“World market leadership in deluxe chocolate production belongs to Turkey now”

Metin Yurdagül, Group Spokesman and member of the Ülker Consultations Council, had those words to say about the acquisition of the Godiva brand name by the Ülker Group…after purchasing Godiva, Yurdagül was curious about the Ülker’s plans for future investments. Sabri Ülker, talked to a number of guests about various topics that included the secret of Ülker’s success and sports sponsorships.

Ülker has taken a significant step by the purchase of Godiva, in the direction of becoming a player on the world economic stage.  Did you purchase the company with 850 dollars from the financial assets that you had available or did you use credit?

If you don’t mind, I would like to elaborate on this subject.  Some of the documentation was misunderstood. I want to explain that before I go on any further.  Ülker did not purchase Godiva. Godiva was purchased by Yıldız Holding.  If you must ask what Yıldız Holding is, it is our parent company and at this time it has 65 subsidiary companies in its portfolio, which means it is a holding company. I do not wish to use the Ülker name here especially, because Ülker Biscuit Ltd. is a publicly traded company. If we were to say “Ülker bought it”, the stock market would jump, it would bounce.  My second point is that we have a second company that bears the Ülker name, Ülker Chocolate Ltd.  We have begun to prepare that company for public offering. I am not able to say much more about it except to tell you that the process has begun.  Those are the reasons why it must be made clear that it was not Ülker who purchased Godiva, it was Yıldız Holding.

The purchase price was 850 dollars, true.  However, I want to make a small correction here: According to US laws, if a purchase is made by a foreign company and an advantage is created, it is in the form of a tax break.  This means that in the years after the purchase, beginning with our profits in 2007, the profits will fall by about 100 million dollars in total. That is the advantage.  This means, in fact, that after these adjustments are made, we may only have paid 750,000 dollars or even less.  My third point is that we have not achieved “closing” yet, so the money has still not been paid. That process will take two months or more to complete because there is bureaucracy in the USA, just as there is in Turkey. I don’t know, but perhaps there will be some tie-up in Belgium as well.  All of these things take time, and then we will pay the money. We will pay in cash, all at one time.  The money is readily available from Yıldız Holding sources.  However, a number of banks and credit companies have offered to help us with credit.

After the purchase of Godiva what will be Ülker’s position in the world chocolate market?

Let me say this:  Ülker is a giant company in Turkey, a group of companies. We are currently leading in Turkey’s chocolate sector and have a market share of around 57%. As far as revenues go, that means our annual sales are in the region of 750 million dollars, almost the same as Godiva’s world turnover. Maybe even a bit more…  Now, if this is the situation, it’s very difficult to calculate how the acquisition of Godiva will affect the position of the building blocks of the world chocolate market.  The world is huge.  Godiva is a firm that is also huge, a world giant. But it’s a world giant in its own field.  I mean, it’s not a “mass production” and distribution firm like a Nestlé, an Ülker or a Mars.

In its place a firm that manufactures “Premium” chocolate might take over …

It has business interests in the fields of both “Premium” and “Super Premium”. That is the reason why it isn’t possible to achieve “amalgamation” in the world chocolate market. However, Godiva is the “Premium” and “Super Premium” market leader. In that kind of situation, there would be no change at all in the world market. The only difference would be is that Godiva changes hands. If I really must give you my opinion, I think the market leadership is in Turkey’s hands. 

What are Ülker’s plans for 5 or 10 years from now, in relation to Turkey and the world market? To guess your targets for the Turkish market is not too difficult, of course...

Let’s say the plan is to remain the leader in Turkey’s market and to strengthen that position. If I have to narrow it down a bit, we have basically achieved all of the goals we set for ourselves this year and we are continuing to work to that end.  What were those goals?  To focus on foods. To reduce our partnerships outside of the food sector and concentrate on foods… Our main business is food. If I were to sum up what we did last year in a nutshell: We withdrew from Türkiye Finans Katılım Bank we are currently participants there. We withdrew from Fon Leasing and are participants now. We withdrew from Tire Kutsan and became participants.  What did we do to fill the void? We bought a giant world food company, meaning we fortified our food interests.  First of all I would like to say this. And second of all, we have been pursuing ways to strengthen our position in our category and in our own region for quite some time.   By ‘category’ I mean biscuits, but sometimes I am referring to chocolate.

You see, there’s Kazakhstan, there’s Romania…  In Romania for example, there are only biscuits, in other places there is chocolate.  Now we want to expand from being regional to becoming global. Godiva was a good opportunity for us to make our debut on the world stage. I mean the answer to your question is this:  Our plans for future years will focus on globalization and other world companies on the same path, and walking down that path more rapidly.

Are there any other companies that you are thinking seriously about acquiring?

It’s possible, anything is possible.  You never know what could happen between today to tommorrow, but it is possible. Since we are talking about our vision for 5 or 10 years into the future, I can say there must be.

How does the decision-making process at Yıldız Holding work? Who actually made the final decision?

During the decision-making process related to Godiva, a very small management group was busy with that job. For big purchases like that you can’t just call a meeting of 25 or so people and announce “Friends, we are buying Godiva.”   Murat Ülker made the decision, and I’m not sure who he shared it with, but it was certainly a very small group. It was necessary to proceed with the greatest secrecy of course. When he found out that we had read the news in the papers, Murat said “I never even told my father; even my father had no idea.” That was an indication of how necessary it was to conduct the process secretly.

It was kept secret though…

Yes, the secret was kept. There as even criticism from people in some circles that the press wasn’t informed. The general managers and group chairmen are consulted during the decision-making process for purchases inside Turkey, but the final decision belongs to the Chairman of the Board Of Directors, Murat Ülker. Yıldız Holding is, afterall, a family company. Both Ülker and Yıldız Holding have a family partnership with each of their individual companies. Of course, I’m fairly sure that the final decision was discussed within the family.

Lets leave the global level and move to the local level, if you don’t mind… One of the secrets of Ülker’s success is the strength of its country-wide distribution system.  How did Ülker succeed in creating such a distribution network?

This success was the result of a time when Sabri Ülker’s actual work and great foresight at a time when he was about the only person working at the company. In the past, purchases took place like this: there were small corner grocers; wholesalers were few. Wholesalers used to buy different products from various grocers. Sabri had the foresight to contact the wholesalers.  Today, a wholesaler is working in every region.

When did this take place?

In the 1950’s and the beginning of the 60’s … Sabri  began to work with wholesalers and they would gather orders. One day Sabri paid a visit to all the wholesalers and said to them, “from now on the customers wont come to you, you will go top them.” They all reacted with, “This way of selling is great, the customers come to us.  When did this new habit come to this old village?” Sabri replied, “From now on it will be like I said.” That was a revolutionary breakthrough and a breakthrough for Turkey. I don’t remember ever hearing about any other company making such a move. That is where the foundation was laid. Now we don’t have only one, we have several distribution organizations.  For example, one of the networks distributes biscuits and the products from our other companies in its own area. Other distribution organizations distribute chocolate and some of our other products. Carbonated beverages and water are delivered by another company. It goes on that way… we have more than 1088 products and over 1502 brand names. It would be physically impossible to load all of these products into one truck.  We currently have 5 or 6 thousand distribution vehicles that travel around Turkey.

Tell me what you think about Ülker’s recent purchases of assemblers in the Turkish market …

First of all I want to make a small correction to do with some news that appeared in the press… negotiations with Doğa and Oba Çay are continuing.  “But how?” you say...ok, there are talks going on that are taking place in our own way. There may be small shareholders. But despite the fact that it belongs to us, they will still be the managers of their companies. I’m saying that Mr. Metehan Berktaş and Ms. Feryal Menemenli will still be doing their same jobs.

When it comes to the dairy sector … At the beginning of 2007 we had a single milk factory, AkGıda in Pamukova.  You know our main milk brand: İçim.  Later in 2007, in October or November, we activated a factory in Karaman with a production capacity of 500 tons. The production capacity of the Pamukova factory is 600 tons. With the new facilities we have started, our production capacity has now increased to 2,100 tons. We also plan to open a new milk factory this year. By the end of the year we are targeting a total production capacity of 2,600 tons. Last year, we also spent 50 million dollars to build a new chocolate facility.

During 2007 we took a step into another important field.  Under the Baby Star brand name, we introduced personal care products, baby diapers and hygienic pads to the market.  In these fields we plan to expand our efforts.

You have also invested in the functional food market. On the other hand, due to Turkish regulations companies in the health-oriented product sector could be having some difficulties. The strict regulations in Turkey were a reason that Danone changed its mind about making health-oriented products. Will Ülker be revising its business outlook because of this?

We are continuing our production of functional foods and currently we are the market leader.  In Turkey there is a market for these products worth 5 million dollars.  Our biggest problem in this area is trying to develop a way to illustrate the health benefits of functional foods to the consumer through advertising and communications. Other than that we have no problem.  Of course the market for these products is very new in Turkey. We will grow slowly, we have to be patient.

Your investments in sports… You sponsor three separate clubs with three different names

You know, last year we stopped Ülkerspor’s basketball activities. We switched to Alpella and used it as an infrastructure team. However, the most important thing is our sponsorship of the “Big Three”…

We had a lot of good response to this, and it resulted in a commercial showdown. The three big clubs were being devastated, and it brought them back to life. The number of basketball fans went up in these teams.  For us to be responsible for bringing those teams to such a point as this makes me extremely happy. On the other hand, we are continuing our support of football.  One of the most important jobs we undertook was the sponsorship of the National Team. The uniforms that Beşiktaş players wear have our advertisements on the chest; Fenerbahçe and Trabzon wear our advertising on the sleeves of their uniforms.. We are continuing to sponsor a few 2nd league clubs that also wear our logo on their chests.

Are you planning to establish a football team in the same way that you established the old Ülkerspor in the basketball league?

No. We even thought it was better to move away from basketball. It was a better decision for basketball; they have more supporters now. It was better for us too, more voices are heard now.  That is the reason that it is impossible for us to make plans to establish a football team.

Have the Galatasaray and Beşiktaş fans reproached you by asking, “Why did you give the Ülker name to Fenerbahçe?”

Fans do all sorts of things … however, on the other hand, let me say this:  by coincidence, we had our first business dealings with Beşiktaş. We spent three seasons with Beşiktaş. At the same time, Galatasaray had Café Crown. At that time there was no Fenerbahçe; it was a season of experimentation for us. When they saw how successful we were, we left Ülkerspor and made a deal with Fenerbahçe. Our sponsorship wasn’t based on the fact that Murat Ülker was a Fenerbahçe fan or that Metin was a Beşiktaş supporter. In business, rational players don’t pay attention to that sort of thing.

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