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Bakery Sector in Istanbul, its Problems, and Solution Suggestions

Bakery Sector in Istanbul, its Problems, and Solution Suggestions

The Istanbul Idea Academy (IDA), founded by Istanbul Chamber of Commerce, provided a clear insight of the bakery sector. Generally concentrating its effort on sectors’ development, IDA shed light on the bakery sector with its study, “Bakery Sector in Istanbul, its Problems and Solution Suggestions.” As a part of the study, the academy conducted a survey with 219 bakeshops and baked goods at twenty-nine districts and various neighborhoods in Istanbul. The study drew attention to the prominent problems of the sector and provided solution suggestions. hhhhhhhhhhhhhhhh Bakery Sector in Istanbul, its Problems, and Solution Suggestions

The bakery sector has many problems to be solved although this sector is one of the oldest fashions. The study prepared by the Istanbul Idea Academy (IDA), founded within the Istanbul Chamber of Commerce, discussed in detail the sector, which has been relevant to all people and has great importance. The study of IDA, which is also backed by the Istanbul Development Agency (ISTKA), has revealed the sector’s prominent problems one-by-one.

According to this study, the following topics require immediate solutions: the smallness and traditional structure of enterprises, inadequate use of technology, packaging, waste of bread, unfair competition because of the price of bread baked by municipalities or existence of unlicensed workplaces, hygiene and working on Sundays, low capacity utilization rate and intense competition among chain markets.

As a part of the study, the academy conducted a survey with 219 bread producers and baked goods at twenty-nine districts and various neighborhoods in Istanbul. 44.7 percent, 98 of them, is a private company, and 43.4 percent, i.e. 95 of them, is limited liability company, and 21 of these companies are basic partnership, and lastly 5 of them are joint-stock companies. The IDA’s report is written by Professor Dr. Ömer Azabağaoğlu and Associate Professor Gökhan Unakıtan.

The start-date of these companies has been examined during the study. 33 per cent of companies participating in the survey stated that they continued their activities longer than 16 years. The rate of the enterprises operating in the period of 11-15 years is 29 percent. This has revealed that the bigger part of the participant companies are active in the sector more than ten years. 62 percent of the companies are older than 11 years. 13 percent of the participant companies are active in the sector between one and five years. The study revealed that many of the participant companies are mostly either private or limited liability companies when their legal status is concerned. When their permits are concerned, 63.5 percent of the participant companies have bakery permits while 45.7 percent has one of the baked goods’ permits.

BAKERIES OPERATE AT APARTMENT’S ENTRANCE
When the IDA’s study investigates where these companies operate, it turned out that 74.4 percent of the participant companies operate at the entrance of apartments. Only 25.6 percent has independent structures. 79.6 percent of the private companies provide service at the entrance of apartments. Nearly all of the limited liability companies operate at apartments’ entrance. But all joint-stock companies have independent structures.

When the study examined the property angle of the sector, there is complete different picture. The rent prices are so high in the bakery sector although the rent cost is one of biggest expense items. Regardless of being private, basic partnership, limited liability or a joint-stock company, 69 percent of the sector pays rent. 80 percent of the private companies pay rent while only 20 percent have property ownership. When the ownership status of the limited companies is examined, 64 percent of the companies and 60 percent of the joint stock companies are the tenants.

The report prepared by the Istanbul Idea Academy includes eye-catching information on the employment. Most companies of the sector have between six and nine employees. Fifty-percent of the companies have between six and nine workers while twenty-five percent have between ten and twelve workers. Ten percent of the participant companies have more than thirteen workers. In private companies, the percentage of enterprises with 6-9 employees exceeds 56 percent.

One of the biggest headaches of the sector is foreign workers. But the participant companies did not have that much of foreign workers. Providing employment to foreign persons is subjected to many rules, and non-participant companies employ these persons through illegal ways. The report highlighted that companies providing employment to foreign persons or non-legal employment are subjected to high penalties, and thus companies keep mum about this issue.

WOOD OVENS ARE TRANSFORMED
When companies’ bread or baked goods systems are examined, 62 percent of the participant companies have traditional wood ovens. Following wood ovens, 32.4 percent of the participant companies use tube-type ovens. 6.8 percent of the companies operate with matador type ovens. It is observed that some of the participant companies have more than one boiling facilities. Private companies, basic partnership and limited liability companies mostly use traditional wood ovens.

When the types of fuel used by the enterprises are examined, it is seen that natural gas takes the highest share with 61 percent. The proportion of companies that bake bread with the wood is 38 percent, and the proportion of electric is around one percent.

Despite the fact that most of the enterprises surveyed use wood ovens, natural gas is seen to be used more as a fuel in bread production. Although the existence system is compatible with wood, the use of natural gas is more convenient, and the use of wood is more harmful to the environment; thus, the system is converted into using natural gas.

49 PERCENT OF THE CAPACITY IS USED
When the bread processing capacity of companies is considered, a thought-provoking and very painful picture for the sector has emerged. According to the study, the capacity utilization rate of the companies is 49 percent in the sector. Although some companies have high capacity utilization rates, the fact that 49 percent of the average capacity utilization rate means that there are marketing problems of the enterprises or that the furnaces are installed without realistic feasibility analysis during the establishment phase.
When examined according to the statutes of the companies, the highest average bread production capacity rate was seen in private companies with 57 percent. This is followed by joint stock companies with 53 percent, simple partnership with 48 percent and limited liability companies with 42 percent. When companies are examined generally, it is observed that 53 percent of the bread production capacity utilization rate is below 50 percent.

When the daily production and sales quantities of the enterprises are examined, it is observed that the most produced is the standard white bread. The average daily white bread production of the enterprises was calculated as 2 thousand 140 pieces. But there are also companies that produce 18 thousand breads a day. All participant companies produce wheat bread. Many bread bakeries produce multigrain bread, rye bread, Karadeniz bread, village bread, bran bread and other types.

The average retail sale rate of wheat bread at companies is calculated as 40 percent. Companies concentrate on the retail sale since the profit margin of such sales is higher. There are companies with 90 percent retail sale rate during the field work. In addition to this, there are companies with ten percent retail sale of the baked bread.

When the wholesale and retail prices of businesses are examined, it seems that there are big differences. Although the wholesale price of standard white bread is an average of 0.78 Turkish liras, there are also shops that sell at a fairly low price of 0.50 Turkish liras. When the retail price is examined, the highest price is 1.25 Turkish liras because of the implementation of price ceiling; however, there are companies that sell 0.75 Turkish liras.

This fact reveals the biggest problem in the sector: unfair competition. Apart from standard wheat bread, as there is no price regulation in other bread types, businesses can sell products with certain features and grams at different price.

When sales channels are examined, all enterprises sale bread at production point and the average sale is one thousand ninety-two breads. Apart from that enterprises distribute bread to grocery stores, supermarket, buffet, and school canteen. Some participating companies also sell bread to catering firms.

Companies agree on the point that the ideal gram of the standard wheat bread is 250 gram per bread from the production and marketing point of view. 74 percent of enterprises believe that the basis weight of bread is 250 grams per unit. 19 percent of the enterprises believe that it should be 200 grams while six percent believe it should be 300 grams.
As a part of the study, companies are asked about some beliefs regarding to the sector. As a result, companies do not share the belief that the market prices should be freed. The concern that unauthorized business negatively affects the market is commonly accepted. On the point of hygiene, companies generally agree with the claim that “the bigger portion of the bread bakeries is not adequate with hygiene.”

It is commonly held that there is problem with finding qualified employee in the sector. A bigger portion of the companies think that Istanbul Public Bread causes unfair competition through utilization of the metropolitan municipality. Besides, companies mostly agree with the idea that “bakeries should be close one day per week.”

PROMINENT PROBLEMS OF THE SECTOR
The study requested the participating companies to rate the prominent problems of the sector that revealed the sector’s full picture. According to this rating, the most important problem of the sector is unfair competition. The second most important problem is lack of qualified personnel while the third is the implementation of low ceiling price. Unauthorized companies are also among the prominent problems.

When companies’ view on the sector is examined, it is revealed that 35.2 percent of the companies want more supervision, and 30.1 percent want the prevention of unfair competition. 16.4 percent believe fixation of bread’s grams and price while 12.8 percent want the closure of unauthorized companies.

On the solution proposals’ section, in order to prevent unauthorized and illegal companies, and illegal production, it is underlined, first of all, to make companies receive the bakery permit. Particularly, it is suggested a company should get business license before applying to other authorities during the launch of a bakery. Companies or enterprises should be able to show the license in order to receive the tax certificate, electricity, water and similar services.

There are two thousand six hundred forty-five bakeries registered to the Istanbul Chamber of Commerce while there are about nine hundred fifty bakeries registered to the Istanbul Bread Bakeries Chamber, plus there are more than a thousand unlicensed bakeries; totally, there are around five thousands bakeries in the city.

Many court cases have been launched against unlicensed companies; however, courts can find respondents before them at the end of the case, which makes the court cases against these enterprises meaningless. Since a court case against such incident takes time, the relevant municipalities should increase their supervision against these unlicensed companies; and when authorities determined unlicensed activities, they should be able to close down such companies.

Companies believe that the mechanism to determine the ceiling price pave the way for unfair competition. Particularly unlicensed companies and enterprises without proper production conditions lower the price, which in turn leads the way for unfair competition. In order to overcome this problem, instead of ceiling price, the minimum price should be introduced, and recommended price for each type of bread should be determined; thus, such determinations are healthier for competition. However, in order to implement the recommended price, there should be legal amendments.

SUNDAYS SHOULD BE OFF DAY
As little mistakes can cause bigger loses in the bakery sector because of its delicate production process, the sector requires the same level of attention and self-devotion. In addition to these requirements, there are everyday-problems like working without any off day, the nominal profit margin, ever-increasing production costs, intense competition because of excess of furnaces, the competitive price policy by super and hypermarkets, and the necessity to sell breads within hours after production.

The raw material and equipment used in the baking industry as well as the human resources involved in the production process are of utmost importance. The personnel cannot take off day because of the necessity to produce bread 365 days a year, and it is required to work in shifts; thus, these facts turn the bakery sector unattractive, which preclude companies from finding qualified personnel.

Most companies agree on the idea that it is difficult to find “qualified personnel in the sector.” In fact, just like other sectors, it is necessary for qualified personnel to work in the bread sector in the ever-changing market conditions. However, if the working conditions remain the same, qualified persons will not work in the sector.

The competition will intensify over product range and quality because of the development of production and technologies in the bakery sector, the diversification of demand in type of bread and baked goods, and the import of bread type to Turkey from foreign countries. For these reasons, the follow-up of technological developments in order to survive in the increased competition and the implementation of hygiene rules are important to rival with the quality of production.

By taking the warning into consideration from the sector, bakery shops should be closed on Sundays through making legal arrangements. It is not feasible to leave this decision to the sector because of competition environment. In this case, there will be companies that want to work in holidays, which will make the picture to remain the same. Previously, some companies tried that and gave up immediately as they lost the market share. However, if a legal amendment force companies to do the same, the sector will have more freedom on the social life; thus, this will be a positive arrangement. Such holidays will also contribute overall hygiene and cleaning condition of the companies.

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