The entry of a major retailer and top brands to Iran signals a sea change for the country's grocery sector.
While Iran may be a major producer of foodstuff, it often seems that the country has failed to register with the region's wider FMCG community. But with major Middle East brands such as Al Islami, Aujan Industries, and Fine viewing the country as a market with major potential, old perceptions of Iran look set to change.
Indeed, meat producer Al Islami, beverage firm Aujan Industries, and Fine, a producer of tissue and hygienic paper items, are each establishing factories in Iran, signaling a new level of confidence in the country. Furthermore, Carrefour, one of the world's biggest hypermarket groups, is also poised to enter Iran with its Middle East partner, MAF Group, in 2008.
Generally Iranians have a taste for high quality products, they like to have good quality, although there is also competition from local brands in Iran.
"The FMCG market in Iran is growing, but growing at a different rate for each industry or sector," Fine's Peter Janho said. "For our paper products it will grow by up to 8% a year but for the other sectors it will go up to 10%. There is a big market, the population is huge and the income per capita is reasonable, around US$ 8,700."
Despite this, the Iranian market has its share of challenges for FMCG professionals, and not least is a complex bureaucracy. "Iran as a country is really amazing - the weather, the culture, the people, the food, it is really nice," Janho said. "But when you come to business, it is a totally different story. In Dubai we are used to an easing of red tape, while in Iran you have to know your way around," he said.
"It is not too difficult but it takes you a long time to know the right people and the right way to operate. It is a big country and the systems are not always well documented. You have to take your time and stretch your deadlines. You can get things through but you do have to be patient."
But this type of challenge has done little to dampen the enthusiasm of companies such as Fine, which is now finishing the foundations of its US$18 million factory in Tehran. The factory is expected to be ready by December 2007, with full operations starting by March 2008. The factory will service Iran and some export markets.
"We will be exporting to nearby countries like CIS nations," Janho said. "One of the reasons to set up in Iran is that it is very difficult to export from Dubai or the Middle East to Iran because of the duties on finished goods. Our products tend to be bulky and therefore carry more freight charges, so the best option was to set up an operation in Iran."
Janho expects demand for Fine's products to be strong in Iran, and that the factory will help the company bring its products to Iranian consumers at a good price. "Generally Iranians have a taste of high quality products, they like to have good quality, although there is also competition from local brands in Iran."
In terms of other challenges, Janho said there could be some resistance from consumers who see no reason to switch from the brands they are already buying, and client and supplier bargaining power. "These are the issues that we are anticipating, but generally the market should be favourable...there is growth there, and Iran has a young population - 65% of people are under 25 years old. If we have the right communication, locally and internationally we will get to the right audience." He added that he is also optimistic that Carrefour's entry into the Iranian market will give the country's retail sector extra impetus.
Ebru Şenel Erim, corporate communications and nutrition manager for Unilever in Turkey, which services the Iranian market, is also upbeat about prospects for the FMCG sector in the country. He points to the country's large population, which is close to 70 million people, as one reason the country has much potential. "Iran is a huge consumer market. For example, Iranians are some of the top tea consumers in the world, with an annual consumption of approximately 1.4 kg per capita," he said.
A number of Unilever brands are available in Iran, including Lipton tea, Lux soap, Signal and Close Up toothpaste, and Dove. Erim said that the personal care items are among the most popular Unilever products in Iran. Looking forward, Erim is also upbeat about the continued sales growth of Unilever's brands in the country. "Unilever is expecting a double-digit growth, both in volume and value in 2007," he said. "The trends are very positive at this point of time."
He added that Unilever will be promoting its Sunsilk and Clear brands aggressively in the coming year and that the company's brands are at different stages of maturity in the Iranian market.
Unilever distributes its products in Iran by using a combination of distributors and wholesalers across the country. The distributors either sell directly to the retailers or to wholesalers as Unilever International sends shipments to them, according to Erim. "Unilever is currently focusing on the revised ‘Route to Market' plan which involves distributing directly to wholesale and key accounts," he added.
Operating in Iran also brings challenges. "There are many challenges, like any other market," Erim said. Counterfeits, mainly coming from East Asian countries, and other Unilever products that enter Iran through the grey market, especially through the western borders, pose a particular problem. Raw material imported by competitors through illegal channels are also a problem, while laws and limitations, such as heavy duties paid on tea imports, also make business more difficult.