By: Trends Editorial Team
⇑ Hans Roux ⇑ Thierry Joulin
Hyperstar is an Iranian retailer with a fast-growing presence throughout the country.
Inspired by large global retailers and led by world-class managers with vast experience in international markets, it has revolutionized the Iranian retail industry, from supply chain management to launching its own private label. In this interview, Thierry Joulin, the managing director, and Hans Roux, the business development manager, discuss the retail landscape in Iran as well as the impact of COVID-19 on the sector.
Thank you both so much for giving Trends this exclusive interview despite your busy schedule. We are very grateful. If you were to summarize the state of affairs of the hypermarket sector in Iran, especially during current economic conditions, as well as the pandemic, how would you describe it? Where does Hyperstar stand in this scenario?
Thierry Joulin: We do not have access to precise data for that entire industry group, but let’s assume that presently major larger hyperstores, combining a department store and a grocery supermarket cover 12 to 14 percent of the market share or total capacity in that sector. But long-term room for growth especially in state-of the-art retail is huge and we are aiming to reach 25 to 30 percent of the market share within the next five years. In terms of the current crises, when it comes to the COVID-19 pandemic times, the smaller grocery and convenience stores are in a better position compared to the larger establishments as people prefer to travel less and go to less crowded places. Even with the safety measures taken, at least at Hyperstar, which are remarkably high, we’ve noticed a decrease of foot traffic in our stores and we believe this has benefited the minimarket sector. At the same time, during the pandemic, although people are visiting our stores less often, they are buying in larger volume than before. We can say that we have had around a 20 percent decrease in foottraffic, which is quite high, but we have an increased basket size of 40 to 50 percent.
The trend in Iran’s grocery retail seems to be transitioning from traditional grocery/convenience stores (what we call “baghghali” in Persian) to modern super and hypermarkets. Is this the beginning of the end for small corner stores? In many other markets we have seen that such stores managed to co-exist with larger outlets. Will that be the case for Iran too?
Thierry Joulin: During the pandemic, baghghalis will not be impacted by hypermarkets. But overall, the supermarket has definitely had an adverse impact on the baghghalis, and now these corner stores have to recreate themselves if they are to survive. Similarly, there were a lot of old-fashioned corner shops in Europe until 25 to 30 years ago. They had to improve their services and offer better quality products and become more specialized. If the baghghalis The Impact of COVID-19 On The Retail Sector do not realize this, then they will certainly continue to be pummeled by the larger general grocery stores. A question that may come up is whether the retail model in Iran is based on the minimarket. The answer is no. I think hypermarkets fulfill a specific need for large families, offering non-food and food products at a better price compared to that of the minimarket. For middle class families with children, it really fulfills their general needs and financial requirements, while the minimarkets respond to their need for proximity.
The fact is that a higher variety of products will always be offered at the hypermarket. To give you an example, currently a minimarket carries around 1,500 SKUs (stock-keeping units) but a hypermarket carries around 11,000 SKUs and all at a higher volume too. Also, minimarkets do not carry a variety of fresh items, but in hypermarkets you have the traditional bakery, the delicatessen, the butchery, etc. Iran will keep with the worldwide trend; people will still go to hypermarkets to do their large shopping and in between their visits to th hypermarket, they will go to the minimarket for quick shopping. The advantage of the hypermarket format in Iran compared to Europe is that in Europe we always speak of the end of the hypermarket model because in Europe over the past 15 to 20 years, this model has been severely hit by category killers like Decathlon, a sports superstore. You don’t have this phenomenon in Iran, with strong category killers in the non-food industry, so hypermarkets can keep growing. This is why there is a bright future for hypermarkets in Iran.
In recent years in Iran there has been a mushrooming of multi-purpose complexes, such as larger shopping malls. Is it safe to assume that this trend is good for hypermarkets like Hyperstar?
Can you see yourself having a more widespread presence in quality locations through these shopping malls with better logistics and facilities? If so, how do you feel about the saturation of the market by so many new shopping malls that are almost half-empty, in some cases?
Hans Roux: First, on the fact that we have a higher number of shopping malls here, we need to understand that the development of commercial real estate in Iran has had a late start and in a non-standardized format. So yes, we have seen many malls open but not all of them conform to usual shopping mall standards. We have a lot of what used to be called “passage” (as in the word’s French sense) in Iran, which are the 1970s type of shopping malls. So, when you see those kinds of commercial developments with smaller retail footprints inside them, it is very difficult to position a hypermarket or a supermarket there. But there is another issue we face here, and that is the pace of development of such projects. Unfortunately shopping malls take way too long to be built in Iran sometimes 8 to 9 years – and they are seldom built up to code. As such, developers rarely deliver on schedule on the project due to financial difficulties borne out these same delays, which makes doing business with such developers a challenge and frankly quite unreliable. There are not enough developments in this country for us to be able to sustain a healthy growth and this is why we are moving forward with building our own structures. This is what we have done in Malard not too long ago with our first Hyperbox, and now we are going to move to lighter structures, similar to structures such as Walmart and Costco which are light-structured buildings with an open-air parking lot. This is the model that we plan to, and must develop, for the coming years because there is not enough economic development in this country when considering the size and population of the country. We are way below the international standard.
The standards of building a shopping mall are very different in Iran in comparison to the rest of the world. Some larger malls may have certain necessary resources and systems in place, like in IranMall, which has loading and docking facilities, etc., but some are not built like that. When it comes to the standards of building and operating shopping malls, what do you think are the main challenges and problems in Iran?
Hans Roux:You mention the main problems at the beginning of your question. The issue is that most of these malls are designed without taking into consideration the operational needs. We are obliged to enter each project at the very early stage. Oftentimes, we have to enter projects when they are in the design phase, not even during construction, in order to make the modifications required for us to be able to enter the site. Once the site is built, it gets very complicated, and this is usually the reason why we have to reject projects because mall owners do not hire specialists. They hire local architects who, naturally, don’t have the experience of standard large-format retails.
If you were to say what percentage of shopping
malls are built based on international standards,
what would that be?
Hans Roux: Let’s talk about two percent, maybe three. You cannot imagine the layouts we receive and the modifications that happen in the projects. Even with Iran Mall that has been designed abroad we had to work at a very, very early stage on the designs. We worked on the designs for seven months with the architects in Dubai
With regard to Hyperstar’s presence in Iran, when did you start, how many stores do you currently have, how many SKUs, and what are the key milestones and future plans?
Thierry Roulin: Hyperstar is registered as an Iranian company with 21 locations around the country. We just opened one last month in Orumiyeh (Urmia). We also have eight health and beauty stores called “Myli.” We recently entered the health and beauty market and we plan to expand the Myli brand. Two of them have pharmacies and four of them have fast food restaurants! The opening of the first Hyperstar in Iran was in 2009. We now carry around 30,000 SKUs and between the “direct staff” in charge of various products and “support staff,” including the security staff, the cleaning crew, etc., we have created around 4,000 jobs so far. This year we plan to create 800 new jobs. We haven’t had much growth due to some geographical difficulties; we’re not dealing with 200 square meter stores where you can find a location very easily, but we do have a steady growth. I would say, we have presence in all the major shopping malls in Iran. Very few major shopping malls do not have a Hyperstar, with Palladium being the biggest exception.
How many suppliers do you have and do you produce some of your own products under your own private label, or is it all produced by suppliers?
Thierry Joulin: We have 600 suppliers and I think around 400 SKUs from private labels. They are produced under our quality control guidelines. With specific suppliers 68Trends/Issue No. 2 / January 2021 with private labels, we have agreements for acquiring the relevant production process and those suppliers do regular inspections to verify the production process is adhered to. At the same time, we continue to develop our private label for other products. It’s really not our job to compete with suppliers.
In 10 to 11 years, a brand of your magnitude could have opened hundreds of stores in another country. In your case, you have 21 stores. What are the reasons for the relatively slow growth, in terms of number of locations?
Thierry Joulin: You know, I must say that the growth of Hyperstar in Iran is quite similar to that of comparable businesses in other countries in Asia and cities where the population is extremely condensed and it’s difficult to find large lots. As a result, the hypermarket will need to be outside urban areas. Due to the difficulty in finding those lots, we have a stable and balanced growth which is well-controlled. What’s important for us is not the number of stores, it’s the performance of each store we open. It’s about quality, not quantity. Hans Roux: The other matter you have to take into consideration for expansion in countries such as Iran, is the ever-increasing property values which is at the root of market stagnation. So, when huge entities such as Hyperstar enters the game in a project, we become pacesetters and, in a way, we set the standard for anchor retails in mall settings and the way they should function in Iran. But then, we have to deal with the steep rent charged by owners of these malls, which is often supposedly calculated by the face value of their property and seldom matches the real rental value.
So, this also slows down our expansion plans. But, as Thierry mentioned, we are looking more for quality than quantity. Thierry Joulin: What we’re looking at also is the performance of our sales per square meter.
Compared to other countries, do you believe that this sale per square meter is still high considering the currency devaluation and shrinking purchasing power of people?
Hans Roux: It used to be high Thierry Joulin: At this stage, you can only think in terms of Rial. The sales per square meter has to be adapted to the local currency because you don’t have the same costs that you do abroad. It costs much less to build a store in Iran than it does to build a store in the UAE or France, so everything is relative. Staffing expenses in Iran, for example, are much lower than in Europe. How do you see inflation compensating for the currency devaluation, with prices rising by 50 to 60 percent each year? Thierry Joulin: No, firstly they don’t compensate. And secondly, it’s not because of inflation. It is not because of 50 percent inflation that you have 50 percent sales increase. It doesn’t work that way. Due to changes in purchasing power, you can have a change of habits in consumption. People are losing purchasing power and need to re-adjust their budget. So, I think a good example is when you have inflation of ten units, you may only gain six units in sales, maybe even five, which is a distractor because your costs in that case start to increase faster than your sales growth, which jeopardizes your profitability.
This is where you need to have a change in management of supplies and goods and reorganize in order to optimize your costs. Now, the advantage is that our biggest stores, like hypermarkets or big supermarkets, have a higher possibility to adjust costs than a minimarket because in a minimarket you have very little room to maneuver.
If you were to quickly take us through the process of developing a new location for Hyperstar from finding the right site, to the concept design and working with the owner of the shopping mall, what would that be like and how different is it compared to other countries? I assume you always have a long-term lease as opposed to purchasing land or renting, correct?
Hans Roux: Yes, that’s correct. The projects are extremely long-term partnerships. Other than that, our processes are quite standard. Like anywhere else in the world, we have to scout the location as well as check the entrances and accesses and the building itself. Ideally, we enter the project at a very early phase so that the modifications we require are still feasible. At that point we can explore various aspects of the target location. These include site accessibility, floor plans, parking area size and access of parking levels from outside and from mall floors, and even flow of information between retail units within the mall, as well as ease of communication with management. Then we have our internal feasibility studies and authorization processes. It’s not very different in other countries. The only difference is that it takes longer – not at our level but at a project development level.
Usually the projects take a long time and have many
stops during construction. We have projects that have
been under construction for the last 15 years.
Culturally speaking, each country has its own culture and has different levels of maturity with respect to modern retail practices. In Iran, we’re not yet a mature country in those terms but we have a very good relationship with our landlords and they understand our terms, conditions and standards better and better over time so we have fewer issues as time goes by. The first projects were a little bit complicated, but now, we function in a very standardized way, which is quite transparent, and people know of the processes beforehand, so we don’t have any major issues. Thierry Joulin: As Hans mentioned, the biggest difference is the time it takes to finish a project. Here in Iran it takes six to eight years, whereas in Europe or Asia it takes approximately three years.
Hans Roux: I have an example to confirm what Thierry said. The Mall of Emirates in Dubai finished in 18 months, from ground-breaking to opening with all the shops up and running.
Thierry Joulin: We also have to take into consideration the country’s prices and currency fluctuations, so the landlord has to frequently re-assess the feasibility of his project, find new cash, etc. It gets complicated. And also, do not forget that the banking system here in Iran does not allow the landlord to have long-term loans, whereas in Europe and UAE you can have long-term loans on properties. This is one of the major complaints here.
Hans Roux: The other impact is that, in the past, landlords would find time working in their favor. So even though they could manage to get more cash and resolve the new issues, a project taking a long time to yield returns is not a concern because with time the property price woul increase. Today we’re in a different situation because of the crises we are currently facing. The accumulation of all these events, including the pandemic, US imposed sanctions, and currency devaluation have made it so that the property price for commercial real estate is actually going down. Because projects don’t finish on time, tenants are non-existent and the rental income that the landlords could count on in the past are no longer there. It makes the future of those projects even more complicated.
Iran is a country of shocks, risks and surprises. How does a company like Hyperstar respond and adapt to these constant shocks in the economy, from currency exchange to geopolitical tensions to sanctions?
How do you survive and adapt to these changing conditions that are an exception to the rest of the world?
Thierry Joulin: You have to use two words in management: resilience and agility. If you can’t be resilient or agile, you will disappear. This is how we operate.
Is it possible to say that, since you are part of the Iranian economy and not a foreign company, you don’t face these shocks at the same level and stress that foreign companies do? Also, could it be that your line of business is almost, let’s say, recession-proof or sanction-proof because people need to buy groceries and they want fair prices?
Thierry Joulin: We are severely impacted, but less than other industries. I think it’s about the management style of the company. You know, you don’t manage going through a crisis the same way you manage a company or country going through recession. You have to be resilient and agile and break the rules. In terms of crises, if you only follow the rules, you disappear. You have to re-think your model and be on a constant search for improvement. Then, especially during a crisis or recession, you have to offer the best prices possible in the country. It’s our mission to protect the purchasing power of the Iranian customers. We will not desist at the expense of the supplier. We will do well by reorganizing internally to bring the lowest cost possible so the customer can afford the best prices possible.
With regards to the pandemic, what has been its impact in terms of consumer behavior? Are there certain categories of products that are doing better during a pandemic or economic crisis?
Thierry Joulin: At the start of the lockdown around March, which was unfortunately at the same time as Nowruz, most of the purchases went towards food and hygienic products used to sanitize, clean, etc. At that time, the sale of top selling food items was severely impacted. In May and June, we had better sales in non-food items than food items. Why? Because for many months, families didn’t spend on non-food items like textiles, homeware or appliances. After those few months of steady confinement, people are now allocating their budget to compensate for their lack of spending on non-food items. I would say that, probably in the last two months, our growth in hypermarkets is better than in the small stores because people started to re-adjust and spend on non-consumption categories. You also have the effect of devaluation, which is due to COVID-19. Traditionally, when the devaluation is high, like it is today, we have a very immediate impact on appliance sales, for example.
How has the pandemic affected suppliers and your relations with them?
Thierry Joulin: At the beginning, we had some supply chain issues, but they quite quickly got resolved. We didn’t have a big issue of shortage, except in appliances, but this was not linked to COVID-19. It was linked to sanctions and currency devaluation. We’re trying to fix it now, and all local suppliers are now asking the authorities to allow for a price increase because with the currency rates nowadays they cannot sustain their own prices. If they cannot obtain the price increase required, then after some time they will stop delivering because it’s not sustainable for them. One week we are dealing with the shortage of pasta and in another ten days we’re dealing with a shortage of Nutella, and we have to pay for that. But no, this is not linked to COVID-19. This is linked to devaluation.
So COVID-19 has had no impact on your relations with suppliers or the business model?
Thierry Joulin: Why should it?
I would have expected that some suppliers, because of the pandemic and the ongoing crisis, had to shut down or they couldn’t be price competitive.
Thierry Joulin: That was the case after Nowruz, some supermarkets opened after one, two or three weeks. While we were impacted after Nowruz, business started to readjust in May.
Okay, so you expect things to go back to normal regardless of the currency problems and fluctuations. With regards to the pandemic, how has it affected the supply chain, consumer behavior, performance, etc.?
Do you expect a full recovery from COVID-19 or is there a permanent damage for people going to stores physically versus shopping online?
Thierry Joulin:With COVID-19 we have seen an impact on consumer behavior. We saw our e-commerce sales more than double in a few months. Some families have changed their purchasing habits and switched to online shopping, which is good. So, the e-commerce side of our business is quite okay. I think after COVID-19, people will go back to malls and hypermarkets again. People will need to entertain themselves as well; they won’t only visit the hypermarket but also the restaurants, food courts, and shops to do some pleasure shopping. And this will add up. The biggest impact we face is devaluation. Because you know, in just a few weeks, the exchange rate went from 180 thousand IRR to 220 thousand IRR per USD. So, the prices are going to increase and there will be, again, a reduction of purchasing power. the job in Iran. Consequently, the manager who is selected should have work experience in what we call “countries of practical economy,” like those in South America or Asia. For suppliers, I recommend investing in local production and developing the domestic market. We have a good example with Elite and Topa. When you see their growth in the food business, it is quite impressive. It’s going at the micro-market with high profitability and it makes the market grow. So, if I were to give advice to a local supplier, I would say see what the trends of products are internationally, and choose segments where profitability is high.
What has been your personal experience as expats living in Iran?
Thierry Joulin:First, for different reasons, to professionally bring a company from one store to 21 stores and from four hundred people to four thousand people, you can only enjoy this type of development in a business environment like Iran. It’s a once-in-a-lifetime experience.
And then privately, this is not my first expat experience. For me, living in other Asian countries was more complicated than living in Iran because the Asian society is very different from the society of the country I come from. And after 15 years of living in Asia, I had maybe two or three good Asian friends. This is because, honestly, we are from totally different cultures and backgrounds and don’t have the same lifestyle. In Iran, the thing is that you are aware that you are a foreigner.But overall, in both the business community, and also the private side, it has been a pleasure. There are many things you aren’t able to do, but still there are other interesting and fun things to do and learn. So usually I do not focus on the things I cannot do but rather on what I can do.
What about you Hans?
Hans Roux: Well my case is a little different. I’ve been in Iran for 29 years and have seen a lot of ups and downs. Sometimes I must admit that it gets to me. But all-in-all, I’m used to it and I’m having, you know, fun. Intellectually, it’s very satisfying to live in a challenging atmosphere, as strange as it may sound!