CERTIUS HOW TO SELL FMCG IN IRAN

How to Sell FMCG in Iran Sales and In Store Activation June 2016

THE IRANIAN GROCERY RETAIL IS DOMINATED BY TRADITIONAL TRADE 300,000 Traditional Trade outlets 800 Modern Trade stores 91.5% of total market sales value 8.5% of total market sales value Source: Euromonitor

THE STORE UNIVERSE IS HUGE AND HIGHLY FRAGMENTED Small Food/ Hypermarkets Discounters Grocers Drink/ (12) (328) (175,825) Tobacco Specialists (117,814) Other Grocery Supermarkets Coops Retailers (438) (19) (4,537) Total Traditional Trade outlets Total Modern Trade outlets ≈ 300,000 ≈ 800 Source: Euromonitor & Certius

KEY FACTS ABOUT TRADITIONAL TRADE SHOPS SHOPPER Small stores - average 48 m2 Daily shopping trips sales area Often follow shop keeper’s Limited assortment depth and recommendation crowded shelves SHOP KEEPER POS Is main decider and influences shopper decisions Chaotic shelf layout and brand presentation Decides based on margin and payment terms POSM limited due to space restrictions Brands mostly run push-in discount promos Difficult to run sell-out consumer promotions Source: Certius

KEY FACTS ABOUT MODERN TRADE The three main MT shop formats in Iran are hypermarkets, supermarkets and discounters Hypermarkets Supermarkets Discount •  Main player Hyperstar •  Key player Refah •  Key player Shahrvand •  Key player Ofogh Koorosh (Carrefour) •  Owner: government owned •  Owner: Tehran Municipality •  Owner: Golrang Industrial •  Market share in MT: 13,3 % •  Owner: Majid Al Futtaim banks •  Branches: 32 Group Hypermarkets LLC •  Market share in MT: 20.5 % •  Branches: 215 branches •  Branches: 277 •  Market share in MT: 22.9 % •  Branches: 5 Source: Euromonitor & Certius

THE TWO MAIN CHALLENGES FOR BRANDS ARE ACHIEVING COVERAGE AND MANAGING THE POS Coverage •  Difficult to have high coverage due to huge number of outlets and geography (wide distances, dispersed rural shop universe) •  High distribution costs •  Biggest Iranian Distributors cover a part of the universe Golpakhsh Aval: 145,000 outlets Sayesaman: 120,000 outlets Daya Group: 102,000 outlets Golestan: 100,000 outlets Brand •  Small sized stores, crammed shelves, Activation at uncooperative shop keepers and the big number of stores make it difficult to properly the POS activate brands at the POS •  This results in low brand visibility, lack of impulse triggers, and difficulties in running sell-out promotions to shoppers Source: Euromonitor & Certius

TO ACHIEVE ADEQUATE COVERAGE FMCG PRODUCERS FOLLOW FOUR DIFFERENT ROUTE-TO-MARKET MODELS General Distributer Third Party Distribution Mixed Direct DISTRIBUTOR PRINCIPAL PRINCIPAL PRINCIPAL Sub- Local Distributors Distributors Local Local Distributors Wholesalers Wholesalers Wholesalers MT only Local Wholesalers Outlets (Modern Trade, Traditional Trade, Discounters, Food/Drink/Tobacco, Horeca etc.) Source: Certius

THE MODELS DIFFER REGARDING REQUIRED RESOURCES AND CONTROL OVER OPERTIONS SALES & DISTRIBUTION STRENGHTS WEAKNESSES EXAMPLES National •  Simple, fast •  Little control distributer •  Dependence/risk/conflict •  Tight control TPD ¹) •  Low investment management Mixed except for training •  Local knowledge needed and monitoring •  Own structure and resources Direct on the ground needed Source: Certius •  Transparency can be an issue •  Difficult to drive sales at required speed and intensity •  Tight control •  Local knowledge needed •  National alignment •  Substantial structure & •  Wide coverage resources on the ground •  Full control needed •  Local knowledge needed •  Substantial structure & resources on the ground needed 1) Third Party Distribution

THERE ARE SIMPLE RULES AND TOOLS TO ACTIVATE BRANDS WELL ON THE POS Sound understanding Trade Terms Category plan Visibility •  Understand the shopper •  Competitive margin •  Must-stock-SKU list per •  Shelf rental, fridges •  Understand the •  Competitive commercial customer class •  Shelf devices shopkeeper terms •  Simple planogram •  TT adequate in-store •  Merchandising in stores displays •  Sales incentives tied to •  Promoters in A customers category plan specifics •  Sales incentives tied to visibility Source: Certius

SUCCESS DEPENDS ON CHOOSING THE RIGHT PARTNER AND EVOLVING YOUR RTM MODEL OVER TIME Clarify business Define clear market Sales and Choose adequate ambition & entry strategy distribution RTM model strategies strategic objective Deploy needed Agree business Monitor execution Adapt or change resources: KPIs & Service via KPIs RTM model Level Agreement according to your partner/ distributor and your evolving business strategy and own structure market conditions Source: Certius

SUMMARY •  The Iranian retail universe for FMCG is highly fragmented and complex. •  Brands face two key challenges (among many others): •  How to achieve sufficient coverage (numeric distribution) •  How to activate brands on the point of sale to generate sell out •  There are four basic route-to-market models which require differing levels of over resources and capabilities and which in turn convey varying levels of control the sales and distribution operation. •  sTthraetecghioeisc.e of the right RTM model must be routed in a clear business vision and •  Some simple tools are at producers’ disposition in order to activate brands at the POS. The main challenge is getting execution right within the limitations of your RTM model. •  Evolve your sales & distribution approach and change your RTM model as your gbeunsienreasl sdiasmtribbiutitoonr aanndd emnadrkuept cwoitnhdyitoiounrsocwhnandgiree.ctYsoaulemsig&hdt iesntrtiebruItrioann swyisthteam.

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