With rapidly improving living standards, excess tissue capacity and vast export opportunity, the Turkish market is changing rapidly. TW interviews Orhan Öğücü, chairman of Turkey’s Lila Kağit to get the latest.
TW: How have things changed since TW’s last visit to Lila Kağit in 2010?
OÖ: “We now have two Metso machines up and running, the first of which is four years old and produces 65,000 tonnes per annum and the second is the baby, just two months old, and was started up in January 2012. We target that it will output 70,000 tonnes by 2013. We were the first company in Turkey to invest in a Metso machine and now there are four in Turkey. Some 350,000 tonnes are consumed locally each year, including 50,000 of the paper produced sold locally for private converters. And some of the rest exported overseas.
“Our investments make Lila Kağit one of the largest tissue producers in Turkey. We now produce finished consumer products and have also started to work in the Away from Home markets, where we now have around 15% of the market share. Generally however, we are number one in the region for tissue. And of course there is an ever increasing capacity for tissue in Turkey.”
TW: Are you increasingly looking to sell abroad?
OÖ: “There is excess tissue capacity in the Turkish market and this is why the tissue producers here are exporting heavily. We have customers in Europe, including England, but also in Greece, and in countries in the Middle East. We are looking around the Black Sea and we even export as far as Brazil. We are always looking for favourable logistics.”
TW: What are the prospects for the Turkish tissue market?
OÖ: “Most tissue consumption comes from the Istanbul region. Across Turkey, consumption is around four kilos per person, and what with new housing and population growth, tissue consumption will increase further to 10 kilos per capita in the next 10 years. This means there will be more new investment here in the next five years but it also means that we as a business still need to be exporting from Turkey. We will also continue to invest in machines for the export business. The new growth we as a company are experiencing will continue to come from the growth in Turkey’s economy. In the last five years, there has been an 8-11% economic growth. More and more houses are increasingly getting better access to sewage systems, and people are able to change their housing habits and use modern systems. This is significantly increasing tissue consumption. It’s all growing very quickly.”
TW: How have you been affected by the events in Greece and the eurozone?
OÖ: “Our prime export country was Greece, and while we still support our customers there, we aren’t expanding further because of the current economic crisis in the country. “For the eurozone crisis, no-one can be immune from the economic crisis we are seeing in the eurozone. It’s worse if you stand in the fire, but to stand next to the fire is difficult enough. We will be affected, but the question is how much.”
TW: Are you feeling the presence of China in the market?
OÖ: “China is not giving Turkey any stress in terms of tissue. Some of the Chinese are competing with us in export markets, but the logistical issues are the same for them. We are all looking for favourable logistics. And it’s very expensive for the Chinese to export into Europe.”
TW: Is there much consumer demand for environmentally certified products in Turkey?
OÖ: “Environmental issues are very important. The need for environmental standards is getting stronger and stronger. We only use virgin pulp, all our customers want virgin paper, but we don’t have deinking. FSC is a big issue, but its supply of pulp is very restricted. Its availability is very limited and that makes it difficult for us to get it. Only a small percentage of the world’s pulp is FSC certified, even less so since the Chilean earthquake. The Finns and Swedish need to find a solution to accessing enough FSC certified pulp, because there simply isn’t enough for the industry.”
TW: How are you being affected by raw material price increases or energy costs?
OÖ: “Since the Chilean earthquake, pulp prices increased then and still now. All pulp consumers were affected. Energy costs are going up because of crude oil costs, electricity costs are going up. Everyone is affected.”
TW: How are you being affected by private label tissue producers?
OÖ: “We’re not as affected as the market is in, say, Germany. But we also have hard discount chains in Turkey and they are growing quickly. Due to the price wars in the economical segments, private label dominates only in customers that do not carry any branded products. As the penetration of branded products is very high, private label growth has been very parallel to hard discount growth. In the past 2 years, supermarkets also grew in numbers close to hard discounters, therefore due to strong traditional trade and growing local chains, I believe that in the future, private label growth will stabilise in Turkey.”
TW: What are the main challenges for the Turkish tissue industry in the near future?
OÖ: “The challenge going ahead is very simple. If there’s difficulty in the industry, the efficient mills will survive. There are many mills in countries near to Turkey that are in difficulty. Cost is very important for the consumer. For the mills, to reduce costs means more efficiency. So we are all competing every day with ourselves to be more efficient.”
TW: What are your targets for the near future?
OÖ: “Our target is to be number one in tissue production and trade in Turkey and within the region. We produce the full range of tissue and are seeing a high demand for all. We cover the whole market in terms of quality, the economical, value for money and premium segments. Kitchen towel growth rate is getting bigger in particularly, and it’s something of a relatively new product for the Turkish people.”