Identifier
Created
Classification
Origin
09RPODUBAI478
2009-11-05 14:06:00
SECRET
Iran RPO Dubai
Cable title:  

IRAN: MASS RETAILER'S CAUTIOUS ENTRY YIELDING POSITIVE

Tags:  ECON IR PREL PGOV 
pdf how-to read a cable
VZCZCXRO9943
PP RUEHBC RUEHDE RUEHKUK RUEHTRO
DE RUEHDIR #0478/01 3091406
ZNR UUUUU ZZH
P 051406Z NOV 09
FM RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0607
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0463
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEIDN/DNI WASHINGTON DC
RUCNIRA/IRAN COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RHMFISS/USCENTCOM TELECOM CENTER MACDILL AFB FL
RUEHDIR/RPO DUBAI 0608
UNCLAS SECTION 01 OF 02 RPO DUBAI 000478 

SIPDIS

E.O. 12958: N/A
TAGS: ECON IR PREL PGOV
SUBJECT: IRAN: MASS RETAILER'S CAUTIOUS ENTRY YIELDING POSITIVE
RESULTS

DUBAI 00000478 001.2 OF 002


UNCLAS SECTION 01 OF 02 RPO DUBAI 000478

SIPDIS

E.O. 12958: N/A
TAGS: ECON IR PREL PGOV
SUBJECT: IRAN: MASS RETAILER'S CAUTIOUS ENTRY YIELDING POSITIVE
RESULTS

DUBAI 00000478 001.2 OF 002



1. (C) SUMMARY: In September the Middle East's sole franchisee
for Carrefour, the Majid Al Futtaim Group (MAFG) of Dubai,
launched Iran's first hypermarket in a new shopping mall on the
outskirts of Tehran. At the request of Carrefour's French
corporate headquarters, the outlet was launched under the
'Hyperstar' name but is regarded by local consumers as the same
as Carrefour. According to MAFG executives, the outlet's
initial revenue and foot traffic place the store in Carrefour's
top ten outlets worldwide and underscore the "hunger of the
Iranian consumer" as well as a high level of discretionary
spending. Distributors say the company's professional business
practices and the store's high turnover keep their own costs
down and make the location an ideal place to sell. If revenue
numbers hold, the company plans to expand to three or four
additional outlets in Tehran and one in Shiraz. According to
MAFG executives, customers come not only for brand-name foreign
imported goods, but surprisingly also for many of their daily
local food staples such as bread, produce and meat. If the
'Hyperstar' brand continues to remain free of government
criticism or interference, the outlet's continued success could
alter urban Iranian consumers' shopping patterns to a more
'Western' one. END SUMMARY.



THE BUZZ ABOUT TOWN




2. (C) Since it opened in a new mall next to retail outlets like
Adidas and Mango, the country's first hypermarket, Hyperstar
(owned and operated by Dubai's MAFG),has drawn large crowds.
Its level of success has been fodder for gossip. One
businessman told EconOff Hyperstar received close to 60,000
shoppers on its first day; another claimed it does well over a
USD 1 million in daily sales. MAFG's CEO, Iyad Malas (strictly
protect),told EconOff in a November 4 meeting that the store's
success surprised company executives and that the current daily
foot traffic falls between 10 to 15 thousand, which puts the
store in the top 10 stores for Carrefour worldwide.




3. (C) Malas attributed strong sales to three major attributes
of the Iranian market: a low-penetration rate of modern shopping
malls in Iran, a more-sophisticated consumer who is familiar
with and prefers the type of mass retailing associated with

Hyperstar/Carrefour, and "a gray market" that hides the real
amount of money that Iranians have "in their pocket" for
discretionary spending. In terms of penetration, Malas pointed
to the "150,000 people for every one mall" ratio used in the
United States to define saturation to emphasize how large the
Iranian market is. Presuming 10 percent of Tehran's 13.5
million people can afford to shop at Hyperstar, Malas argued
there is room for at least eight additional large shopping
centers. With regard to brand familiarity, stronger sales in
Tehran, compared to a recently opened Hyperstar in Lahore by
MAFG, demonstrate that Iranian customers are already familiar
with the brand based on extensive travel to Dubai and Europe and
hence prefer a Western way of shopping. Finally, he added that
MAFG's experience in emerging markets, where much of the
cash-based economy is not captured in official statistics, shows
GDP/capita ratio is not an accurate indicator of what consumers
can afford to spend. Like Egypt (which has a lower GDP/capita
than Iran),he said expects MAFG's hypermarket business in Iran
to grow at 30 percent a year.



RELUCTANCE TO MAKE A MAJOR INVESTMENT




4. (C) While MAFG is bullish on Hyperstar in Iran, the company
is reluctant to make a heavy investment in constructing shopping
malls, a sister business. Instead, the company prefers to
follow the Carrefour model of renting space for stores and
facilitating trade vice buying property and owning the
distribution network. MAFG executives do not believe the IRIG
is a barrier to doing business in Iran but do cite the high-cost
of buying property in Iran and an unclear regulatory framework
as reasons why they have not yet moved forward with building
malls in Iran.


DUBAI 00000478 002.2 OF 002




THE VIEW OF THE DISTRIBUTOR




5. (C) Two distributors who sell their products in Tehran's
Hyperstar say that the store provides a new model in the Iranian
market with less overhead. According to the distributors,
Hyperstar's modern marketing options, combined with the
concentrated number of customers that Hyperstar draws, give it
the ability to trump the need for multiple distribution centers
and wholesale dealers. One distributor who represents Panasonic
said its Hyperstar showroom was used to launch the first-ever
Farsi mobile phone in addition to allowing the company to place
the world's largest flat-screen as an anchor to draw customers.
A distributor of adhesives manufactured in Iran and distributed
under domestic and European labels said Hyperstar lets him give
away free samples of his product through the use of "promo
girls," something not plausible in other retail outlets in Iran
started by the Tehran municipality in the last ten years.




6. (C) COMMENT: While Iran's first hypermarket is faring well,
the 'Wal-Mart-ization' of the Iranian economy is a long way
away. Even though there have been no government impediments to
Hypermarket's entrance and consumer demand for mass retail is
stronger than expected, MAFG and other retailers are cognizant
that foreign investment in Iran remains risky. What is
noteworthy is the store's success in selling both local
(produce, meat, bread, and other basic staples) as well as
imported goods at lower prices. As such, Hyperstar's early
success demonstrates that foreign investment in Iran is possible
and that many urban Iranians are more oriented to a 'Western'
way of shopping. END COMMENT.
EYREA