December 21, 2007

Talk with BIM boss Jos Simons on Turkish retail

Jos Simons, CEO BIM (photo: Thomas Fedra)
Jos Simons: "Sometimes Aldi and Lidl are too far ahead of their time"
Former Aldi manager Jos Simons is the likeable Dutch CEO of BIM, Turkey's largest discounter.

BIM's revenues of €2bn also make it the second-largest retailer in this dynamic threshold country.

This Turkish version of German discounter Aldi has expanded aggressively in its home country from the mid-90s.

Since its IPO on the Istanbul bourse in June 2005, BIM went into overdrive and now runs more than 2,500 stores.

Obviously, the company's Germanophile Turkish owners have been doing something right.

Is their success attributable to the consistency with which they have adhered to the Aldi system, or to their flair for adaptation to local circumstances?

Jos Simons (64) seems to have acquired a dash of Levantine savoir vivre through his long sojourn in Istanbul. This is clearly an international manager who understands the local mentality and how to do business there.

An Aldi Veteran
 
He hasn't quite gone native yet, but, unlike most northern Europeans, who perch nervously on the edge of their seats, he almost flowed into his leather armchair as if it was an oriental divan.

Simons worked over 35 years in the trade. He succeeded business bestseller author Dieter Brandes at the helm of Aldi Netherlands where he stayed for ten years

His next challenge was to run Vendex Food Group (now Laurus) for five years after which he set up his own consultancy. It was then that he received an unexpected call from a city on the Bosphorus.

INTERVIEW


Mr. Simons, how come a Dutch manager is CEO of a Turkish retailer?
When I was manager of Aldi in Holland, my then boss and friend, Dieter Brandes, was responsible for foreign business on the supervisory board.

After his time at Aldi Nord, Dieter was the first chief executive at BIM and was retained as a consultant after he left the company. In 2001, he called me to ask whether I would consider working for BIM in a number two position. I said, yes.

After BIM completed its successful IPO at the beginning of 2006, I was appointed chief executive.

Turkish is a relatively hard language to learn. How are you coping?
My wife and I took private lessons for the first three years. We can now get by fairly easily in everyday situations. That said, I think it is dangerous to run a business without being able to speak the language perfectly.

Therefore both German and English are spoken at the company. I also have a trustworthy assistant who knows BIM very well and who does the most important translations for me.

Do the Turkish employees accept this?
Yes, because one of the Turkish founders lived for 20 years in Munich. He, and later on Dieter Brandes, gave BIM an internationally-oriented corporate structure.

Far more important than being able to speak the language perfectly, however, is not acting like a superior know-it-all. In whatever country a manager finds himself working, he must treat his staff with respect.

What are the differences between managing staff in Turkey and in northern Europe?
One has to accept the fact that the Turks like to talk more than Europeans. When holding business conversations, the atmosphere has to be right first.

Direct confrontation is taboo. As a manager you have to develop the necessary sensitivity in order to know when the right point has come to get involved and make a decision.

That may sound complicated and cumbersome, but on the upside the Turks are more creative than we are when it comes to finding solutions.

How would you characterize their work ethic?
Excellent. Turks are very diligent people and also very reliable. Furthermore, hierarchies are not so cold and forbidding as in northern Europe. Business relationships between staff are more warm-hearted and human at all levels.

For instance, I don't think the board member of a big European retail group and a store manager would kiss each other on the cheek when they meet.

How has BIM achieved its almost exponential growth in Turkey coming as it did from virtually nothing in 1995?
Turkish retailing is still dominated by around 20,000 Mom & Pop corner stores or "bakkals". However, they are disappearing increasingly rapidly.

When I first came to Turkey, modern self-service retailing only accounted for around a quarter of the market, today, that figure is around 40 per cent.

Also, you must remember that it is a far smaller step for a former bakkal owner to run one of our BIM discount stores than a big hypermarket.

Will BIM be able to maintain its dynamic expansion rate?
We don't have a capital-intensive retail concept, and we achieve annual cash-flow and working capital in excess of €100m ($147m).

How?
We installed an almost completely new management team after our IPO in June 2005. Growth has accelerated strongly. Average stock turn, which we intend to improve upon still further, is now only 26 days, whereas average payment terms are 47 days.

Also, a third of our annual revenues come from credit card purchases so that we receive our money from the credit card operators after only 30 days.

So, as elsewhere, suppliers are indirectly financing discounter growth, by providing negative working capital?
Yes — in fact suppliers love us. They have to wait twice as long to get paid at Carrefour or Migros Türk, for example.

To date, you have leased your stores and distribution centres. However, rentals on commercial real estate have increased frenetically over the last ten years in Turkey. Aren't you sitting on a powder barrel?
That's why we increasingly purchase our own sites, which also allows us to profit from rising real estate prices. When the market matures and we start to need outlets over 600 m² (6,458 ft²), we might well build our own stores.

Currently, however, we are concentrating on regional distribution centres.

Would it be fair to say that BIM is a Turkish clone of German discounter Aldi?
One can certainly compare BIM with a German hard discounter.

Turkish consumers are generally regarded as being particularly brand-oriented. More than half of BIM's assortment is own label, a level which you wish to increase. Don't you like brands?
To be quite honest, not very much. A brand doesn't bring us a lot. Brand manufacturers fight each other on prices at retailers' expense.

If Carrefour or Migros Türk lower their prices, then we have do the same, and vice versa. This goes on until the margins are rock-bottom. And who then laughs up their sleeves? The suppliers.

Are you satisfied with the quality of Turkish own label suppliers?
Certainly in food, but we have been looking around in desperation for some good suppliers to provide us with special offers in non-food.

Turkish consumers are also very strongly oriented towards fresh produce. Why then do you provide so little of it in your assortment?
Because you can buy it on every street corner in Turkey. Why carry coals to Newcastle? Our retail concept covers around 80 per cent of our customers' everyday requirements.

It is good for us as a discounter that customers accept this because providing the remaining 20 per cent would create disproportionate cost.

You were once virtually without foreign competition in Turkey. Now, however, you already have to face Metro C&C, real,- and Carrefour etc. Others are bound to follow. Isn't the market place getting a little claustrophobic?

Foreign retailers are obliged to establish themselves in Turkey in order to avoid paying high import taxes. Of course, we regard anyone who sells food as a potential competitor, but we try and do a good job every day and not just when some new competitor arrives.

Otherwise, we would be permanently in panic. Above all, we must stay true to our retail concept.

Meaning?
Migros Türk changed its prices three times a day during the particularly high inflation period which Turkey experienced in 2001.

We refused to do this. Instead, we advertised 100 lines and announced that we would freeze their prices for three months. This really helped us to gain credibility and trust with our customers.

Are you really so nonchalant about competition from international big store operators?
It doesn't make much sense for a Turkish family to go on a day's outing by car to shop at Carrefour or Migros. They are pure weekend destinations. You can see this when you look at their low sales figures during the week.

Our discount stores are sited in our customers' direct neighbourhood, so they don't have this problem.

It has long been claimed that Schwarz Group have an office somewhere in Istanbul. Do you think that they are going to enter Turkey with Lidl and/or Kaufland?
Do they really? It has been said that they had two attempts at finding potential managers via head-hunters, but it appears that nothing ever came of this.

Could it be that Schwarz Group is having problems obtaining the right sites?
We open around 300 sites a year, where may I ask are the site problems?

But Lidl, and even more so Kaufland, need larger sites than you do.
That's true. We look for neighbourhood stores with sales surfaces of between 300 m² (3,229 ft²) and 600 m² (6,458 ft²). After all, at least 90 per cent of our customers still come to us on foot.

But, as Turkey resumes its recent rapid growth, isn't it becoming increasingly important to offer larger stores with parking space?
Yes, but, even when we open larger sites, we still have a concept where purchase prices are relatively low and one which does not require complicated planning permission.

Istanbul is a metropolis full of small streets. Does this also make it a logistics nightmare for retailers?
Obviously you can't compare the situation with Germany. Our delivery vehicles can only load eight palettes at a time due to the narrow streets in the capital. There's simply no way around this, it's a fact of life.

In autumn 2007, Metro Group opened its first "real,-" hypermarket in Istanbul. What do you think of their operation?
The geography was certainly well chosen as the site also houses one of Metro's own Media Markt outlets as well as an Ikea store.

That said, I view it with a certain question mark. I don't know what revenues Metro Group hopes to make with "real,-", but Carrefour offers Turkish customers far more in terms of store ambience and shopping experience.

To date, you have primarily expanded via organic growth. Do you envisage making any acquisitions?
When, in 2005, Migros Türk bought its competitor Tansas and Carrefour purchased Gima and Endi, I must admit that, if anything, I was pleased.

When making acquisitions, buyers always talk about synergies, but hardly anyone cares to calculate the problems, which are often larger than the synergies.

Over the last few years, both Migros Türk and Carrefour have been very busy trying to integrate their acquisitions while we have been able to concentrate on improving our business.

There have been long-standing rumours that BIM is negotiating with other discount operators to buy their stores?

Obviously, there have been sporadic contacts. I am potentially interested in a certain number of leases, if the sites and the rental contracts are acceptable. The basic problem with all takeovers, however, is the disparity between the two corporate cultures.

One can buy revenues, provided, of course, that you have a profitable business model.

Irrespective of whether a business model is good or bad, it is always very difficult to change because it is entrenched in people's heads. At all events, our corporate culture must retain its low-cost orientation.

Would BIM also be interested in some of your competitors' supermarkets?
If we were to buy supermarkets, we would have big problems with managing the large number of extra lines. The main difficulty wouldn't be on the sales side, it would be on the cost side.

There are also occasional rumours that Carrefour would be interested in buying BIM?
You should ask our main shareholders, not me. But even if they were ever to sell, they would be faced with the problem as to where to invest their money, and I can't think of a better investment than BIM. So what would it bring them?

Also, our Chairman is the largest shareholder. BIM is his whole life, I couldn't imagine him wanting to sell short-term or medium-term.

Given the tremendous potential which BIM has in Turkey, why does the company also expand abroad?
One is virtually obliged to internationalise when one has a very good export product. Our advantage over Aldi and Lidl when it comes to internationalization is that their retail concept is too sophisticated for some threshold countries.

For instance, they wouldn't be able to run stores of less than 300 m² (3,229 ft²) profitably, whereas we have the right concept for less mature consumer cultures such as Morocco.


Related article in German: Interview by Mike Dawson in Lebensmittel Zeitung, no. 51, 21.12.2007


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