A large, young consumer base is eager to try out new products, and the emergence of more sophisticated sales channels is giving them the opportunity.

Consumption habits in Iran are changing fast. Local consumers increasingly desire higher quality products, tailored to their needs, and they want these products to be available year round. Driven by these demand forces, the fast moving consumer goods (FMCG) sphere in Iran is transforming itself through the heavy investment of multinationals and interaction with the slowly changing retail landscape.

The coming of age of Iran's “baby boom" generation, born between 1980 and 1986, is one of the key driving factors behind the new consumer tastes and demand. Members of this generation are very much in touch with other parts of the world, and are eager to enjoy the same quality products. Iran has a young and well-educated population, 70% of which is under the age of 30. The higher income potential of this new group of consumers, a trend that was strengthened between 2004 and 2008, is also playing a role in changing consumption habits. The change manifests itself in many areas. An example would be the widespread use of sun creams by Iranian women; something that was considered a luxury item only few years ago has become a part of the daily beauty regime.

The move towards a more modern retail industry is another factor influencing this trend. In Iran, small and medium sized grocery stores are traditionally dominant in the sales of FMCGs. It is estimated that 65% of all FMCGs are sold to consumers via this channel. Yet, large local grocery stores and supermarkets are beginning to make inroads into the dominance of such points of sale. Local retail chains have become well established, while multinationals are also eager to exploit the potential of the Iranian market. Hyperstar, a joint venture between Carrefour of France and MAF Hypermarkets of the UAE, was the first to enter the Iranian market, opening its doors to Iranian consumers in 2009. Marc Corbion, Managing Director of MAF PARS Hypermarkets, told TBY that they foresee the hypermarkets they have developed of having a lifespan of at least 20 to 30 years, and that they look forward to being in Iran over the long term.

While local products dominate the homecare category, international brands have gained the upper hand more easily in the beauty and personal care product lines. The sales channels for beauty and personal products also differ from other FMCG categories. MEMRB, a retail tracker, reports that while 75% of juices are sold through traditional channels such as small and medium sized grocery stores, it decreases to 60% for shampoos, with the remaining 40% being sold through supermarkets and pharmacies. Advertising and new product launches have also helped multinational FMCG specialists such as Unilever, Proctor and Gamble, and Beiersdorf to strengthen their positions in this category. Ziya Domanic, the Managing Director of Unilever in Iran, said that for marketing purposes Unilever uses magazines, buses, billboards, and in-store promotional activities extensively, as television tended to be a more expensive option.

The large potential of the Iranian market has attracted a host of multinationals. International players such as Unilever, Nestle, Danone, Tetra Pak, and Reckitt Benckiser have invested heavily in the form of joint ventures, fully fledged local operations, or distribution networks. International brands, according to MEMRB, currently control 15% of sales, and this percentage is expected to increase steadily in the coming years.

The only mote in the eye is the ambiguity that may occur after the removal of subsidies on a host of basic food items. The government in Iran has been subsidizing fuel and basic foods for a long time, and is preparing to gradually remove these universal benefits in favor of more targeted benefits for the poor. The removal of the subsidy on milk in 2010 led to a 40% increase in prices. Although the end of subsidies represents an unknown factor for investors, many are already taking up the challenge of entering the Iranian market, keen to tap into the country's large, consumer-oriented young population.