Carrefour shakes up Iran retailing

Financial Times

Workers at a construction site close to Tehran's Azadi sports stadium are fixing pre-cast concrete to complete the first floor of what will be a five-storey building. -Carrefour

The workers know only that it will house a supermarket but have no clue that this will be France's Carrefour, Tehran's first international hypermarket.

The French retailer will be at the centre of a building also housing furniture and clothing shops.

"This is a good middle-class neighbourhood for Carrefour because western Tehran, with high population density, does not have enough shopping centres," one engineer says.

The imminent arrival of a franchise of Carrefour might have been expected to attract some excitement. Tehran must be one of the few cities in the world without an international supermarket chain.

But the low-key operation is seen by diplomats and analysts as an attempt to avoid it attracting political pressure over the country's nuclear programme that could derail the project. United Nations and unilateral US sanctions have hindered big projects in Iran but small ones have been quietly continuing despite logistical difficulties.

Carrefour opens shops in the Middle East through Majid al-Futtaim (MAF), its Dubai-based franchisee, and has no plans to open a store in Tehran on its own. The UAE-based group and its representative office in Tehran, MAF Pars Hypermarket, declined to comment.

Tehran's government says the supermarket will be the fruit of a joint venture between the authority and MAF, with the former leasing the land for 20 years and providing permits and the latter investing IR223.6bn (£12.5m).

"The shop [in Tehran] will carry the Carrefour brand while MAF will be the licence-holder of this brand," says Hossein Kalkhorani, managing director of Tehran municipality's investment organisation.

Analysts say President Mahmoud Ahmadi-Nejad is backing the venture in the hope that it will ease pressure on prices. Inflation is running at 26.1 per cent and is much higher on foods.

Iran's food industry suffers from high distribution costs because individual retailers are in charge of supply and there is no streamlining of the industry. "Carrefour will revolutionise Iran's food industry," a diplomat says.

"MAF has sent the standards of Carrefour shops to major domestic producers so that their products, if they meet those standards, can be supplied not only in Iran's branches but other branches of Carrefour," says Mr Kalkhorani.

He says the store should open by mid-March next year and MAF plans to open 20 hypermarkets in Iran in the next 10 years.

It is not clear yet how feasible it will be for Carrefour to maintain supply in the face of financial restrictions on trade with Iran as a result of US sanctions.

Chain stores in Iran have struggled with resistance from traditional merchants and the inefficiency of the state-run economy.

"The presence of a foreign brand for the first time will have a positive psychological impact," says Saeed Laylaz, an analyst. But he casts doubts on Carrefour's chances of success. "Chain stores should be the last phase of economic liberalisation, not the first."

Additional reporting by Scheherazade Daneshkhu in Paris and Simeon Kerr in Dubai