Perfect market on paper poses convoluted challenges on street
The Blue Mosque in Istanbul dominates the tourist district. Photos by Michael Lefkow
Do your homework. Hire a local attorney. Adapt menus to Turkish tastes. And forget about a senior care franchise. These are among the tips for doing business in a country with no neat categories.
On the last day of our April visit to Turkey, I had an appointment to interview Selcuk Zengil, the Subway development agent for Turkey’s Territory Number One, the European side of Istanbul. Selcuk’s son and business partner, Anil, had emailed the location of their restaurant and my husband, who had picked up a bit of the language, asked our hotel’s concierge to print out a Google map.
An English-speaking businesswoman at the taxi stand looked at the map, said we were within walking distance, then switched to Turkish and spent a couple of minutes telling our cab driver how to get there. But when we entered Nisantani, Istanbul’s upscale shopping district, some streets were blocked, others had no signs and most buildings had no numbers. The cab meandered for half an hour before we finally spotted the Zengils’ green and yellow Subway sign.
That trip is an apt metaphor for franchising in Turkey. Texas- sized Turkey, the world’s 16th largest economy, has 76 million people, half of them under age 30, low unemployment and high per capita income. On paper, Turkey is the perfect franchise market; in reality, expanding there is tougher than it first appears.
Some ‘don’t have a clue’
“Many American franchise companies that contact our office don’t have a clue about our country or how to do business here,” said Gorkem Yavilioglu, the Commercial Specialist assigned to franchising in the U.S. Consulate in Istanbul, which we’d found after another harrowing cab ride. “I prefer to work with companies that have done their homework.”
For openers, Turkey fits into no neat categories. The call to prayer rings out from thousands of mosques five times a day (starting at 5:30 am), but Turkey is not a Muslim country like its Arab neighbors to the east. And although more than half of Istanbul’s 17 million residents live in Europe, and almost all citizens wear Western clothes, Turkey is not a European country either. Since 1923, when a young soldier now called Ataturk (the “father of Turkey”) led a revolution against the old Ottoman Empire, Turkey has been a somewhat shaky democratic republic.
A prominent sign proclaims the arrival of Fatburger. Negotiators in Turkey are “among the best in the world,” one expert says.
The last military coup was in 1980 and conflict with the minority Kurdish population still continues, but William Edwards, president of Edwards Global Services in Irvine, California, said the country’s political unrest should not scare anyone away. “I moved my young family to Ankara, Turkey, in the mid- 1980s and it took us a few months to realize that something has to be going on there all the time, but it doesn’t mean the world is coming to an end.” Today, Edwards is one of several international consultants who call Turkey “an exciting franchise market.” A panel of international developers and attorneys speaking at the International Franchise Association’s convention in February named Turkey as one of the six “Hot Markets for 2013 and Beyond.”
According to the Turkish Franchise Association, the word ‘franchising’ was introduced in 1986, when McDonald’s opened the first American fast food restaurant in Istanbul and sold its first franchise there in 1989. By 1993, Turkey’s franchisor count had grown to 36 and by 2009 (the last year numbers are available) the association counted 1,640 different franchise systems with more than 44,000 franchised locations.
While the vast majority of Turkey’s franchisors are domestic or European, at least 100 U.S. franchisors operate (or attempted to operate) there and dozens more are making inquiries about the country via consultants like Edwards or through Yavilioglu’s office in the U.S. Consulate.
McDonald’s has grown to 211 stores across the country and Burger King is even larger, with 450 restaurants. Turkey’s Burger King master franchisee, TAB Gida Industry and Trade Co. of Istanbul, also operates Sbarro, Popeye’s and Arby’s franchises and was recently granted development rights to open 1,000 more Burger Kings in China. Like all restaurants in Turkey, the burger chains serve no pork and have adapted to local tastes.
In Turkey, fast food means really fast. Joseph Tabet, Subway’s Beirut-based regional director for the Middle East, said, “The traffic in Istanbul is terrible and it’s impossible to leave the office, eat and return on a 30-minute lunch break. Our 24 franchisees all deliver food on motor scooters.” McDonald’s, Burger King and all the pizza brands also provide free delivery. Scooters don’t get stuck in traffic because, as we quickly learned, they drive around cars and right up on the sidewalks, scaring the tourists. In the evening, scooters deliver food to Turkish families. Selcuk Zengil said delivery is about 60 percent of his business, but for one of his sub franchisees, it’s over 90 percent.
Although Turkish chefs created their own style of pizza, with a flatbread crust and lots of spicy toppings, U.S. pizza franchises are expanding, mostly as sit-down restaurants with menus that include salads and desserts, Edwards said. Domino’s is the largest, with more than 250 stores owned by Fides, a private equity company, and Pizza Hut’s 45 franchises in five cities serve pizza made with local cheeses. Papa John’s has 16 stores, all in Istanbul and by a local master franchisee, said Bill Harris, that chain’s international business director, and sell a pie called The Ottoman.
Expansion for some U.S. food franchisors has been bumpy. Mike Shattuck, president of international for Focus Brands in Atlanta, said, “Schlotzsky’s previous owners sold seven franchises in the early 1990s, that have been there so long, the customers probably think it’s a Turkish brand. We tried to go in with Cinnabon recently, but were using remote owners from South Africa and that didn’t work. We learned you can manage some markets from a distance, but in Turkey you need a strong local partner with connections to get you into the best malls.” Nevertheless, Shattuck said, Focus is planning to re-launch Cinnabon and is thinking of offering Auntie Anne’s Pretzels and Wingstop franchises as well.
Casual restaurant chains TGI Friday’s and Chili’s closed their Istanbul units. Yavilioglu said, “Turks found their food expensive and they didn’t want to adapt to local tastes.” A spokesperson for TGI Friday’s, however, said Turkey remains a “priority market” and their exit was “temporary.”
Another problem, said Yavilioglu, “is that we prefer homemade foods.” Until they get married, young men tend to stay at home, where their mothers continue to cook for them. Edwards, however, said he feels there is room in Turkey for “U.S. dessert brands, one more pizza brand and a high-end gourmet restaurant concept.”
A multi-story Burger King in Istanbul, owned by TAB Gida Industry and Trade Co. Burger King is Turkey’s largest franchise.
When Hilton Hotels opened its first luxury hotel in Istanbul in 1955, it became the place for upper-class Turks to celebrate all their important occasions. Today, that hotel has been joined by more franchised high-end properties from Hilton, plus Marriott, InterContinental, Radisson and other brands. As in many European countries, a demand exists for mid- and lower-priced lodgings. Turkey is the world’s sixth largest country for tourism, with the bulk of visitors arriving from Germany, Russia and the United Kingdom. While most tourist signs are in Turkish and English, in central Turkey we found signs in only Turkish and Russian.
Our own most unusual lodging was a (non-franchised) cave hotel in Cappadocia. This central Turkey region is famous for rock formations, called fairy chimneys, and for caves that have served as dwellings for thousands of years. Recently, enterprising cave-dwellers sold clusters of caves to luxury hotel owners, who rent them out to tourists seeking very dark, quiet retreats.
Other caves are on the market as individual dwellings; one ad describes a three bedroom cave with a large stone cellar for $110,000 in Turkish lira (about $80,000). Because there’s no multiple listing service in Turkey, Larry Oberly, vice president, global franchise and business solutions for ReMax International in Denver, didn’t know about other caves on the market there. But he did know that ReMax, with 230 offices and over 2,000 sales associates, is the largest real estate brokerage in Turkey. Franchisor Century 21 also has a presence and last fall ERA Real Estate in Parsippany, New Jersey, announced an expansion into Turkey.
Edwards said the country would welcome more “name brand” retail franchisors. So far, the only service franchises to take hold are Jani King and Service Master. Yavilioglu was less enthusiastic about U.S. service brands. “Our young people who go to school in the States come back wanting burgers, not car repair shops. Lawn care is not one of our priorities and people who want maids already have them. As for senior care, we all live with our parents and would never turn them over to strangers.”