TBY talks to Ziya Domanic, Managing Director of Unilever Iran.
TBY Why is Iran such an attractive place for Unilever?
ZIYA DOMANIC A country with a population of over 70 million, more than half of which are below the age of 30 and with €12,000 per capita in income is attractive for any FMCG (fast-moving consumer goods) company. The Iranian consumer is well educated, open to innovations, and willing to pay a premium for quality. Partly due to transport and import duties, our products are sold at almost twice the price of their local equivalents in the market. Nevertheless, we have sustainable and profitable growth thanks to the quality awareness of the Iranian consumer. I travel around Iran continuously and see that our products are well placed on the shelves of retailers, even in remote and relatively small cities and towns. Iran gives us the opportunity to enjoy high levels of business growth that do not exist in the Western world anymore.
Iran is a vast country. Are there any challenges facing your distribution network?
Finding the right distribution model is indeed a big challenge. However, Iran offers many opportunities in this respect. Having been on the Silk Road for centuries, the Iranians are excellent traders. Between 2001 and 2007, the single distributor model did not prove to be the best one for Unilever, which was one of the reasons for the lack of growth and profitability. At the end of 2007, after spending plenty of time around the country listening to hundreds of shop owners and traders, we decided to move towards an exclusive regional distributor model. This was the most important factor in the turnaround of the business to sustainable and profitable growth. We now have mutual trust and understanding with our 28 distributors around the country, and they help deliver us high double-digit growth year after year.
Iran is seeing a slow move from independent outlets to retail chains. What is the extent of this change and how will it affect business?
The move is very slow. It will definitely affect our business positively, but it is likely to take much longer than in other comparable markets. The pace of growth will be nothing like we have seen in Turkey, Kazakhstan, or Azerbaijan. One reason for this is the very well-established cooperatives that are not really profit-oriented. These discourage entries into the sector. Secondly, there are small groceries with a very wide portfolio scattered around each city offering a convenient and friendly shopping alternative to the distant large chains. In any case, we have global expertise that will enable us to succeed in any trading structure, be it traditional or modern.
Will there be a price differential for your products sold in retail chains, as smaller shops sometimes allow for higher margins?
That is the name of the game; if you are a bigger customer you ask for more benefits. That is natural. So here also, the terms of the big chains are different from the single local shops. We visit some 40,000 of these, and this requires far more resources than if we covered a few hundred points only.
Which income groups in Iran are your primary targets?
The middle to upper income segments, as anything else would not be realistic because there are many low-priced local alternatives to our products that appeal to other income segments.
What are some of the results you have obtained through consumer research?
We do this research in many categories. People are very willing to participate and are open, so we have no problems with that. People are receptive to having us come into their homes and contribute to our research.
How did your turnover change over the last three years, since 2008?
From 2008 to 2010 we nearly tripled our business, growing around 2.7 times. In other words, turnover in 2010 is close to three times that of 2008. In terms of profitability, in 2008 we were operating at a loss, but this year we will report about an 8% profit before tax. Changing the way we reached our customers was the key enabler. It was like opening a clogged pipe.
Another important part of the FMCG sector is marketing. What do you think of the marketing alternatives in Iran for brand support?
The means of supporting your product are somewhat limited in Iran. Local television is very expensive, at least for us. So we use magazines, billboards, and buses. We also have billboards on the metro, and employ in-store advertisements. We spend considerable amounts for in-store presence like stands, banners, and shelf buying.
The limited alternatives can create problems when launching new products that require consumer education. One such case is Domestos, where we found it difficult to convey the “hygiene platform” message without using TV.
How would you characterize doing business in Iran?
Iran has a much better social and business environment than is perceived from outside. People are very friendly and hospitable. Trade is lively. Doing business in a different culture and communicating with second languages is likely to create problems in any country, which is valid also for Iran. Communication should be clear and cover details and be mutually agreed and endorsed. You have to know the rules of the game, and the rules and laws of the country. Once confidence is installed, it lasts. That has been our experience here. Finally, you cannot name too many countries with such a population, both in terms of size and an open mind to innovations, sitting on the third largest oil reserves and second largest gas reserves in the world.
What are the sources of your import challenges? For instance, is the bureaucracy or are high tariffs problematic?
I think the source of the challenge is the sensitivity of the government to ensure that Iranian consumers are not exposed to low-quality or unhealthy products. We understand and respect this. However, although consistently and fairly applied, this process takes significantly longer than anywhere else in the world where we have experience.
But once you begin importing, the obstacles you face are fewer?
Definitely. However even if you have a slight change in formulation, you would repeat half of the process. So we have to be careful and make sure we keep our stocks high.
Would it be easier to come here to produce?
Overall, it is better to produce here in the country if you come close to the scale that makes it feasible. There is cheap energy and a skilled labor force. We are very much committed to Iran, and are giving all the support we can to grow in our categories. Being a local producer we are very aware that we cannot grow at the rate we want through imports alone, and so we will extend our production in the near future, within the next couple of years.
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