Focus: FMCG

Fresh Start

Fresh Start

May. 14, 2013

Originally served as cold juice poured over snow and mixed with rose water and saffron, the roots of modern-day ice cream were established centuries ago in the Persian Empire. As the popularity of bazaars and local shops fades away against the backdrop of the growing global FMCG industry, international companies have sought ways to build upon what Iran does best in terms of foodstuffs and home and personal care.

Through the company's research about, and customization of, local products, Ziya Domaniç, Managing Director of Unilever Central Asia and Iran, sees a perfect opportunity for expansion. “Three or four local companies produce delicious ice cream at unbelievably low prices, and we are considering partnerships or acquisitions with these companies," he told TBY, adding that “the food segment here is much more advanced than anywhere in the region." In 2012, Unilever will also focus on supplying the demand for goods that are not traditionally produced locally, but have become popular as market awareness rises.

Expanding production capacity has led FMCG companies to not only meet this local demand but also begin exporting internationally to a wider consumer base. As one of Iran's main products for export, foodstuffs accounted for $1 billion worth of trade in 2010, amounting to a total of 600,000 tons, compared to the $736 million of products exported in 2007. Among them, soft drinks, mineral water, biscuits, chocolate, confectionary, edible oil, dairy, dried fruits, jam, pasta, fruit juice, and yeast were among the most in demand.

As a partner of Danone, drinking-water company Damavand is a testament to growth in the FMCG sector, registering 10%-15% growth annually for the past three years. Taking advantage of the country's well-known natural resources, the company enjoys excellent brand awareness. “The water comes from the mountains and has many positive attributes," General Manager of Damavand, Vincent Larnaud, explained to TBY. “When you go to a consumer and ask for a mineral water brand, 92% or 93% of them spontaneously say Damavand," he added. Danone also partnered with local milk powder producer Nutricia-MMP to turn an otherwise small player into a strategic company, which now exports 20% of its products to the wider region.

For companies starting fresh in the market, such as beverage company Aujan, success has come as a by-product of filling a market gap at the right time. Noting that the fruit drink supply was limited, Aujan entered the Iranian market at the turn of the century and quickly rose to its current status as a household name. With recent government regulations expected to further support the industry, the company foresees 2013 to be a very “rewarding" year, CEO Mehdi Jeddi told TBY.

Home and personal care products have also seen increased levels of demand as well-known international brands become more popular on the local market. Unilever's 28 distributors and over 65,000 retail stores in Iran drive the home and personal care market, with sales propelled by the popularity of oils, deodorants, and hair care. Marked by 50% growth in sales on a yearly basis, the demand for high-quality goods has been spurred by Unilever's aggressive promotional campaign. “Our support budget in 2012 was €15 million," Unilever's Domaniç explained to TBY. “We are here after growth and we will spend as much as is necessary to establish our brands; growth is our priority, while profitability will come later." Following the same trend, Turkish home care company Pars Hayat has committed to producing 60,000 tons of tissue paper for the Iranian market, coupled with investments totaling €100 million since the company launched operations.

Since 2009, retail in Iran has seen major changes, especially in the grocery segment. After the unsuccessful introduction of hypermarkets by the Iranian government during the 1990s, the authorities launched a reform geared toward attracting foreign and private investment. Consequently, key urban areas in Iran saw the sudden growth of supermarkets supported by a huge volume of imports. The launch of the first multinational hypermarket in Tehran marked a major breakthrough for the modernization of FMCGs in Iran.

In terms of local FMCG distributors, Behpakhsh Co., Golrang Pakhsh, and Ghasem Iran have become the largest domestic companies in the sector. Ghasem provides goods for more than 80,000 retailers domestically and abroad, some of which are located in Afghanistan and Iraq. However, demand for Iranian-made consumer goods is present beyond the country's neighbors: Ukraine, Russia, Saudi Arabia, the UAE, Germany, Spain, the Netherlands, France, Canada, Venezuela, Japan, and Turkey have also become some of the main importers of Iranian FMCG products. In the coming years, a more open economy is expected to invite competition into the newly developed FMCG market, prompting a new wave of demand and triggering the evolution of local companies to boost the quality and quantity of their product lines.