Tax hikes have tripled prices for raki over past five years

Turkey | Ever wondered why Diageo in recent years has downplayed its costly 2011 acquisition of Turkey’s raki producer Mey Icki, with its famous Yeni Raki brand? Only two years later, following the introduction of stiff advertising and sales restrictions, Diageo’s return-on-investment projections on the Mey Icki deal were in tatters. Given the political and economic climate, it is also unlikely that Diageo will ever be able to use its Turkish purchase as a platform to push its other spirits into the market.

On 1 January 2019, Turkey saw a 13.5 percent increase in alcohol prices. A 700 ml bottle of raki, the country’s popular aniseed spirit, now costs TRY 142.50 (EUR 23/USD 27). When the currently ruling Justice and Development Party (AKP) came into power in 2002, the same bottle would have set you back only TRY 7.00 (EUR 5.50/USD 4.80).

The phenomenal price hike is due to taxes, which go up about every six months. At the moment, they represent 80 percent of the bottle’s retail price combined. Over the past five years alone, the price of a bottle of raki has tripled, negatively impacting sales.

Turkey’s ruling party has an undeniable religious slant, and its prohibition measures are meant to protect the public from themselves. Whether Turkey’s population of 80 million people has an alcohol problem is open to debate. According to figures by the World Health Organisation, Turkey’s total alcohol consumption is at 2 litres per capita, compared with 1 litre in 1960.

Thanks to the rising popularity of beer (11 litres per capita in 2017), Turkey’s raki consumption nearly halved between 1999 and 2011, decreasing from 80 million litres to 46 million litres. Nowadays it is only 35 million litres according to estimates. What this decline has done to Diageo’s business in Turkey we can only guess.  

In 2011, Diageo bought Mey Icki for about USD 2.1 billion. In its first half 2019 (ended 31 December 2018) Diageo reported that raki’s net sales declined 29 percent. In December 2018, Turkish media speculated that Diageo was seeking to sell Mey Icki to Anadolu Efes – a rumour Efes was quick to refute.

Could it be that Diageo is sitting on a business that it cannot sell?