OFF TO MARKET

Iran 2011 | ECONOMY | INTERVIEW

TBY talks to Marc Corbion, Managing Director of MAF PARS Hypermarkets.

Marc Corbion
BIOGRAPHY
Marc Corbion is currently Managing Director of MAF PARS Hypermarkets.

How did Majid Al Futtaim Group and MAF PARS Hypermarkets decide to enter the Iranian market?

In order to launch our activities in 2005, the first step was to gain approval from the Iranian government as a foreign company making a foreign investment and establishing 100% ownership. In 2005 the law had changed, and FIPPA (the Foreign Investment Promotion and Protection Act) was adopted by the Iranian authorities. This law allowed foreigners to come into the country and own 100% of a foreign investment. After some talks with the municipalities, the government, the chamber of commerce, and the ministry, we decided to create Hyperstar as our brand name in Iran. At the same time, we also decided to open a store in Pakistan under the same name. By 2009, we opened our first mall in Iran, which also had a hypermarket. So, out of 15 countries in which MAF Hypermarkets are present, only two use the name Hyperstar.

How was the new brand Hyperstar received in Iran?

People know that we are affiliated with Carrefour, and we can now say that we have been very successful. At the beginning people talked about Carrefour, and now they are talking about Hyperstar—they are accepting the name. Of course, we had some issues about the name due to patent issues. We registered our name two years ago, but after that a company came to Iran and registered as Hypermarket. This company obtained the right to use Hypermarket with the root “Hyper". Therefore, we could not use our name in our stores for a while, but the problem is solved now. Even during that phase, everyone knew our store and identified it as Hyperstar.

What are your strategic goals for Hyperstar in Iran?

For Iran, we have four targets. The first one, of course, is foreign investment. We have an agreement with OIETAI (the Organization for Investment, Economic and Technical Assistance of Iran) to invest at least $350 million in this country over the next 10 years. This entails the opening of 10 more stores. We still have five years left of this commitment. Our second target is to help the government fight inflation by introducing a third generation of commerce in Iran. I have personally worked in many countries. What we know is that when we enter a country local competitors immediately react to our prices. This means that prices eventually decrease. So, our target was to decrease the price level for consumer goods by at least 10%. We did it, and we still maintain this gap with our competitors. The reaction of our competitors was to decrease their prices, meaning we have been instrumental in fighting inflation. Our third goal was to create jobs in every project we undertake. In Iran we currently have 1,200 employees. The national unemployment rate is around 15%, which means that Iran will benefit from the jobs created by the opening of 10 new stores. The fourth goal was to export Iranian products, since we also have an import and export license. The agreement was that while we would import products to Iran that would not compete with local producers, we would also provide opportunities to local suppliers and producers through our network to export their products. Unfortunately, this mechanism still does not function as well as it should because we face many difficulties in trying to import goods into Iran. There are too many rules and they change very frequently. However, even if we cannot import goods we try to export Iranian products through Carrefour's extensive global network. This was the deal we had with OIETAI, and we have kept our word.

What are some characteristics of the Iranian market that attracted you?

Firstly, there is no other country of this size in the Middle East. The population of Iran is more than 70 million. Secondly, you can say it is a very stable country, even if there are some issues. Thirdly, we were attracted by Iran's GDP. Iran has the third highest GDP in the region after Saudi Arabia and the UAE. But if you compare the GDP per capita across these countries, you will see it is much more balanced in Iran than in Saudi Arabia. Iran has a very young population—more than 60% are under 30 years of age. We feel that this country has a good future. We foresee our projects having a life of at least 20 or 30 years, which means that we want to be here for the long term.

Also, Iranian culture is closer to the cultures of the other countries in which we are active, which means it is easier for us to develop our business. Our store has been very much welcomed, and on average we have 15,000 customers per day, while during peak times we reach 100,000 visitors. In addition, we have attracted other foreign investors, companies like Mango and Esprit. Originally, they were hesitant to come here for many reasons, but we have been successful with our business and we are well known around the world. We became a reference point for other foreign companies. Now many foreign companies come and meet with us, even before having a meeting with the Chamber of Commerce and Industry.

What are the challenges these foreign companies have to face?

The main issue is bureaucracy. There are many, long procedures that a foreign investor has to undergo. But once you go through them the first time, you are much more prepared. Of course, after that we have local competitors. Small retailers are not a big issue because around the world there are small retailers we have to compete with. The more important competitors are the chain cooperatives that belong to the state, the municipality and the army, like Refah and Sepah. As they are non-profit cooperatives and have subsidized prices their competition is more important than that of small retailers. We compete against each other in terms of prices, which is beneficial for customers and was also one of our goals. Many of them became more professional and got used to the idea of providing everything for the customer under one roof. Thus, the competitive environment we created was instrumental in them improving their services.

How do you decide on a location when opening a store?

We position ourselves as a service provider for the middle class. On average we can say we target the B minus socio-economic group, which is the middle class. But of course our concern at the beginning was how we can reach the Iranians in these strata. The cost of real estate in Iran is very high, as people use real estate as an investment tool due to the lack of other financial instruments, though as the financial markets deepen the cost of real estate will decrease. As we do not want to buy property, the first thing to do was to convince people to lease us land. Cheap real estate helps us discount our product and, naturally, we cannot afford to be in an expensive country. Therefore, at the moment the construction of many shopping centers and malls has stopped in Iran. How can we pay $30,000 per square meter (sqm)? For this reason, we cannot be in the richest area in Tehran, so we looked at other areas. We are always looking for a piece of land between 20,000 and 30,000 sqm. Unfortunately, you cannot find real estate of this size in Iran with only one landlord. The land on which our Tehran store currently resides is 25,000 sqm in size and had 80 owners. Many of them did not have any written documentation that proved their ownership. Government offices may have the knowledge about the properties, but it is not so easy to access the information in them. Another related problem was that we did not know how the area was zoned by the local and central government. After some time we obtained this data, allowing us to at least start our work. There are very few places with commercial zoning and this makes the prices even higher.

Does OIETAI help you with these issues?

They have always helped, and this is good. The change in the zoning of the land took more than a year and a half. After that, you have to get a building permit from the municipality, which also takes time. Once this was done, we had to convince the Ministry of Health to give us the right to sell fresh food along with textiles. They asked us to erect a wall between them, which is not our concept. We just explained and invited them to see how it works in Dubai, since we have a store there. We also launched a project with HCS, which is a Swiss company, in order to reach the highest standard of hygiene in the world. This was difficult, but we did it. After that, it took time to convince people that we wanted to transform the products in our bakery, pastry, butchery and fish sections by ourselves. They initially did not allow us to do that, and thought we should build a factory to provide such in-store services. It took more than eight months to get approval for the various sections, but the authorities are very content now.

Our store has become a place to train people, and even our competitors ask to be able to come to our store to train their own employees. Of course we cannot allow that, but they are welcome to visit our store.

In which cities do you want to open stores, and do you think you will face the same problems when establishing these new outlets?

No, not at all, because our store is well known now and it will serve as a model. In 2011, in the first two quarters, we will open stores in Esfahan, Shiraz, and Mashhad. When we entered into existing buildings in Esfahan and Shiraz, we did not face the difficulties we confronted in Tehran. In Shiraz we will have a Hyperstar, 2,000 shops, an attraction park, and a large 5-star hotel. This is even better than Tehran, because in Tehran land prices have skyrocketed. In Esfahan, we are going to have a 10,000 sqm hypermarket. This is a big project that will attract people from at least 100 kilometers away. The next store we open I hope will be in Mashhad, and it will be twice the size of the Tehran store.

What about the suppliers? Are they used to working with markets and stores of this size?

They understand the business very well, meaning that we have to buy and they have to sell. Of course, if you can find some compromise with them then it's not a big issue. Ideally, we would like to go directly to the factory, but it's not always possible. We have a very good relationship with the Chamber of Commerce. I am the vice-president of the French-Iranian Chamber of Commerce, so I am in touch with many suppliers, and we have had several meetings with them. They understood very well and travel extensively, so they knew the hypermarket concept they had seen abroad. We make a 1-year agreement with them to sell their products in our store. What we do with suppliers is work with them to improve the logistics of delivery. Now we have an automated process. They receive our orders and deliver what we need in a day's time. Another poignant issue is that we pay on time.

Are you happy with their level of service and delivery?

Yes, it's amazing. Compared to other countries this is the best, but it took time. We have several rounds of discussion with each of them and they have improved their logistics greatly. With some of them, we want to develop our own brand. That means we are going to work on packaging, how to save money, and so on. Through that, we'll export their products through our network. We will work on private labeling. It's difficult to have a business in Iran because, first of all, we have to understand that we are not Iranian. I didn't come to Iran to change things at all. Yes, I came to Iran to do business and change—a little bit—the way of doing business. But I don't want to change Iranians. They will change their mind if they like what we are doing. But it took time for us, at the beginning, to understand how this works, and it can take years to determine whether we can improve it or not.

How do you regard consumer behavior in Iran?

They are really focused on quality, and this pushes us to do our best. When we tried to sell fish in Tehran, people refused; they said that the fish was not fresh. So, we launched a special program to buy our fish from southern Iran. We contracted with Iran Air. Every night fish is coming in coolers and is in the store the next day. Among the 15 countries where we have stores in the Middle East, we have the highest sales of fish in Iran. It is surprising to see the number of people queuing to get fish because it is very fresh. Before we organized this, there was no way for them to get it, so the result was immediate. At first, I was surprised by the behavior of customers because they are very demanding, which means they are well educated. They know our business very well and they push us a lot to improve what we are doing. As a result, we are doing some things here that we aren't doing in other countries. For example, they wanted benches installed, so we did that along with a water fountain and so on. Furthermore, for appliance sales, we also deliver for free. If you buy a refrigerator here in a small shop, they deliver it the same day.

Do you only have this policy in Iran?

We do it in some countries, but in Iran it was our target to improve, and it was a demand of the customers. So currently, we deliver and install for free and we even call people after the delivery service to find out how it went. The awareness level of the customers in Iran impresses me. They are very educated and demanding. They want the best in terms of quality, price, freshness, and the like. This morning I was in the store and one customer stopped me and she said, “You have to do something for the cashiers. They work too much and they are tired." Her advice, in this situation, was to change the rotation of the people and to have more cashiers do the work. As you can see, our customers are very involved in our business.