Iran’s grocery market offers one of the most promising opportunities for foreign retailers entering the post-sanctions economy, but competition among local operators is already fierce.
Iran offers a population of 80mn people, with an average age hovering around 30 years old, who are hungry for convenience shopping, wider choice, better quality and competitive prices.
Over the past decade grocery shopping has become one of the clear growth areas of Iran’s fast-moving-consumer-goods (FMCG) sector and is now estimated to be worth around $80bn, according to Iran’s Vistar Business Monitor.
There is a lot of potential to grow market share because the sector remains dominated by small independent retailers. According to recent numbers from the Statistical Centre of Iran, some 90% of all grocery sales continue to be done by the country’s 300,00 independent retailers.
The only existing foreign food retailer in the country is owned by France’s Carrefour, which through a joint venture created the local chain HyperStar more than 10 years ago. However, that chain, although offering international levels of supermarket service and quality, operates just nine stores across Iran as of last year.
A person close to the company told bne IntelliNews that their market strategy is to continue to build large box stores and smaller integrated mall versions across the country. “They want to continue on this path, not like their Iranian competitors who are at war with each other.”
Those Iranian-owned food stores include brands such as Ofogh Koorosh (OK), Canbo and Haft, which are all funded by large Iranian investment groups. In the case of OK, which is owned by Iran’s well-known Golrang Industrial group, 60% of their products for sale are their own brands such as Golrang, Ave, Familia, Merci and Merident, to name a few.
By selling local brands – foreign products outnumber local products 10-to-1 – and especially their own brands, these local retailers can drive down prices.
This hard discounter style has paid dividends as Iran’s shoppers still lack spending power. Average household expenditure in Iran is around €750 per month, while in Tehran it is €1,000 per month, according to figures released by the Central Bank of Iran.
Iranian-owned hard discounters now make up the biggest combined share of stores across the country. Speaking about Ofogh Koorosh, one business analyst says: “OK’s growth is phenomenal, considering they started in 2009. They are opening one store per week.”
He added that they intend to open 4,000 stores across the country over the next few years. “Because they own more than half the supply chain, their overheads are lower than much of the competition,” he says.
Canbo, another hard discounter, intends to open a further 300 stores through 2017. Like OK, it rents central locations with high footfall in Tehran and other cities.
Etka, Iran’s oldest chain store, has not been opening stores at the rate of the new discounters, but it already operates more than 500 large supermarkets across Iran.
The chain, which started in 1955 under the former Pahlavi regime, is still owned by the Iranian armed forces and has some of the most enviable central locations. It offers significant discounts for army families and other government workers across their network of stores.
As the market continues to grow another foreign supermarket chain is now looking to enter the fray.
Turkey’s Bim is considering entering the Iranian market with its own basic supermarket model.
BIM has more than 5,400 stores in Turkey, 190 stores in Egypt and another 319 stores in Morocco as of end-September last year. It builds standalone stores with parking, but it may struggle with the high cost of real estate in many Iranian cities.
“The board of directors decided that with the purpose of determining the opportunities and investment potential in the retail market of Iran, the executive committee shall be granted authorisation to initiate marketing research studies and to follow the entire process including opening stores when needed,” BIM said in its bourse filing on February 6.