Western companies set to enter the Iranian market should beware – a poll of Iranian consumers shows real opportunities but suggests local producers will be no pushovers

Multinationals looking to swoop into Iran as most sanctions lift will find important sectors of the 80 million-strong market already conquered by domestic brands. While most domestic industries are uncompetitive by global standards, they are strong enough to create both risks and opportunities for all players.

Iranians are hungry for foreign brands, but 95% of Iran’s food market and 80% of its pharmaceutical market have been “captured” by Iranian companies, according to a poll mapping the frequency with which Iranians mentioned the brands they use in daily life.

Iranian brands also dominate sales of hair products, clothing, and vehicles, according to the poll, which was conducted in October 2015 by Toronto-based IranPoll.com in partnership with Tehran Bureau.

The strength of domestic brands results in part from the way Iran has been forced to fend for itself by the stiffening of international sanctions. Governments have made economic self-sufficiency a priority, following policies of import substitution and imposing high tariffs on most imported goods to nurture domestic industries.

Iran’s food industry is crowded with domestic manufacturers like snack-food producer Maz Maz, ketchup maker Delpazir and dairy producer Kalleh. “One of the biggest advantages of Iranian food brands thus far has been their much lower price relative to foreign brands,” said Ebrahim Mohseni, a research associate at the University of Maryland, who studies public opinion in the Middle East. “In many countries neighbouring Iran, international brands like Pepsi, Coca-Cola, Nestle, Kraft and Heinz face little or no competition. This is not the case in Iran.”

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The strong presence of domestic competitors makes Iran unique in the Middle East and North Africa, said Mohseni: “What has happened in other countries is that they have simply not even tried to compete with western brands. In Iran, for almost every foreign brand, there is an Iranian substitute.”

Among food producers, Kalleh has grown into an empire since it was formed in the 1980s. Market research firm Euromonitor International ranks it among the world’s top 50 brands, just two places behind Nutella and two above noodles-producer Maruchan.

With factories across Iran, Kalleh exports 600 tonnes (590 UK tons) of dairy products per day to Iran’s neighbours, producing $205m revenue in the Iranian year 2014-15. They also have factories in Iraq, including Karbala and Najaf.

The company’s CEO and founder Gholam-Ali Soleimani is targeting $300m for the current Iranian year, ending in March. Kalleh may not have been able to purchase new specialist cheese equipment because of sanctions, but the company has imported second-hand machinery and is producing cheddar, parmesan, and gouda as Iran’s middle class develops more adventurous tastes.

Aside from the food sector and a handful of traditional Iranian exports, however, most Iranian brands have struggled to reach international standards, with industries lacking modern equipment. Protectionist policies have lowered their ability to compete in an open market because they sheltered them from the international competition that could have driven them to improve and innovate.

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“The reality about Iranian brands is that they are not [of good] quality, though they’re stronger when it comes to foodstuffs, carpets and handicrafts,” said Ali Heydarhai, an office manager in Tehran. “Unfortunately, in terms of production, we don’t have any high-quality and exquisite goods that can grab the attention of [domestic] consumers.”

Some multinationals have managed to retain a presence in Iran despite sanctions. According to the frequency respondents mentioned specific brands, the poll found Samsung, LG and Sony dominate the audio and video systems market (93% ), mobile phones (97%) and small home appliances (63%).

But the poll found that 58% of Iranians thought importing more foreign-made goods would benefit the economy. Respondents expressed a preference for German, Japanese, French and American goods, and viewed those from China as substandard. At the height of the sanctions in 2013, China exported $13.7bn to Iran, becoming the country’s single largest source of imports.

This would explain why traces of Iran’s pre-revolutionary consumer tastes remain so evident in everyday speech in which diapers are called ‘Pampers’, razors are ‘Gillettes’, washing powder is ‘Tide’ and tissues are sometimes called ’Kleenex’.

“People are tired of a non-competitive market,” said Amir Farmanesh, IranPoll.com co-founder. He pointed to Iran’s vehicle industry, known among Iranians for pollutant-spewing petrol guzzlers like the domestically made Kia Pride. “What they’re thinking is that more competition will push Iranian products to increase their quality.”

An influx of foreign firms would bring serious challenges for all involved, added Mohseni. Even if new brands had to struggle against red tape and a lack of market knowledge, they would bankrupt a number of Iranian companies and so hike an already high unemployment rate.

All of which leaves the government with the task of promoting growth while tempering the impact of shock therapy. President Hassan Rouhani also faces pressure from vested interests – including well-connected quasi-state groups – who control key Iranian industries.

“These powerful entities will certainly attack Rouhani for not only exporting Iranian jobs to Europe, but also threatening Iran’s cultural and religious values by importing western goods,” said Mohseni.

To alleviate the pressure and save the labour market, Rouhani could take a protectionist stance and re-impose higher tariffs on imports. But this would negate the nuclear deal’s most immediate benefits in the eyes of ordinary Iranians, many of whom, the poll shows, want easier access to western-made goods.

This presents the president with some tricky decisions, said Mohseni: “Rouhani will have a tough time balancing between the demand of Iranian consumers for higher-quality, more cost-effective commodities and creating jobs.”

The Tehran Bureau is an independent media organisation, hosted by the Guardian. Contact us @tehranbureau