Economy, Business And Markets

McDonald’s Sees a Big Mac in Iran

McDonald’s Sees a Big Mac in IranMcDonald’s Sees a Big Mac in Iran

Days after Iran reached a deal with the West on its nuclear program, McDonald’s put up an online invitation to applications for those interested in opening the country’s first American burger franchise.

The applicant would ideally be someone with a “history of success”, “with the ability to complete a training program that can take about nine months,” “willingness to devote full time to the McDonald’s restaurant business, retail experience, knowledge of the real-estate market” and “significant capital.”

However, the US firm has not yet received the government’s greenlight to return to Iran.

After several years of disappointing growth, McDonald’s is desperate to tap into new consumer markets.

McDonald’s has been hit by food safety fears, changing food tastes, lingering workers’ action for higher pay in the US and rivalry from other fast food chains. The firm’s share price has been stagnant since early 2012 and global sales are falling.

With a young population of over 70 million, and more importantly, an established fast food culture, Iran might just be the ‘I’m Loving it’ slogan that the world’s largest fast food chain is looking for.  

Nevertheless, the company’s rational overtures are controversial in the Islamic Republic.

Importantly, McDonald’s, perhaps even more than carmaker Ford, is a prime global symbol of combined American cultural and economic capital. After the 1979 Islamic Revolution, McDonald’s was forced to leave the country.

However, while McDonald’s was only allowed to enter Russia when the Soviet Union and its anti-western, communist ideology was collapsing, Iran does not require such dramatic political events to integrate in the global system of transnational, mostly western, brands.

First of all, consumer tastes in Iran are very much skewed toward certain western habits and cultural standards. Iran’s countless mock franchises of global western brands, employing their logo or name (sometimes humorously adapted–like Mash Donalds) point to government acceptance as well as their fame. Fast food restaurants have been particularly popular, especially among young middle class customers and women looking for something easy and fast but less traditional and masculine than the kebab shops.

Government attitudes to foreign investment have also changed. In a bid to improve the economy and invite foreign investment, the government is less focused on debunking western cultural symbols and economic power. For example, the administration of President Hassan Rouhani has shown interest in acquiring Boeing aircraft to modernize the country’s dilapidated fleet. Even more notable is the government’s invitation of large foreign oil and gas companies to invest–a sector it has traditionally shielded from foreign influence.

For McDonald’s, potentially huge profits await in Iran. In Turkey, which most closely resembles Iran in the region both demographically and in terms of household income, McDonald’s has had a true rush over the past years. While the first franchise opened there in 1986, the number of stores and customers really started to take off in the early 2000s, when household incomes grew and food tastes became more western. Currently Turkey has about 260 franchises. In 2009, this figure stood at only 134, indicating strong growth over the past five years. McDonald’s employs over 6,000 workers in Turkey who cater to about 100 million customers yearly.

However, while tastes in Iran and Turkey might have become more western recently, McDonald’s has also changed its business formula since the 1990s to appeal to local tastes. The company started offering halal menus, causing a surge in interest from Muslims worldwide for the chain. McDonald’s also adjusts its menus to local cuisines now, like the Maharaja Mac in India made with lamb. Does this mean Iran will soon have a Mac Ghormeh Sabzi or a Kubideh Mac, after two of the country’s most popular dishes?

It is unlikely that McDonald’s will open its doors in the short run as the Iranian government might be apprehensive of the firm’s potential entrance. McDonald’s, like most franchisees, requires restaurant owners to supply the capital themselves while demanding royalty payments and rents. In this business model, a significant amount of money goes back to the firm’s headquarters, while little if nothing is directly invested in the host country.

The government is not yet ready for such profit arrangements, expert and insider comments show. An official at the influential Tehran Chamber of Commerce, Industries, Mines and Agriculture stated that: “McDonald’s preparedness to invest in Iran […] should be seen as a good omen.” However, Kaveh Zargaran also points to the government priority to attract foreign direct investment and technology transfers, both of which are limited by McDonald’s scheme. “Although the chamber believes in […] supporting trade delegations to go to different countries, technology transfer and evaluating potential investing companies in Iran should be given priority,” Zargaran told ILNA.    

According to Ramin Rabii, managing director at Turquoise Partners, an investment firm, the government is apprehensive of an economic system without capital controls.

“If a foreign investor would come in with $200 million and make a quick return of $200 million, and then for whatever reason would want to withdraw the total of $400 million from Iran, would the Central Bank of Iran be prepared to allow this entity to take out the money and leave, or not?” he told Eghtesad News.

Nevertheless, the president of the Union of Restaurant and Self-Service Owners is optimistic about the McDonald’s prospects in Iran, pointing out that no formal legal obstacles should prevent the US company from entering.

“Any foreign restaurant that wants to open a branch in Iran can apply for a permit and if obtained, open its doors,” Ali Asghar Mir Ebrahimi said, adding that there is “no particular order” to prevent McDonald’s from selling.