Capital Magazine Interview: "Migros is designing the next decade in retail"

01-02-2020

The most important aim of Özgür Tort, the CEO of Migros A.Ş., is to prepare for the future and to transform the business. To reach this aim, Migros is investing in digitalization, changing the business model and work culture, cooperating with start-ups and trying to reach customers with everchanging demands through all channels. He believes that the real breakthrough will come from new service and logistics models; he says, “The result will be rapid growth”.

“MIGROS IS DESIGNING THE NEXT DECADE IN RETAIL”

Migros, one of the companies of Anadolu Group, is the leading food retailer of Turkey. It grew 24% in 2019 and its turnover will exceed TL 23 billion by the end of the year. Its turnover growth target for this year is 15-16%. It will invest TL 400 million and open 120 stores.

However, there are more important issues than these figures or the number of stores for Özgür Tort, the CEO of Migros A.Ş.; he wants to prepare for the world of tomorrow. Tort wants to talk about issues which go beyond numbers; in fact, he thinks that numbers limit him. He is investing in rapid digitalization, changing the business model and work culture, cooperating with start-ups and trying to reach customers with everchanging demands through all channels. He says that breakthroughs in services and logistics and new means of communication with customers will result in rapid growth. Mr. Tort says, “Migros’ turnover and the number of stores are very important, but they represent today’s world.” He feels obliged to design the world of the next decade. He says, “This is what tomorrow’s retail expects from us.”

We talked to the CEO of Migros A.Ş. Özgür Tort about change, Migros’ response to such change and the future of retail at what he calls a time of “massive change”.

-How was 2019 for Migros? To what extent were you able to realize your goals?
Last year Migros exceeded its growth targets. The organized food retail market in Turkey grew 16% whereas Migros grew 24%. Our annual growth target was 20%. We expect our year-end turnover to exceed TL 23 billion. The number of stores in Turkey and abroad is almost 2,200.

-What ensured growth last year?
We opened 137 stores last year. Although opening new stores is one of the key elements of growth, it is not the only element. The stores we opened last year contributed approximately 4% to our physical growth. In other words, while the company grew 24%, the contribution of new stores was 4%. Therefore, it is important to grow and revitalize the existing stores while opening new stores; this fact is crystal clear in our 2019 results. We have many new initiatives. For example, Migros Sanal Market (e-commerce channel), which started 23 years ago, doubled the number of cities in which it offers services in 2019; we now operate in 58 cities rather than 30. We are working in cooperation with Trendyol, Turkey’s largest e-commerce platform, to offer our customers a new channel for the first time in addition to our existing e-commerce platform. Migros’ cargo service now takes the products on our portfolio (except fresh produce) to all districts in Turkey.

-What are your expectations from 2020? What are your targets?
We expect our total turnover to grow 15-16% and to open approximately 120 stores this year. We will continue to invest in our digital and mobile channels to make them faster and more widespread. We plan to invest TL 400 million this year. We are opening new channels to offer excellent customer experiences and integrating all our channels with each other. In 2020, Sanal Market will be offering services in all cities. We are talking mostly about numbers and I do like to talk about numbers; however, the transformation we are experiencing, what we have achieved so far and what we plan to do go beyond numbers,

-Can you give us some examples?
The retail business changes every decade with new formats and new retail concepts. We are going through a period of radical change. For example, from now on, opening new stores will be a side benefit for the growth of companies. New service and logistic models will be the engine of real growth. In this new order, we want all products to be sold at all stores and customers should be able to buy everything either by ordering it on their mobile phones or by going to the stores. We are talking about a model which can deliver all products to every corner of Turkey. When you put in your order, we will bring the product to wherever you wish, or you can go to the store to collect it. Therefore, we started another journey last year and made a significant investment in a start-up. We are now a 25% shareholder of Paket Taxi. This is a motorcycle courier service with a very bright future. We are now working with them. We also started Migros Hemen app. Its product portfolio is somewhat limited but it makes deliveries within 30 minutes. It is available in Istanbul, Ankara and Izmir. As a result, we are living through a period of radical change and transformation in retail, even job definitions are changing.

-In which context are these revisions taking place?
At 66 years old, Migros is Turkey’s oldest retailer; however, it embraces innovation because the average age of its employees is 29. We took another significant step last year. We set up catalysts, dedicated teams and lean working groups to ensure digital transformation; we adopted this working method as a part of our company culture. This perspective changed many things including our company’s layout, seating structure and desks. We now have an open office layout. We have less mail and telephone traffic. These changes took place last year. You need to differentiate how you work in order to do something different.

-You are also diversifying your work. You have many formats and initiatives. What kind of format changes will we see in this new period?
Migros’ retail business has a number of formats: Migros, Migros Jet, MM Migros, MMM Migros, 5M Migros, Macrocenter and Ramstore. We also have new delivery channels. We now have Migros Hemen in addition to Sanal Market. Sanal Market is cooperating with Trendyol. Tazedirekt is another on-line business. Macrocenter has a mobile platform now. As a result, we will be able to change the frequency of our contact with customers and will not have to wait for them to come to our stores.

-Which formats will become more prevalent?
We are going through a period of change especially in large stores. In the past, the main non-food categories had quite a lot of weight in our stores; they are now shrinking and moving into e-commerce. However, we will continue to keep these products in our stores so that customers can see and experience them. Good store design, in-store services and bringing services to customers will become differentiating elements. Today, a customer who walks into one of our stores can instantly get a bank loan for electronic products. They can load money onto their Istanbulkarts and pay for their shopping with Istanbulkart. They can use the Monies on their Money cards for public transportation. In addition, the store-to-store money transfer service allows customers to send and receive money until 22.00 every day without using a bank account. They can pay the bills of more than 170 institutions in our stores. More than 3 million customers used these services in one year. These services have significant infrastructure requirements. They turn our stores into service points and experience centers.

- Migros made some important moves in private label in recent years. What is the share of Migros branded products in your product portfolio?
We produce our meat products in our own facility and sell them in our stores under the Uzman Kasap brand. MIGET is Turkey’s top and one of Europe’s top ten meat processing plants. We supply all fresh produce through our own operations. Excluding these fresh products, our private label products constitute 5.5% of our portfolio.

-The retail business is changing. So are customers. How do you see the customers change as a brand which covers all of Turkey?
The most important change is that customers are now more informed. They want to understand what they are buying regardless of their income or education level. This is a period of radical change in awareness levels. As the average number of people in a household decreases every year, people go shopping more frequently and in a more informed manner, rather than buying in larger quantities less frequently. This helps decrease food waste. People are also more informed about a balanced diet. We have a very important app for a balanced diet: WellBeing Journey. This app helps users see their purchases in categories, identify where there are excesses or missing elements for a healthy and balanced diet, and balance their purchases in line with their needs.

-Did the quantity of units bought decrease in parallel with shopping frequency?
There is no decrease in the number of units sold; to the contrary, we see an increase in quantity. Migros gives customers a price advantage since it often offers promotions and discounts. The customers’ preferences in product groups change. They now buy the same product at a lower segment. This is only natural under the current economic conditions. However, we saw some recovery in the past couple of months. Some spending is discretionary; we see a rise in discretionary categories.

-Where do you see Migros in Turkey and abroad in the future?

As far as the rate of growth is concerned, the number of store openings is not likely to change much. Although there are some annual fluctuations, we open 100-150 stores in Turkey every year. Migros can still cover quite a lot of distance in the number of stores in Turkey. Sanal Market’s revenues will increase at least three- or fourfold in the near future. We now have 45 stores in Kazakhstan and Macedonia.

-What do you think Migros’ revenues will be in three years?
Numerical targets can limit you. Our turnover doubled in 2016-2019. We will probably grow at the same rate in the period ahead of us. Migros’ turnover and the number of stores are very important but they represent today’s world. We have the obligation to design tomorrow’s world. This is what tomorrow’s retail expects from us. For every unit of growth for Migros’ regular business, these initiatives will grow threefold.

“OUR PRACTICES ARE UNDER FOCUS”

A FIRST IN RETAIL

I am currently co-chair of the Consumer Goods Forum, the umbrella organization for the world’s leading retailers and FMCG manufacturers. CGF represents a total turnover of € 3.5 trillion and has 400 members in 70 countries. The Forum focuses on productivity for sustainable growth, as well as topics such as healthy societies, preventing food waste, decreasing plastic waste and regenerative agriculture.

“WE ARE NOW LEADERS”

My two-year term as chair has put the focus on this region and our advanced practices. Turkey creates practices which can set an example for the rest of the world. Migros is the market leader in Turkey in standardizing and digitalizing product information. We are working with GS1 to ensure the rapid and transparent flow of product information between manufacturers and retailers. A retailer will be able to see the information a manufacturer puts on a product’s barcode within a matter of seconds anywhere around the world. The numbers will speak to each other and generate meaningful data. In short, the future will be built on numbers.

“MIGROS OFFERS NEW GENERATIONS SEEDS WHICH WERE NO LONGER IN USE”

ANADOLU LEZZETLERİ (TASTES OF ANATOLIA)

We must protect our ancestral seeds as much as our land. Therefore, we developed the “Anadolu Lezzetleri” project. We went to different parts of Turkey to find the seeds that we almost no longer in use, planted them and now offer them to new generations in our stores.

“AGRICULTURE-FOCUSED COMPANY”

As a company in which 77% of the turnover depends on agriculture, any improvement in agriculture improves our productivity. Our distribution centers are close to manufacturers so that we can transport fresh produce to our stores in refrigerated trucks in approximately 30 hours. This helps minimize both food waste and our costs. The cost saving resulting from productivity is reflected onto our price tags. It enables us to sell our products at the best prices.

“A ROBOT CHECKS THE SHELVES”

“WE ARE IN THE SILICON VALLEY”

Migros is Turkey’s first retailer which also has an R&D center. We opened it 7 years ago. We implement R&D projects. For example, we are currently testing a robot called Cunda in a project supported by TÜBİTAK. The robot goes around the store in the evening when the store is not busy to checks the shelves, product availability and labels; it also gives information to customers about promotions during the day. We work with many software and hardware partners many of which have their own offices in the Silicon Valley.

“THERE MAY BE ACQUISITIONS”

We signed a cooperation agreement with Maxitech. We benefit from their office in the Silicon Valley. Thanks to this cooperation, our colleagues can see and experience all types of retail practices in the Valley. This helps us integrate with new business lines there. There may be acquisitions or cooperation with the initiatives there in the future. There are incredible developments, especially in new delivery models and autonomous devices.

MIGROS’ NEW ROLE

- Migros grew approximately 24% in 2019. Our annual growth target was 20%.

- In 2019, the number of cities where we offer Sanal Market services increased from 30 to 58.

- We opened an external channel for the first time through our e-commerce cooperation with Trendyol.

- This year our turnover will grow 15-16%, we will open 120 stores.

- From now on, opening new stores will be a side benefit for the growth of companies.

- New service and logistic models will be the engine of real growth.

- In the new system, all stores will sell all products and deliver them to customers at all points.

- We are investing in our digital and mobile channels to make them faster and more widespread.

- We are opening new channels to offer excellent customer experiences.

- In 2020, Sanal Market will offer fresh products in all cities.

- Sanal Market’s revenues will increase at least three- or fourfold in the near future.

- Our turnover doubled in 2016-2019.

- We will grow at the same rate in the period ahead of us.

- For every unit of growth for Migros’ regular business, these initiatives will grow threefold.