Uncertainty in Europe means UK retailers could look further afield for expansion. Could Iran be the next Middle East retail hotspot?

With Brexit preparations getting under way in the UK, sanctions still in place in Russia, Turkey suddenly looking very unstable and populist parties rising across an ageing Europe that is increasingly divided, retailers and suppliers will now look at opportunities in emerging markets again with fresh eyes.

On a recent trip to Iran, we learned about the country’s young and open-minded urban middle-class, walked in traditional food markets as well as modern grocery stores, looked at the domestic FMCG brand landscape and spoke to a number of locals to better understand the potential of one of the world’s last large territories still untouched by Western brands and retailers.

This market could develop into the next big story in the Africa and Middle East region, not overnight perhaps, but certainly within the next five years.

The unknown

With political tensions dominating the headlines and changing sanctions restricting cross-border trade until very recently, Iran is one of the last unknown territories for many international retailers which, when making investment decisions, continue to take a hard look at the political and economic environment to justify their longterm investments in store property and logistics.

However, the recent change in political climate, which brought with it an end to most sanctions as well as broader political support for reformists, is finally signalling an outlook of a more open environment.

Tehran (14 million inhabitants), Esfahan (4.2 million) and Mashhad (3.4 million) are the country’s largest cities. Combined, they account for 27% of Iran’s 81 million-strong population, but represent half of national consumer spending.

The urban young enjoy a living standard that is far above the country’s average – with per capita consumer spending of around £2,595 (105,253,703 Iranian rial) per annum in Tehran – which will in fact appear surprisingly high to the foreign traveller entering Iran for the first time.

Demand

The obvious spending power is served by a creative retail industry in the urban markets, although the strong demand for Western brands remains largely unserved.

But with more than 300 modern shopping centres in the making currently, foundations are being laid and infrastructures provided for the next generation of modern retail.

Iranian consumers visibly want more choice.

In grocery, there are just a small number of chains serving that demand, including MAF-owned hypermarket operator Hyperstar, 230-strong Tehran-based supermarket chain Refah, as well Sharvand’s 33 shops.

For a country that is home to 81 million people, these are dramatically low store numbers.

What is stopping Western retailers from entering on a large scale now, even after the end of sanctions, is a mixture of challenges both at home (demographic change, the rise of online, a need to restructure domestic operations) and in Iran (slow pace of political reform, isolated operating standards that are often out of tune with global best practice).

For FMCG brands, opportunities look more immediately available. However, not just in the small modern trade segment but also in the huge independent trade.

Readers are welcome to check out our recent Iran report for more detailed impressions from a country that probably represents one of the last great adventures in the world of retail.

  • Boris Planer is an analyst at Planet Retail