TI JanFeb2016 • TPI Q1

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32 TOBACCO INTERNATIONAL JANUARY/FEBRUARY 2016 Revolution in 1979. No wonder that Iran happens to be a country where there is no shortage of homegrown brands competing with for- eign imports. Smoking is evident every- where on the streets and in the homes and non-governmental workplaces of Iran–with such brands as Caspian, Special Oshno, Bahman, Tir, Farvadin, Zar, Kish and Iranian Original Tomba being popular with Iranians. There is little doubt that a market opportunity exists for investors and foreign export- ers who are mindful of history and pre- pared to do the right thing. And if one considers the popular example of the brand Iranian Original Tomba, which is exported to Syria, Iraq and other nearby countries, there are not only domestic market opportunities in Iran, but also the possibility of developing regional or international exports. Today, many–if not most–Iranian brands come under the umbrella of the Iran Tobacco Company, which monop- olizes the market for tobacco and ciga- rette products whilst keeping an eye on the growing market for Western and other foreign cigarette companies in its own backyard. Now that Iran appears to be coming out of a period of political isolation and is relaxing its import and other trade restrictions on foreign com- panies, the Iran Tobacco Company will doubtless be increasing its watch over the competition from these companies moving forward. As indicated, there are already two multinational cigarette companies in Iran (BAT and JTI) which are leading a foreign pack that now also includes Korea's KT&G. Iran's well-established market for cig- arettes dates back to about 1860, when the first cigarettes were taken into the country by Russian and Ottoman Turkish soldiers. What is new today is that Iran's doors are opening wider than before to foreign cigarette and tobacco firms–both to those already in Iran and those that are new to the country. Iran's trade regula- tions are relaxing for the first time since before the Shah of Iran was deposed in 1979 with the Iranian Revolution. Western Brands Western brands such as Winston, Marlboro, Kent, Pall Mall and Three Stars are chief among those that have been in evidence in Iran for a number of years, both before and after the Iranian Revolution. But still there are not, as yet, too many Western and foreign cig- arette manufacturers operating inside Iran, apart from BAT and JTI, although the word is that Philip Morris is actively considering Iran as this goes to press. It stands to reason that other Western and foreign cigarette firms will be taking a serious look at Iran, even if they want to see which way the political and religious trends go. Hard to say if the water's always going to be fine, but since a relatively large percentage of Iranians smoke un- abashedly, that factor translates into a head start over some markets. But, what- ever the causes and however one inter- prets them, there really is by all accounts a steady growth market for cigarettes and tobacco in Iran and not least among young Iranians and Iranian women who are smoking more than before. Predictably, there are distribution problems for Western companies and presumably less profit on cigarette sales for them given that cigarettes are so cheap in this market, especially the homegrown brands that are always going to be cheaper than imported rivals. On the other hand, there are the usual trade- offs that can and probably are being done between foreign companies and Iran Tobacco, such as paying it for the use its facilities in Iran and perhaps for the use IRAN'S TOBACCO MARKET IRAN'S BLACK MARKET O ne threat to the future performance of both foreign and domestic cigarette companies in Iran is the "illicit trade volumes" of the black market, accord- ing to Euromonitor International, which reckons that "if the Iranian government can control borders and the retail environment, then volume sales are expected to continue their healthy growth as a result of the improved availability of products and a strong desire among the young Iranian generation for cigarettes. However, if the control of illicit trade relaxes, as happened in 2010, then there will likely be major declines in legitimate sales. There is also a strong possibility that Philip Morris will enter the Iranian market, which would totally change the current com- petitive environment due to the popularity of this American player among Iranian consumers." Most illicit cigarettes are smuggled into Iran via Dubai and not least from Turkey and Turkish Northern Cyprus which is forever a strong and steady growth market for cigarettes and tobacco regardless of concern over health issues. Black market products are collected by Iranian trucks and taken to warehouses, either outside or on the outskirts of Iranian towns and cities. Reportedly the Iranian government has eased its restrictions on legitimate Western and other foreign cig- arette companies in order to curtail this black market. Westerners and foreign cigarette firms will be taking a serious look at Iran, as they try to see which way political and religious trends are going.

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