Kayarlar, Turkey meat company looks for ways to expand

Kayarlar Et A.Ş., the largest meat trading and packing enterprise in Turkey, is open to offers for joint ventures and willing to take on foreign partners provided that such cooperation will contribute to its expansion and fall in line with its prospective partners' interests, the company's top executive has said.

He also revealed that the company will launch an initial public offering (IPO) in 2010 to become a publicly traded company on the İstanbul Stock Exchange (İMKB).

Let's Talk Business spoke with Haluk Kayar, CEO and general manager of Kayarlar Et, to find out how the business is faring in Turkey and ask about the challenges the industry is facing today. Kayar, who represents the fourth generation in the century-old family business, says Kayarlar will widen its lead in the industry by investing in advanced technologies in its processing plants and developing a customer-oriented business strategy.

With overall meat consumption still in low figures for the average Turkish family, meat traders and packers are taking up the challenge of promoting this essential nutrient to consumers by introducing innovative products in a hope that Turks will consume more meat products. "Kayarlar is adopting a customer-tailored approach to encourage meat consumption according to shifting demands in the market" Kayar explained.

Kayarlar made the prestigious "Top 500 Industrial Enterprises" list issued by the İstanbul Chamber of Industry (İSO) for the first time in 2006 with YTL 143 million in revenue. It was ranked at 295 on the list that year. "We could have made the list earlier," Kayar underlined, "but the İSO was then only qualifying İstanbul-based companies. It changed its criteria to include all regions in 2006."

In fact, the company jumped to 201st place in 2007 with sales revenue reaching YTL 234 million. "We are expecting to land somewhere within the double digits on the list this year," Kayar anticipated, adding, "We project over YTL 300 million in revenue by the end of this year." The track record for the last 10 months shows the company will easily reach its target revenue by the end of the year. It grew impressively by 30 percent in the first six months of 2008, with an average profit margin of almost 10 percent.

Kayarlar came into existence as a small butcher shop opened by Ali Kayar, Haluk Kayar's great-grandfather, in Zonguldak in 1910. The small shop flourished after it landed a military contract for supplying rationed meat to Turkish soldiers during World War I. The family then moved to Adapazarı and continued its involvement in the cattle business by setting up a cooperative in 1955. "I remember me and my grandfather used to go to the cattle-trading market in İstanbul to get a feeling for the market when I was 10 years old," Kayar recalled.

Though Kayar had good grades, he dropped out of school and decided to pursue a business career in cattle trading. "My mother was staunchly against my decision," he noted, adding: "But conditions were not good. The business was in distress, and I needed to help out my father." He has no regrets today, however, about the decision he made in 12th grade. "I can arm wrestle with anyone in this business," he says confidently, "Even if that person has a Harvard degree." He stresses, "I know how to bargain and convince partners in negotiations to pursue business deals."

But Kayar does not hide the fact that he has changed his opinion on education, as he was insistent that his daughter, Zühal Kayar, get an education in the US. Now, having gone to Texas A&M University, she runs Kayarlar's public relations and marketing department and helps out her father. When asked if he would have allowed his daughter to drop out of school to get into the business, just like he did, Kayar said, "Absolutely not." In fact, the Kayar family has decided to prioritize education for its fifth generation, which they believe will take the company to the next level.

State-of-the-art facilities

Kayarlar has a fully integrated 6,000-square-meter production facility in Bursa. The Bursa plant accounts 40 percent of Kayarlar's production and has a daily capacity of 670 tons. "We can monitor the conditions in our plants with satellite-guided technology," Kayar said.

"We are building the largest meat-processing plant in Turkey with the latest technology available," Kayar boasts, referring to their construction of giant 34,000-square-meter integrated and fully automated plant in Çayırova in the northwestern town Gebze. "Once it becomes fully operational, the plant will process almost 2,000 tons of red meat per month," Kayar said. The company plans to spend over 30 million euros on the project and, except for a European Investment Bank loan, it is financing it with its own resources.

"The Çayırova plant is a state-of-the-art facility," Kayar explained. The plant, scheduled to open in 2009, will be furnished with the latest processing and packing technology and equipped with new-model machinery imported from abroad. Designed by a German firm, the plant will produce packaged meat products minimal manual intervention.

"Health is of paramount importance to us, as well as to the industry," Kayar emphasized, noting that consumers are very sensitive to hygiene. "Our sales can plummet easily with bad news," he said, recalling the mad cow disease scare in the UK in 1990. He said his company doesn't take chances on the safety and security of its products and that, for this reason, it always invests in the most advanced technology available. "Our products and processing facilities conform to and even exceed European Union standards," Kayar added.

Kayarlar also uses unique technology in its refrigeration systems. Though it is costly, the company has decided to change its freezing technology from ammonia-based refrigerants to USP-grade propylene glycol. The latter is generally recognized as safe for use in foods when used in accordance with manufacturing practices recommended by the US Food and Drug Administration (FDA). "We are one of the first meat packing companies to have done this in Europe," Kayar said.

Kayar concedes that the global financial crisis will have an impact on consumer purchases, saying, "Psychological factors will play into customer's choices eventually." But he added that he wasn't too worried about the situation, pointing out, "Meat and poultry products are the basic food necessities on the kitchen table." "As far as the company's finances are concerned, we are in good shape," Kayar added.

Expanding into retail business

In recent years the company's management decided to expand into the retail market and diversify the risks associated with the industry's cycles. "That is why we acquired Namet in 2005," said Kayar, who pushed for the takeover, thinking that the group could capitalize on booming demand in the retail market. Namet, a household name for meat products in Turkey, paved the way for the Kayarlar group to enter the retail business. For a while internal company discussions entertained the idea of introducing a new brand rather than buying into an existing one. The decision to create a new brand, however, was quickly rejected. "It was much better to promote and expand an already known brand than to put a new one out there," Kayar argued. The move turned out to be a wise one, as Namet's production capacity has doubled with surging sales following the takeover.

With a production capacity of 50,000 tons a day, Kayarlar has about 55 percent of the domestic market and, as such, is the largest meat wholesaler in the country. It provides red meat products to hotel and restaurant chains and supplies famous brand producers, such as Pınar, Aytaç, Polonez, Maret and Coşkun. It is also active in large food retailer chains, such as Carrefour, Metro, Migros and Tansaş. The company sells around 45,000 tons of meat a year.

Annual per capita meat consumption is 11 kilograms in Turkey, official statistics show. The number is below the European Union average, which is around 50 kilograms, and far below the US average of 90 kilograms. There are signs, however, that meat consumption in the country is increasing along with the rising purchasing power of Turkish consumers. In 2007 red meat production increased by 31.54 percent over 2006 and reached 576,841 tons. The bulk of this increase was seen in beef, which rose by 74.96 percent. Lamb production also increased by 20.47 percent in the same period.

Believing that traditional ways of marketing meat are no longer valid in today's consumer-conscious market, Kayarlar is also changing its product portfolio to reflect its customers' changing habits. "We see more and more people opting for ready-to-serve frozen meals and many city residents and working families choosing small-portion meat products that can be consumed in one course," he said. The company has developed close to 150 different meat products to address different customer needs.

Asked how the company develops new product lines, Kayar said they continuously update their product portfolio based on customer surveys and feedback they receive from their clients. "We especially value the results of 'taste panel' discussions, as they give a clearer picture of what consumers demand from us," Kayar explained. He also noted that major food retailers revise their wholesale orders based on these customer surveys. "Obviously, nobody wants to keep overhead costs high by keeping low-demand products in the frozen sections of supermarkets," he said. The company discontinues such products from its processing lines, he added.

7 million euro project in Konya

On the supply side, Kayarlar maintains two large breeding farms in Adapazarı that house around 5,000 cattle per year. It also relies on local farmers in the region. The company's strategy is to have processing plants near the farms, as most damage and bruising occurs while transporting the animals. The company is planning to build a 28,000-square-meter plant in Konya in central Turkey. The project, slated for next year, will cost around 7 million euros and aims to utilize the province's meat resources, which account for 30 percent of Turkey's total production.

Turkey currently does not allow imported meat into the country out of concern for safety and health issues. The ban, instituted eight years ago as a result of the mad cow disease scare, is still in effect. When asked what will happen if the government lifts the ban, Kayar says he is not afraid of competition -- be it domestic or foreign. The company is also very sensitive on the "halal" issue (processing meet in accordance with the requirements of Islamic law) and follows strict guidelines, Kayar emphasized. He said his company has a certificate from the authorities to verify that their processing complies with Islamic requirements.

Since meat production relies on refrigerated trucks for transportation and frozen storage in the supply chain, Kayarlar has invested heavily in logistics and infrastructure. "We established regional hubs and sales offices in the Black Sea, Aegean and Mediterranean regions and Ankara," Kayar said, stressing that the refrigeration link must not be broken until it reaches the customer. With over 60 refrigerated trucks in its fleet, the company meets around 70 percent of the meat needs of major hotels in the Mediterranean and Aegean regions.

"We are open to offers for joint ventures and willing to take on foreign partners if it serves the company's growth," Kayar said. The company has received attention from other groups in the past, but company executives have so far declined all offers. "We are very selective," he stressed.

Kayar said Kayarlar will launch an initial public offering in 2010 provided that conditions are ripe. He also said the company will soon reveal revolutionary packaging changes in meat marketing, but declined to provide specifics. "In the middle of 2009, we will be presenting a very different product portfolio to our customers," he explained, adding, "We have already invested 5 million euros in the project."