Growth Rate is a major determinant for inflation & FX Rates

• Interest Rates are always higher than Inflation

Dr. Ahmet Erelçin Art of War 29

Bearish: The Crisis Scenario

• The country will experience a deep political crisis in the third year, dragging the
economy into a recession.
• The recession will gradually phase out in the fourth year and economy will
return to business-as-usual in the fifth year.

• During Crisis in TR: FX Rates and Inflation run out of control, while GDP shrinks

Dr. Ahmet Erelçin Art of War 30

Recording Scenario Outputs «Assumptions»

• Change the color of

the cell

• On the cell, click on

Data/Data Validation

«Calculations»

Dr. Ahmet Erelçin Art of War 31

References for Excel Tools Used

DATA VALIDATION
Excel Data Validation Guide
https://exceljet.net/articles/excel-data-validation-guide
Data validation with an Excel table (video)
https://exceljet.net/videos/data-validation-with-an-excel-table

IF & NESTED IF
Excel IF Function
https://exceljet.net/functions/if-function

CHOOSE
Excel CHOOSE Function
https://exceljet.net/functions/choose-function
How to use the CHOOSE function (video)
https://exceljet.net/videos/how-to-use-the-choose-function

Dr. Ahmet Erelçin Art of War 32

References for Excel Tools Used

XLOOKUP
Excel XLOOKUP Function
https://exceljet.net/functions/xlookup-function

INDEX & MATCH

Excel INDEX Function
https://exceljet.net/functions/index-function
Excel MATCH Function
https://exceljet.net/functions/match-function
How to use INDEX and MATCH
https://exceljet.net/articles/index-and-match
How to use INDEX and MATCH with a table (video)
https://exceljet.net/videos/how-to-use-index-and-match-with-a-table

Dr. Ahmet Erelçin Art of War 33