IRAN CASH & CARRYdata as well as the example of companies with proven track records.Realizing our vision does not take great imagination because opera-tions similar to ours already exist. We simply have the know-how andconviction that we can improve on what has already been created.In conclusion, we believe that we have discovered the new frontier forthe cash and carry business model. There is no opportunity that is morefeasible or promising than what we are proposing in this report. We cancall this opportunity a goldmine but that would be an understatement.There is some degree of uncertainty in the amount of gold in a mine,but the potential for the Iranian market has not only been accuratelyquantified, but has also proven to be reliable and lucrative. By 2035,Iran’s FMCG market will have grown to $235 billion. In the same time wehope to grow Iran Cash and Carry into a $6 billion business. This will be ahistoric journey that will change the course of an entire country’s FMCGindustry. We hope that you will join us for the ride. 51
I.R. IRAN’S FOREIGN INVESTMENT MANUALThe government of I.R. Iran welcomes foreign investments and urges all the foreign investors to attentivelyperuse Iran’s Foreign Investment Promotion and Protection Act (FIPPA) and its executive bylaws to knowtheir own rights and be informed of the facilities and protections they may enjoy as well as the legal obliga-tions and requirements caused by investing in Iran.In this manual, first the process of looking into the applications by foreign investors to the Investment Organ-ization of Iran is briefly discussed. Then, some articles from FIPPA and its bylaws, referring to guaranteesgiven to the investors, their rights, facilities granted, the protection extended as well as their commitmentsand obligations will be offered. The last section is devoted to entry and registration procedures for foreigninvestments once the investment permit is issued.1- The process of examining the applications by foreign investors to the investment organization of Iran upto permit issuanceThe foreign investors who would like to make investments in Iran within the framework of Iran’s ForeignInvestment Promotion and Protection Act (FIPPA), need to first fill out a special form (to be obtained eitherin person or on-line at www.oietai.ir ) and submit it to the organization. The application is presented by theInvestment Organization to the Foreign Investment Council and will be pursued until a permit is issued.Choosing the form depends on the type of the foreign investment and the agreement concluded betweenthe parties (domestic and foreign investors). The form has to be submitted in English except for when theinvestor is an Iranian expatriate or from Persian-speaking countries like Tajikistan or Afghanistan.2- Guarantees and protections:- Foreign Capital is guaranteed against nationalization and expropriation, and in such cases the ForeignInvestor shall be entitled to receive compensation (Article 9 of the FIPPA).- Should laws or government regulations lead to prohibition or cessation of approved financial agreementswithin the framework of this Act, then the government shall procure and pay the resulting damages (Article17 of the FIPPA & Article 26 of the bylaws).- The purchase of goods and producer services of the foreign investment is guaranteed in cases where astate-run organ is the only buyer or supplier of a product or producer service at a subsidized price (Article11 of the bylaws).Rights and facilities:- Foreign investments subject to this Act shall enjoy the same rights, protections and facilities available todomestic investments in a non-discriminatory manner (Article 8 of the FIPPA).- The Foreign Investment and its profits may be transferred in foreign currency or goods (Articles 13-18 ofthe FIPPA).- Acceptance of foreign investments in all the production, industrial, agricultural, transportation, commu-nications, and services fields as well as in fields related to water, power, and gas supply and energy fields- The possibility of the referral of investment-related disputes to international authorities (Article 19 of theFIPPA). 52
IRAN CASH & CARRY- The possibility of land ownership in the name of the company (registered in Iran) in joint ventures (Article 24 of thebylaws).- Issuance of visas for three years in Iran for foreign investors, managers, experts and their immediate family mem-bers and the possibility of visa renewals (Article 20 of the FIPPA & Article 35 of the bylaws).- The investors are notified of the final decision regarding their applications within at most 45 days (Article 6 ofFIPPA)- Having a choice to choose the investment method in the project as FDI or Foreign Investment in all sectors withinthe framework of “Civil Participation”, “Buy-Back” and “Build-Operate-Transfer” (BOT) schemes (Article 3 of FIPPA).- Acceptance of investments by any natural or legal non Iranian or Iranian person utilizing capital of foreign originand granting the facilities envisaged in FIPPA to them (Article 1 of FIPPA).- The foreign investor must choose an audit institute out of the audit institutes recognized by the Association of theOfficial Auditors of Iran to substantiate their financial and annual reports (Articles 1, 22-23 of the bylaws).3- Legal commitments and obligations of the investors- Applications of Foreign Investors in respect of issues such as admission, importation, utilization and repatriationof capital under the FIPPA shall be submitted to the Organization shall only be submitted to The Organization andfollowed up through it (Article 5 of FIPPA).- The Organization should be notified of any changes in the name, address, legal shape, or nationality of the foreigninvestor or of changes of more than 30% in his/her ownership (Article 33 of the bylaws).- It is necessary for the investor to notify the Organization of the transfer of all or part of his/her Foreign Capital toother investors. In case of transfer to another foreign investment, it is needed to obtain the approval of the Counciland the permits from the Organization (Article 10 of FIPPA).- All the applications of the foreign investor for transferring the profit, capital and the proceeds from the increase inthe capital value under FIPPA must be submitted to the Organization accompanied by the report of the audit insti-tute that is recognized by the Association of the Official Auditors of Iran (Articles 22-23 of the bylaws).- The investor is obligated to bring a portion of the capital into Iran to implement the approved project over the peri-od of time specified by the foreign investment license which is usually 6 months. Otherwise and in order to extendthe validity of the license and prevent it from being revoked, the investor is required to submit his/her reasons andjustifications for the delay to the Organization (Article 32 of the bylaws).- The foreign investor is required to announce the entry of its capital including cash and non-cash items to the Or-ganization within the framework of the license issued for the foreign investor so that they will be registered in theOrganization and subjected to FIPPA. Failure to register the entered capital is tantamount to not being covered bythe FIPPA. (Article 11 of the FIPPA & Article 24 of the bylaws)- The Iranians who intend to utilize capital of foreign origin in Iran and wish to be subjected to FIPPA must be in-volved an economic and trade activities abroad and need to submit the relevant documents to the Organization(Article 5 of the bylaws).- Acceptance of foreign investments in the existing Iranian enterprises and economic companies (purchase ofshares) is possible provide that added value is created in that economic unit after the purchase of shares.4- Other advantages and facilities:- Foreign investors can supply a portion of their capital from domestic and international sources as loans. Needlessto say, the borrower will have to guarantee the repayment of the loans received.- Foreign capitals can enter the country as cash currency, machinery and pieces of equipment, raw materials, tech-nical know-how, and other forms of intellectual property and they will be promoted and protected.- 80% of the incomes made by the producer and mineral units based in lesser developed zones will be exempt fromtax for 4 years.- 100% of the incomes made by the producer and mineral units based in lesser developed zones will be exemptedfrom tax for 10 years.- Tourist installations are exempt from annual tax for 50%.- 100% of the income generated by the exporting industrial and agricultural, conversion industries goods and theircompletion are exempt from tax.- 50% of the incomes generated by exporting goods aimed at developing the non-oil exportations are exempt fromtax.- 100% of the incomes generated by exporting transit goods are exempt from tax.- Re-investments made by cooperative and private companies aimed at developing, restoring and completing indus-trial and mineral units will be exempt from tax for 50% www.investiniran.ir 53
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Opportunities in Iran’s Consumer Goods MarketConsistently low oil prices and government plans to size to that of China and Brazil, with more than halfdiversify revenue streams have turned investors to- of Iranian households receiving income in excessward other sectors of the Iranian economy. One of of $20,000, much of which is disposable, especial-those to watch in the year ahead will be the consum- ly in Tehran where per capita consumer spendinger goods market. reached $4,700 in 2016, according to Planet Retail.Total value of trade in this area has risen sharply since Distributionthe nuclear deal was reached, but nowhere near to The consumer goods market in Iran has also longthat of its potential. However, it is important to note thrived off the internal distribution networks, whichthat even before the deal’s “Implementation Day” again were developed in previous generations. Oilon Jan. 16, 2016, Iran’s consumer goods market was price rises in the 1970s enabled major investment to-relatively well developed, supported by a strong re- wards modernizing Iran’s national transport system;tail and distribution infrastructure. Tehran became a key transport hub, with severalRecent developments will, therefore, now bene- terminals set up around the capital connecting it tofit from these pre-existing foundations, allowing for most major cities. These routes were later reinforcedmuch further and faster growth in the sector. during the Iran-Iraq war for food and military trans-Building on Pre-Existing Foundations portation, and now form the spine of Iran’s internalIran’s modern shopping spaces, for instance, were re- distribution network.invented in the aftermath of the Iraq-imposed 1980- In turn, this has aided the dramatic rise in e-com-88 war under the late Ayatollah Akbar Rafsanjani’s merce platforms such as Digikala, Iran’s own onlineurbanization plans. shopping site and the biggest of its kind in the MiddleHigh streets and shopping centers were at that time East with a total value of $150 million, employing 760expanded to boost supply of goods while curtailing people, and boasting a same-day delivery service inthe costs of distribution for controlling inflation. These Tehran. Digikala and its competitors have changedspaces are now commonly used among Iran’s pop- the way goods are delivered and they will be helpedulation of over 80 million, many of whom fall into the even further by plans to boost telecommunicationsurban middle-class bracket. networks in Iran, as seen last year when the govern-McKinsey Global Institute reported that in proportion- ment issued new 3G and 4G licenses to more mobileate terms, Iran boasts a “consuming class” double in broadband companies. 56
www.financialtribune.com IRAN CASH & CARRYShayan Saeidi Strategic LocationBusiness Development Iran’s strategic location has also been a traditional en-Manager at abler for trade, as it shares land borders with seven coun-Menas Associates tries, bridging South Asia with the Middle East and Turkey, and connecting the Caspian region to the Persian Gulf. Coupled again with recent developments--such as the warming of ties with Turkmenistan, Oman and Kuwait-this provides even further encouragement for the consumer goods market. It was for this reason that MMAS Eurasia Logistics, a Ger- man-based joint venture, announced earlier this month that it would provide international cargo transport ser- vices through Iran; and also why the Iranian port of Cha- bahar is now the focal point of a trilateral transit agree- ment with India and Afghanistan. It is, therefore, a good time for international companies to manufacture consumer goods in Iran for export across the region, which is helped by the fact that full foreign company ownership is permitted in Iranian law. Such moves would inevitably help address unemploy- ment in the country-MGI’s 2016 Iran report predicted that the fast-moving consumer goods sector alone would cre- ate an additional 850,000 jobs by 2035. Indeed, domestic brands dominate the consumer goods market and there is a desire to strengthen them further as part of the “Resistance Economy”—the concept aimed at promoting domestic production and reducing oil de- pendency, but foreign firms still have a role to play. The local consumer goods market is fragmented and not ful- ly modernized, particularly in supply chain management and R&D, so there remains a demand for international partners capable of transferring the relevant skills and technology. For instance, Arj Company, a famous Iranian home ap- pliances manufacturer, was forced to close last year due to inefficiencies and mismanagement, but efforts have been made, with the support of the Ministry of Industries, Mining and Trade, to attract investment from European firms to help turn things around. So while international companies should be mindful of Iran’s economic priori- ties, they can align with them and add value. Ultimately, Iran’s consumer goods market has for some while benefited from the country’s shopping spaces, dis- tribution networks and geographic location. Now with a sizable consuming class, e-commerce platforms and im- proving regional ties, it can truly flourish. Investors should also note that success in this sector could also pave the way for development in the more capital intensive area of the economy. In any case, the consum- er goods market should, like tourism, become an Iranian economic success story over the coming years, helping to create jobs and wealth, while offering considerable opportunities, both old and new. 57
Metro GroupFor the independent. And the versatile.At METRO Cash & Carry, we take our inspiration from the entrepreneurial spirit and the limitless energy ofindependent businesspeople.Our historyFounded in Mülheim an der Ruhr, Germany in 1964, METRO Cash & Carry’s concept was revolutionary at thetime: professional customers could select their own purchases all under one roof, pay for them in cash andtake the items with them. 50 years on, METRO Cash & Carry is now a leading international player in whole-sale trade with over 750 stores in 27 countries across Europe and Asia, serving about 21 million professionalcustomers with a broad range of products and customised services.1964 2012The first METRO wholesale store opens in Mülheim/ With annual sales of €31.6 billion and 743 locationsRuhr, Germany. in 29 countries, METRO Cash & Carry is the leading international player in wholesale. The expansion in1980 China is being accelerated with 12 new openings in one year, a record for the wholesale company.The right products in the right place at the right time:METRO Cash & Carry was one of the first wholesalers 2014in Germany to systematically manage its inventoryelectronically. METRO Cash & Carry celebrates its 50th birthday with its employees, clients and suppliers all over the world.1984 METRO Cash & Carry renews it commitment of being “Champion for Independent Business”.20 years after its formation, METRO Cash & Carry op-erates with more than 100 stores all over Europe.58
IRAN CASH & CARRYMETRO with strong like forlike sales growth in Q3 In the third quarter of 2016/17, METRO has shown a strong operational development with an in-crease in like-for-like sales by 2.6%. Total sales rose by 4.9% to €9.3 billion, benefiting from positive currency effects and the acquisition of Pro à Pro, the French food service distribution specialist. EBIT rose to €215 million compared to €68 million in the same period last year. EBIT before special items amounted to €230 million, compared to €239 million in the third quarter of 2015/16. The slight decrease is attributable in particular to higher real estate income in the previous year. Looking at the nine-month period, METRO’s like-for-like sales improved slightly by 0.5% compared to the previous year. Total sales rose by 1.9% to €27.9 billion. EBIT fell from €942 million to €720 million. The decline is primarily attributable to special items amounting to €120 million for restructuring measures at Real and METRO Wholesale, as well the capital gains from the disposal of METRO Cash & Carry Vietnam that were included in last years figures figures. As a result of higher real estate income and positive currency effects, EBIT before special items rose to €840 million compared to €741 million in the same period last year. “METRO has shown a strong operational development in the first quarter that we report on as an independent, stock listed company after the demerger of METRO GROUP. The sustain- able sales trend shows that we have become more relevant for our customers worldwide, a large proportion of which are restaurateurs. We have seen very strong sales increases, especially in the delivery business” says Olaf Koch, Chairman of the Management Board of METRO AG. “With an increase by 2.5% in like-for-like sales, the opera-tional development of Real is also very satisfactory. Online sales increased by 70%.” 59
as well as doubling the number of business develop- Turnover for the financial year 2015 amounted toment executives. £205.0 million compared to £174.5 million for 2014, anBestway Batleys Foodservice signed on new contracts increase of 17.5%. Profit before tax registered an in-including Accuro Catering, Warwickshire Colleges and crease of 19.9% from £56.9 million in 2014 to £68.2 mil-East Lancashire & Birmingham NHS hospitals. We were lion for the year to 30 June 2015. This is attributable toalso re-awarded two 4-year contracts worth over £24 the increased economies of scale and synergies gen-million. erated through the acquisition of Pakcem as well asLast year we became the first wholesaler to introduce our continued focus on cost control.a fully functional mobile app. In a year, the app has During the financial year, the cement business settledbeen downloaded over 12,000 times. Net sales from in full the £14.2 million of debt it had outstanding at 30the app during the year averaged £2 million per June 2014. During the year, BCL took on debt of £182.0month. We also introduced i-beacon technology in million in order to complete the acquisition of Pakcem.our depots that transmits promotional offers to custom- During the year, BCL installed a 7.5 MW and 6.0 MWers’ smart phones as they shop in the depot. At our Ab- Waste Heat Recovery Power Plant (WHRPP) at Hat-bey Road Depot we have become the first wholesaler tar plant and Farooqia plant respectively. The Hattarto introduce Apple Pay which allows our customers to WHRPP became fully operational in May 2015 andpay using their iPhone or iWatch. Farooqia’s power plant became operational in JuneDuring the year we completed the installation of 12 2015. We also signed a contract for a 12MW WHRPP atdedicated world food hubs in the depots that serve the newly acquired Pakcem plant and this is currentlymulticultural communities. We also created a multiple under construction. The plant is estimated to cost £9.5account division within Bestway Direct to service the million and is expected to come online by March 2017.supply requirements of multi-site forecourt and conve- The investments in WHRPPs are part of our continuednience operators. In order to facilitate our customers strategy to reduce our reliance on the national gridand improve their cash flows, we removed all charges as well as to reduce the environmental impact of ourfor credit card transactions and delivery surcharges. operations through the reduction of carbon emissions.This underlines Bestway’s commitment to the whole- This will reduce our cost of production and we shall besale sector and reiterates the Group’s mission of “Build- able to enjoy financial benefits in future years.ing Business for the Independents”. For the year ended 30 June 2015, the BCL declared a combined dividend of 10 PKR per share compared toCement Manufacturing a 7.5 PKR per share dividend last year.In July 2014, Bestway Cement Limited (BCL) entered Bankinginto a binding agreement to acquire Pakcem and on22nd April 2015, BCL completed the transaction and UBL’s total assets at 30 June 2015 were £9.0 billion asassumed management control of the company af- compared to £6.9 billion for the corresponding periodter a public tender. Pakcem’s plant has a production last year, an increase of 30%. UBL’s deposit base grewcapacity of 2.4 million tonnes per year. Consequently, by 20% to £6.6 billion for the year to 30 June 2015.BCL has now become the largest cement manufac- UBL’s profit before tax recognised in the Group’s ac-turer in Pakistan with an annual capacity of 8 million counts during the period under review increased fromtonnes. £163.9 million in 2014 to £300.6 million, an increase ofRecently, there has been a shift in market dynamics 83.4%. This increase has largely been due to a changewith domestic demand continuing to exhibit strong in accounting methodology as UBL has now been re-growth, while the export market has declined due to flected as a subsidiary for the full year, whereas in theless activity in Afghanistan and the imposition of import prior year it was accounted for as an associate for 6levies in certain economies. months and as a subsidiary for 6 months. On a like forConsequently, BCL’s domestic despatches increased like basis UBL’s profit before tax increased by 39.7% toby 15.4% to 4.1 million tonnes from 3.5 million tonnes £300.6 million in 2015 from £215.2 million in 2014.in 2014, with like for like sales up by 7.8%. Export des- UBL was able to increase its like for like net interest in-patches decreased by 7.9% to 772 thousand tonnes in come by 27.1% from £277.1 million in 2014 to £352.12015 as compared to 838 thousand tonnes in 2014. De- million in 2015. Critically, UBL was also able to deliverspite a decrease in exports to Afghanistan, we were an increased focus on non-financial income whichable to maintain our position as the largest exporter of grew, like for like, by 25.8% from £131.5 million in 2014cement to Afghanistan. to £165.4 million in 2015.During the financial year BCL consolidated despatch- During the year UBL’s operation in Tanzania continuedes increased by 10.9% to 4.9 million tonnes from 4.4 mil- to perform well and has started to make a positivelion tonnes in the corresponding period last year. The contribution to the group after being opened in Junestrong despatches performance is due to domestic 2013. This is a significant milestone and presents an op-demand and due to the recognition of despatches portunity for UBL to increase its presence in the region.from the acquisition of Pakcem for the two months to The Pakistani banking market has started to witnessJune 2015. increased pressure on net interest margins as a result 60
IRAN CASH & CARRYof the State Bank of Pakistan’s policy of reducing in- Pharmacyterest rates. There is a clear indication that this margincompression will continue going forward as inflation The acquisition of Well Pharmacy for £641.3 million washas been on a downward trend. Consequently, there completed in October 2014. The Group had beenhas been an increased focus on diversifying income searching for a target that was asset backed, in a de-streams into non-interest derived income to better fensive sector which generated stable cashflows andcounteract any changes to margin spreads. Well Pharmacy met these criteria.UBL continues to pursue its goal of financial inclusion. Turnover of the pharmacy business for the 9 monthsDuring the financial year UBL has grown its Omni di- ended June 2015 slightly exceeded expectations atvision of the bank, which provides communities with £583.0 million, with profit before tax of £14.6 million.branchless banking. This is a major milestone in the The main focus since acquisition has been separatingevolution of banking that will reshape the tradition- the business from The Co-operative Group, such that ital banking model by offering basic banking services is a fully standalone business, as well as re branding allacross urban and rural Pakistan, well beyond the reg- 795 pharmacy branches under the new name “Wellular branch networks. UBL is the largest supplier of this Pharmacy”. This rebranding exercise was completedservice in Pakistan with over 36,800 agents, an increase in October 2015. The majority of the separation pro-of 15,100 agents on the prior year. cess has been completed and we expect final sep-The Group also remains committed to Khushhali aration activities to be completed by the end of De-Bank, the largest micro-finance institution in Pakistan, cember 2015, thus ensuring we have a strong platformwhich UBL had invested in June 2012. Khushhali Bank to execute our future growth strategy. During the yearincreased its deposits by 35.4% from £41.3 million at £5.9 million has been invested in separating and re-December 2013 to £55.9 million at December 2014. structuring the business post-acquisition.Khushhali Bank also grew its loan portfolio by 54.0% A further £1.6 million was invested into establishing ato £78.0 million over the same period. Khushhali Bank new headquarter for Well Pharmacy in Manchester,contributed profit before tax of £7.1 million in the year relocating 227 colleagues. The new office was inaugu-to 30 June 2015, compared to £4.0 million in the year rated by The Chancellor, George Osborne in Octoberto 30 June 2014. 2015. 61
www.igd.com IGD is a research and training charity. Date : 16 June 2015UK grocery retailingWhat is the size of the UK grocery market?IGD expects the UK grocery market to be worth £179.1bn in 2016, an increase of 0.6% on 2015We forecast that the UK grocery market value will be worth £196.9bn in 2021, a 9.9% increase on 2016The grocery market accounts for 50.2p in every £1 of UK retail salesWhat is the size of the UK grocery market? Source: IGD UK Channel Opportunities: UK market and channel forecasts 2016 - 2021 62
IRAN CASH & CARRY What channels make up the UK grocery market? Source: IGD UK Channel opportunities: UK market and channel forecasts 2016-2021Hypermarkets: Large format stores that sell a full range of grocery items and a substan-tial non-food range. Sales areas are typically 60,000 sq ft+Supermarkets: Defined as food-focused stores with sales areas of between 3,000 and60,000 sq ftConvenience stores: Stores with a sales area of less than 3,000 sq ft, which are open forlong hours and sell products from at least seven grocery categories. Includes standaloneforecourts with convenience storesDiscounters: Includes all sales through food discounters Aldi, Lidl and Netto and the gro-cery sales of the high street discounters such as Poundland and B&MOther retailers: Includes stores with a sales area of less than 3,000 sq ft, typicallynewsagents, off-licences, some forecourts and food specialists, such as butchers and bak-eries. This channel also includes the grocery sales of predominantly non-food retailers suchas department storesOnline: Internet orders placed at grocers and online food specialists for home deliveryand customer collectionMarket data includes VAT and excludes fuel sales. All data is for calendar years. 63
FMCGs and Typical Retailing www.financialtribune.com Tuesday, June 2016 ,28ow can a brand sell to a shop packed to the roof and without an order? A top manager of a mul-tinational producer of personal care products thinks when entering a ‘baqali’, a traditional Iraniangrocery store to explore the pulse of the market.“The ability to sell and distribute to more than 100,000 small stores is a tremendous asset and an advan-tage in the fight for market share. It constitutes a formidable entry barrier for newly arriving internation-al competitors” says a sales director of an Iranian dairy products producer to CERTIUS, a Tehran-basedconsultancy. He does not want to be named.These two statements sum up what the idiosyncratic structure of Iran’s grocery business means todifferent people: a barrier to market entry, a challenge to overcome in order to have a chance tosucceed, and an opportunity to leverage competitive advantage and discourage rivals.The following is part of a recent survey CERTIUS has shared with Financial Tribune in an email.What retail structure is this and which challenges does it really pose to fast-moving-consumer-goodscompanies? The structure of Iranian retailing is highly fragmented with huge numbers of independentstores and this is something which many western companies find difficult to cope with. 64
IRAN CASH & CARRYThe question many companies ask is how to sell and distribute to as much as300,000 small stores and vendors. Shops are small – the average store size of agrocery store is 48sqm – and therefore shelves are crammed with products with-out much order and without paying heed to what producers call the “picture ofsuccess”, the blueprint of how to organize shelves and display brands in an ap-pealing way to maximize sales and improve shelf productivity.Retailing Dominated by Traditional TradeMore than 90% of all grocery sales is done by an estimated 300,000 small and inde- 175,000pendent stores, commonly called “traditional trade”. Barely 8.5% of total marketsales go through hypermarkets, supermarkets and discounters – organized chain The 300,000stores and “modern trade” formats which in western countries have become the traditionalnorm during the last 70 years but of which Iran boasts only about 800 stores. trade storesThe 300,000 traditional trade stores include 175,000 small grocers and 118,000 include 175,000specialized stores, such as kiosks, bakeries, protein stores and the like. So the first small grocerschallenge is how to reach these vast numbers of stores. Western manufacturers and 118,000who are used to highly concentrated trade structures find it difficult to get their specializedproducts cost-efficiently into so many stores, unless they are used to selling in a stores, such astraditional trade environment which is prevalent in countries like Mexico or Russia. kiosks, bakeries,Due to their limited size and space and equally tiny storage areas the typical protein storestraditional trade store carries a limited assortment which reduces FMCG brands’ and the like.chances to present an appropriate choice of variants and formats of their prod-ucts.Iranian shopkeepers normally seek to augment the efficiency of their stores bycramming in as many items as possible, which runs counter to modern conceptsof shelf productivity.Those products are then arranged in a way which maximizes the customers’shopping list. In other words, optimal product presentation serves to maximize thevolume or value of sales and by extension increases productivity of the retailerand the manufacturer.Modern Trade, Challenge for FMCGsModern trade is a wholly different story. Iran’s modern trade sector which ac-counts for 8.5 % of total grocery sales but is growing fast, is dominated by threemain formats: hypermarkets, currently 12 stores in Iran; 438 supermarkets and 328discount stores. While some enjoy extremely high store productivity, a dramaticshift of market share from traditional to modern is not expected in the midterm.Government policy, high property prices/rents and deeply entrenched shoppinghabits result demonstrate in no uncertain terms that if and when change comesit will be rather slow and unlike the rise of modern trade in central and easternEurope in the 1990s.Selling profitably to modern trade is the subject of skill, technique and abilitymany, if not most, Iranian producers of FMCGs lack. Frequent complaints thatselling to modern trade is “expensive” because they ask for high discounts andlong payment terms are indeed a testimony to many local manufacturers’ lackof knowledge and sales tools.Iranian producers’ success in the new age of cut-throat competition dependson acquiring and improving the relevant skills and capabilities and correctly un-derstanding the tools of foreign rivals by analyzing and implementing the bestsales practices. The process of attracting the much-needed foreign investmentwill bear fruit if and when foreign brands learn how to navigate the intricacies ofthe Iranian retail structure. Both tasks, though not without huge challenges, areobviously difficult but not impossible. 65
largest Consumer GoodsFMCG firms of the globe $561billion According to the following article, the top 10 global FMCG companies have a combined sales volume of $561 billion. It is interesting to note that of the 10 top global FMCG companies, Néstlé (the number 1 company in FMCG sales) enjoys $100 billion in annual turnover, which is greater than all of Iran’s exports put together.Nestlé, Procter & Gamble and PepsiCo are the world’s largest FMCG companies, reveals marketanalysis by OC&C Strategy Consultants. The top five is completed by Netherlands-based Unile-ver and Brazilian giant JBS. Combined the globe’s top 50 Consumer Goods suppliers earned astaggering $1,177 billion in income in 2014, up 1.7% vis a vis the previous year, yet beneath thesurface lie a number of fundamental challenges for the years ahead.Every year OC&C Strategy Consultants, a management consultancy with a focus on amongstothers the FMCG / Consumer Goods sector, conducts research into the key developments ofthe top 50 players in the industry. The ranking, titled ‘Global 50 FMCG Giants’, looks into finan-cials such as sales, revenue growth and EBIT margins, as well as underlying fundamentals andmetrics.The 2015-edition of the ranking shows that once again Nestlé can call itself the undisputed num-ber one in the FMCG marketplace, bagging in $100.2 billion in sales, on the back of 0.8% growth.Despite the flattering impact of a strengthening Swiss franc and other currency headwinds, theSwitzerland-based firm made impressive gains, booking organic growth (and volumes general-ly), particularly in China. US giants Procter & Gamble and PepsiCo complete the top three, thelatter leading Unilever – which faced a 2.7% decline in its sales – with a small margin.The top 10 includes three fast growing FMCG companies – Brazilian JBS (+18%), AB InBev andTyson Foods, the latter two both just missing out on double-digit growth. Coca-Cola Companydrops two places to #7 globally, while US-based Mondelez and Archer Daniels Midland com-plete the top 10.The first non-Western conglomerate on the list is the Chinese WH Group, which entered theranking for the first time at #17, thrusted by a staggering 98% growth rate. The positions between11 and 20 show relatively little variance, with French-origin L’Oréal moving one spot up to11th ,displacing Phillip Morris International, the new number #12. Danone, Heineken, British AmericanTobacco, Japan Tobacco and Kraft all maintain their positions in comparison to the previousyear, while General Mills (#19) and Altria Group (#20) managed to move up one and two spotsrespectively. 66
IRAN CASH & CARRYBy utilizing just 40% of its capacity Iran has reached annual sales of $55 billion 91,8%and exports just $2 billion of the cited amount in the fast-moving consumergoods sector. This means that if Iran were to utilize its all of its capacity for man- of FMCGufacturing FMCG goods it would be able to raise sales by $120 billion. If even products area small portion of the under-utilized capacity were to be used, Iran would be sold in theseable to stock-up on foreign currencies, replenish its dwindling reserves, and so calledmost importantly wean itself off of a heavy reliance on the petrochemical and “traditionalgas industries. shops”If Iran is to transition from a country that consumes consumer goods to one thatexports them, it is necessary for the private and public sectors to work togeth-er in heretofore unprecedented ways. Iran can become an export-orientednation only with: a greater understanding of opportunities, better planning,and a revolution in the manner in which those responsible conduct business.Reaching this goal requires that those in positions of power think long-term,change their strategies and attitudes towards international trade and workmore diligently to securing an international trade platform for Iran.Here are the main drivers for FMCG market growth in Iran:A high rate of urbanization, according to Iran Census 2016 urban populationis growing More women are in work than before, which is an important reasonthat the consumption of fast food, pre-packaged food, processed foods haveraised.Expansion of retail channels and chain stores. The main channel to sell theproducts in Iran market are retail shops. 91,8% of FMCG products are sold inthese so called “traditional shops” and only 8,2% of their total sale is in mod-ern stores- chain stores. But the number of chain stores and hyper markets isincreasing very fast, thanks to the recent international investments. 67
+Iran could soon joinEuroasian Economic Union(EEU) Mehr News Agency 10 March 2018“The Russia-led Eurasian Economic Union (EEU) could welcome Iran as a new member inMay,” Russia’s Energy Minister Aleksandr Novak was quoted as saying by the Russian RussiaToday (RT).“The move to enter into a temporary agreement making for a free trade zone to be setup between Iran and the Eurasian Economic Union, which is currently at an advancedstage, will obviously trigger further development of our bilateral trade and expansion ofinvestment cooperation,” said Novak, who is also co-head of the Russian-Iranian intergov-ernmental commission.The RT report went on to add that Iran’s Ambassador to Russia Mehdi Sanaei had told an-other Russian news outlet TASS earlier that work on a free-trade zone agreement betweenthe sides that started in 2015 was close to completion.A trade bloc established in 2015, the EEU is based on the Customs Union of Russia, Kazakh-stan, and Belarus. It was later joined by Armenia and Kyrgyzstan. The union is designedto ensure the free movement of goods, services, capital and workers between membercountries. 68
IRAN CASH & CARRYWhat is thecash and carrybusiness model?Companies using the cash and carry business model aremodern wholesalers around the globe that differentiatethemselves in the following four characteristics:1. Cash and carry companies are FMCG wholesalers thatare B2B (business to business) oriented and require custom-ers to visit their branches in order to make purchases. Thewholesalers themselves do not deliver goods door-to-door.2. Customers purchase products in bulk on a cash-only basis3.Customers have a range of several thousand sku to choosefrom.4. Prices at cash and carry centers are lower than DistributorsThe main customers of cash and carry are independentBusiness people.Metro group has Bestway has Today’s Group achieved 58 achieved 2.17 has achieved 5.7 billion Euros in billion Pounds in billion Pounds in annual sales with annual sales withannual sales with 62 branches all 160 branches all 759 branches in over the United over the world. 23 countries Kingdom 5/7 billion58 billion 2/17 billion Pound Euros Pound 69
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