Iran’s Distribution Industry Accounts for 8% of GDP

EghtesadOnline: Iran’s half-a-century distribution industry generates 8% of Iran’s gross domestic product, the secretary-general of the Association of Iranian Distribution Industry said.

News ID: ۷۸۰۶۳۲

26 November 2017

In an interview published by Tehran Chamber of Commerce, Industries, Mines and Agriculture’s monthly journal Ayandenegar, Saeed Jaroudi added that Iran has 700-800 countrywide and provincial distribution companies.

The first distribution company in Iran “Khorak” was established by Khosroshahi family for distributing products made by Minoo Group, a leading producer of food products, cosmetics and pharmaceutical products. Today, Khorak operates under the name of “Ghasem Iran” and is one of the biggest distribution companies in Iran.

The association, established in the fiscal 1999-2000, has 109 countrywide members, some 40% of which are engaged in distributing pharmaceutical products, Financial Tribune reported.

Jaroudi believes the large number of distribution companies in Iran is not because this industry is lucrative but because producers are interested in establishing their own network to distribute their products the way they like.

In general, as one of the four elements of marketing, distribution refers to the process of making a product or service available for the consumer or user that needs it. This can be done directly by the producer or service provider, or by using indirect channels such as distributors or intermediaries.

“The dispersal of distribution firms, retailers and chain stores has caused goods distribution costs to rise significantly. By merging distributors and sellers, costs can be cut down to one-fifth,” Jaroudi was quoted as saying in the Second Conference of Iran Distribution Industry held in Tehran in October 2015 to discuss the role of distribution industry after the lifting of western sanctions imposed on Iran over its nuclear energy program.

“The domestic market will soon be flooded with foreign goods as we enter the post-sanctions era and this will open a strategic window for the distribution industry,” said Mahmoud Mohammadian, professor of commercial management at Allameh Tabatabaie University, addressing the same event, adding that foreign firms will look for low-cost, trustworthy distribution agents.

Ever since the removal of sanctions, international distributors and freight forwarders have been expanding their business into the Iranian market. Most recently, Danish service provider DVS expanded its representation to three new ports north of Tehran and beyond the Caspian Sea through its new agent in Iran.

Anne Henriksen, DSV’s business development manager and Iran expert, commented on opportunities in Iran and the Caspian Sea.

“With the ports of Anzali, Noshahr and Amirabad, we are stronger in the northern part of Tehran and can offer new solutions, especially in the cross-trade sector involving Iran, Russia and the CIS via the Caspian Sea,” she said.

According to Jaroudi, the domestic distribution industry had a turnover of over 1 quadrillion rials ($24.26 billion) in the last Iranian year (March 2016-17).

In Jaroudi’s words, the fast growth in online retailing is good news for the distribution industry, stressing that online retailers should pay attention to the quality of their products and services.

In Iran, online retailing currently has a 0.7% share in the country’s retail market and it is predicted to reach 3% in two years. Official data suggest there are 9,000 online retail stores in Iran. Online purchases in Iran have an annual growth rate of 60%.

According to Jaroudi, a distribution company with branches in 18 provinces needs an average investment of 250-300 billion rials ($6-7 million).

“Such a company can produce around 500-600 new jobs on average, but there are also companies with around 7,000 employees,” he said.