Telepizza's Arrival in Iran Shows Supersized Ambition
In 1990, during the final year of the Soviet Union, McDonald's opened its first branch in the country, choosing a landmark location in Pushkin Square in Moscow. On the first day, nearly 30,000 customers passed through the doors.
Telepizza, an international fast-food pizza chain, opened its first Tehran location last week. While the opening did not see quite the same fanfare as arrival of McDonald’s in the USSR, the launch is nonetheless significant.
As many articles have emphasized, Telepizza is the largest non-American pizza brand in the world by number of stores (about 1,500). But the Spanish company, which is targeting Iran as part of an ambitious global rollout plan, is one of the first globally-recognized restaurant brand to enter Iran, which has until recently had to make do with cheap imitations such as “Pizza Hat” and “Mash Donalds.”
The arrival of Telepizza follows the awarding of a master franchise agreement to Momenin Investment Group, a little known firm registered in the UK but with Iranian ownership. MIG has committed to spending EUR 100 million over 10 years in an Iran market rollout. The size of the investment makes it clear that Telepizza and MIG are aiming to dominate the market.
The fast-food sector in Iran is among the most attractive for investors, who see a large middle class with growing spending power. Today, Iranians spend about USD 7 billion annually in restaurants, of which about one-third is spent on fast-food. This expenditure is likely to double in the next decade.
To meet demand, there are about 20,000 fast-food outlets in the country, but scale has remained elusive for any single brand. The largest fast-food operators in Iran, including brands such as Haida and Boof, operate around 50 locations each. In many respects, the fractured food service sector reflects similar dynamics in the food retail sector.
It can be tempting to see the absence of major fast-food brands in Iran as a mark of Iran’s resistance to neoliberalism and the attendant exploitation. The prospect of Iranians spending their hard-earned Rials on foreign pizza is seen by many as anathema to the promise of an independent, self-sufficient Iran.
But Iranians, like most people around the world, want to enjoy the occasional pizza. They naturally deserve the best pizza at the best price. The simple fact that no Iranian fast food chain has gone on to dominate the world, suggests that there are improvements to be made in the domestic offering.
Encouragingly, the Telepizza deal keeps Iranians in charge of their own fast-food future. Whereas the McDonald’s in Pushkin Square was company-owned (the “Golden Arches” made its first franchise agreement in Russia in 2015), Iran’s Telepizza locations will all be owned and operated by MIG. This means that the Telepizza deal is consistent with the longstanding pattern of cooperation between Iranian and multinational enterprises.
Across sectors, Iranian companies have typically sought foreign assistance in technology and operations to enable more successful domestic production. Examples include IKCO’s manufacturing of French cars, Sahar Dairy’s manufacturing of Danone Products, and NIOC’s production of oil with Shell’s technology and expertise.
A similar dynamic underpins the Telepizza deal. Domestic fast-food operators in Iran have struggled to ensure efficient supply chains, intuitive inventory and sales technologies, robust brand protection, and winning management practices. This has made scale all but impossible to achieve.
These areas are precisely where a franchisor like Telepizza can offer support. Telepizza offers MIG access to unique intellectual property in the form of the food menu and branding and marketing collateral, as well as providing assistance in creation of a supply chain, training for management and staff, and implementation of key technologies for ordering, sales, and delivery. They also bring the experience of successful rollouts in other complex markets.
If Telepizza and MIG can adapt the global formula for success to the Iranian market, the food sector at large will be jolted by the new and highly-competitive entrant. This should see other fast-food chains in Iran driven to improve their product, and it will also encourage further foreign and domestic investment in the sector. Outcomes include consolidation among existing players and a diversification of the market offering for consumers.
Moreover, consolidation in the fast-food sector around a few key brands will also mean consolidation of buying-power for the food products that go into each pizza, hamburger, or burrito. Today, McDonald’s in Russia purchases most of its supplies from domestic producers. The fast-food chain’s growth was a major contributor to consolidation and expansion in Russia’s agricultural sector. A similar outcome could be expected in Iran, where large-scale farms remain rare, leading to inefficiencies across the value chain.
While the prospect of increased competition and purchasing power leading to better market offerings is consistent with the neoliberal doctrine, it is important to note that both ownership and labor will likely remain in Iranian hands. Under a master franchise agreement, the franchisor (Telepizza) would typically be entitled a recurring franchise fee and a percentage of profits, but MIG is the owner of the Iranian company and the principal beneficiary of profits. It is MIG's entrepreneurial skills that will be tested as the brand seeks to expand.
Additionally, and perhaps most importantly, expansion in the fast-food sector is a job creator precisely where Iran needs it most. Such stores typically hire younger employees who are attracted to the flexible, shift-based work schedule. Lack of significant growth among domestic players means that possible job creation has gone unrealized.
For young Iranians seeking their first jobs, or trying to make some additional income while pursuing their studies, the type of work on offer at a fast-food restaurant could prove ideal. After all, many of the world’s greatest entrepreneurs got their start delivering pizzas.
Telepizza's supersized ambition in the Iranian market might only be matched by the ambition of these yet-unheralded pizza delivery men and women, waiting for their chance.
Photo Credit: Telepizza