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There are more and more foreign businesses investing in Russia every day. The amount of disposable income has increased for residents of the major metropolitan areas of Moscow and St Petersburg. Retail and leisure companies from Europe and the US are looking to enter or expand and there’s a good deal of interest from the money men of the Middle East and Asia. The fast-growing food and wine market demonstrates the extent of Russia’s economic boom. More opportunities are available every day in Russia for other countries to invest in. There is a huge untapped area of wealth available to be reaped. The food sector has only made more profit as time progresses.
The Russian food industry consists of more than 25,000 enterprises employing 1.5 million people. Food sales amount to approximately US$70 billion and this value is growing rapidly, reflecting burgeoning household incomes. Contributing 11-12 per cent of gross national manufacture, the food sector is Russia’s fourth largest industry. The locals are welcoming and will be the first to warn of the difficulties and to recognize the opportunities too. The sheer size of the country, the differences between the provinces, the wide variations in the level of development, and the hundreds of major towns strung out across 2,000 miles from Smolensk to Vladivostok and from the frozen north to the Georgian border – this is a country with centuries of history but practically no experience of the modern world.
The rules of engagement are pretty clear. You need a local partner – ideally a quoted company with a commitment to transparency and high accounting standards. You bring international property expertise they bring understanding of the market and contacts with the authorities. The big cities are abuzz with projects but there are many opportunities opening up elsewhere. The key is to make sure that the partner genuinely does have the understanding and contacts for the particular area involved.
McDonalds has seen a very good return on it’s investment in Russia. The amount of people who visit their locations on a daily basis is mind boggling. McDonald’s now operates 103 restaurants in Moscow, Moscow Region, St. Petersburg, Nizhny Novgorod, Yaroslavl, Samara, and Kazan. Not only does McDonald’s in Russia serve more than 200,000 customers every day, but, since opening on January 31, 1990, McDonald’s has served more than 300 million customers and more than 66 million Big Mac sandwiches. McDonald’s in Russia employs more than 10,000 people in its restaurants, at McComplex, and in the central office. The McComplex, a massive factory opened during the financial crisis of the 90’s to ensure both quality and quantity of supply, has also been invaluable to growth. The factory provides everything from patties to pies to even laundry facilities for uniforms. McDonald’s is today the market leader achieved by the early, substantial, and continual investment by the parent company. Most brands rely on franchising, and thus have grown slower. However, because every new McDonald’s restaurant creates approximately 100 new job opportunities for local citizens, this figure continues to grow.
10,000+ Russian citizens are employed by the Coca-Cola system, which is one of the country’s largest foreign investors, with investment of more than $1.5 billion to date. More than 70 percent of the raw materials necessary to produce and market our beverages are supplied by Russian business partners. In 2007 unit case volume increased to 19%. The Coca-Cola Company’s Eurasia Group comprises a total of 43 countries, spanning from Eastern Europe and Russia in the north, to the Middle East and India in the south. The Eurasia Group covers the largest territory within the Coca-Cola system, serving a total population of about 2.1 billion people. The Eurasia Group is also the fastest growing operating group within the Company. The Coca-Cola Eurasia Group offers consumers a wide variety of more than 81 brands, including sparkling beverages, juice and juice drinks, sports drinks, energy drinks, water and ready-to-drink teas and coffees.
Starbucks has begun opening locations in Russia after a long battle to enter the market. The company started its journey in 1997 and had many obstacles to face. One of which was an infringement case that began after their patent request expired due to not being used for over a period of 3 years and a Russian company claimed the name as their own. “The company will serve local favorites such as honey cake and cinnamon buns with custard filling to be sold alongside Starbucks’ traditional blueberry muffins, and some sandwiches will include a popular Russian tomato bread,” said Cliff Burrows, Starbucks president for Europe, the Middle East and Africa.(Allison) The additions to the standard menu offering is in an effort to compete with local coffee restaurants. Kofe-House is one of the biggest coffee chains in Russia with locations every few blocks in Moscow. Also there is a new competitor showing promise of competition which is Santa Beans Coffee. This is a company started by a Russian Jewish man who is modeling his chain of stores after Starbucks and using their techniques to fit his area and the population in it. Although he is starting in less populated cities and the costs are a little steep for the locals he has been able to make profits and intends to expand his own empire of coffee houses. Starbucks plans to aggressively cluster new stores in prime locations in the world’s fastest growing economies, specifically the nations that investment analysts refer to as BRIC (Brazil, Russia, India and China). They will have a run for their money though because of a Russian company Coffee House which has locations every few blocks in Moscow. Just because a company is coming in from the US with huge amounts of cash flow it does not mean they will steal the market. Moscow has one coffeehouse for every 3,187 people, while New York has one per 365 people and Paris one per 126 people.
Unilever, the second largest producer of foods, home care and personal care products in the world, has invested 15 million Euro into boosting tea production in Russia, the company said in a statement. As of the beginning of 2008, the company implemented production of Lipton tea pyramid style packets at its St. Petersburg-based tea-packing factory. Until recently, all pyramid style tea packets had been imported from Europe. In order to implement this project innovative packaging machinery has been installed. The new production capacity will allow Unilever to produce 1.5 million pyramid style tea packets a year, thereby boosting the factory’s capacity by 16%. In the past two years, the St. Petersburg-based tea-packing factory’s production capacity has been boosted 52% to 18,500 tonnes, the statement said. The company plans to sell the new production not only in Russia, but also on the Ukrainian and Belarusian markets. In addition, there are plans to export this type of tea to Scandinavian countries. Unilever owns four major Russian enterprises: a household goods and cosmetics plant (formerly the Northern Lights plant), a tea-packing factory in St. Petersburg, Moscow Margarine Plant and the Union for the production of stock cubes, instant soups, seasonings and potato puree in Tula.
PepsiCo has recently announced its intention of building a second snack manufacturing plant in Azov. “PepsiCo has had beverage operations in Russia since 1974. PepsiCo’s snack manufacturing plant in Kashira currently hires 1,600 workers. It is one of the largest snack manufacturing plants in Russia and continental Europe, claims PepsiCo.”(Willmer) In the past the company has purchased all of its ingredients locally which helps the economy in the area and plans to continue the practice at the new plant which will employ another 1,000 people. PepsiCo controls around one fifth of the Russian soft drink market and around a third of potato chip sales, but currently controls just 2 percent of the Russian juice market through the brand, Tropicana. Their top rival is Coca-Cola which has bought Multon who is the second largest juice producer in Russia.
Church’s Chicken, the American fried-chicken restaurant chain, is going to open up to 30 restaurants over the next three years in Russia. The first restaurant is scheduled to open in Moscow in August 07, while a second one will open in St. Petersburg in September. By 2010, the company plans to open 70 outlets in Russia, Belarus, and Ukraine. In Russia, Church’s is going to offer fish items since fish is very popular in Russia. Church’s main competitor is KFC, which in Russia operates as Rostik’s-KFC. KFC has about nine times more restaurants worldwide than Church’s, and about 60 percent of all KFC restaurants are located outside the United States. The share of foreign units for Church’s is less than 25 percent. But while KFC is formidable competition for the newcomer, the Russian market offers excellent growth opportunities.
In 2006, KFC operated 122 restaurants in Russia, and is planning to open 300 more over the next four years. KFC and Rostik’s brand chicken restaurants have merged. Today over 100 restaurants operate under the Rostik’s brand in Russia and the CIS. Rostik’s provides franchise support services to both KFC and Rostik’s restaurants in Russia and the CIS. Within the next 18 months, all existing KFC and Rostik’s restaurants in Russia will be remodeled with a combined menu featuring Rostik’s local favorites such as Shashlyk, Cheburek and Pelmeny and KFC’s world famous chicken like Original Recipe® Chicken, Twister® Sandwich and Zinger® Sandwich. New logos, state-of-the-art exterior and interior designs, new uniforms and packaging will also be introduced. Over the next five years, RRL will make an investment of up to $100 million to support the development of some 300+ co-branded KFC-Rostik’s restaurants in Russia and the CIS. At the conclusion of this five-year business alliance, Yum! Brands and RRL will have the option to transfer ownership of RRL’s co-branded restaurants to Yum!. Alternatively, both parties may choose to maintain the current arrangement. Under the parties’ agreements, RRL will retain day-to-day operational management of its restaurants, while Yum! Brands will provide strategic support through its experience and technologies in managing international quick-service brands. Also under the umbrella company Yum! are other very recognizable brands in the US such as Pizza Hut, A&W, Taco Bell and Long John Silvers.
Baskin Robbins is one the largest franchises in Russia. It has the draw of a recognizable brand name and a local factory which employs citizens from the area to appease the Russians love of ice cream. Baskin-Robbins is one of the most successful franchises in Russia. In 1994, it had 30 company stores and one franchisee; in 1996, this rose to 50 corporate units and 67 franchisees. It now has a total of 82 in Russia and 93 throughout the Commonwealth of Independent States.
“According to restaurant consulting group RestCon, Russia’s fast food market is growing 25 percent annually, and was worth $1.5 billion in 2006, $600 million in Moscow alone.”(Claus) Moscow’s fast food market is estimated at between $400-700 million per year, with per annum growth of perhaps 20 percent. The market is far from saturated and, despite problems, will likely continue to expand steadily over the next several years. Working in the market’s favor are, first, the rapid expansion of shopping malls in Russia, which are creating new real estate for fast food and, second, Russia’s broad-based, young, not-so-picky clientele. “According to a recent survey of U.S. companies by the American Chamber of Commerce in Russia 50% of companies surveyed reported sales increases of 200% from 2001-2005, and 97% projected continued growth for the next 3 years.”
As long as a company takes the time to learn about the culture and makes good choices for a business partner to aid in the process it seems that there are unlimited opportunities for profit. People will always be hungry and the more choices there are the more companies stand to make a profit.
Allison, Melissa. Russians to sip Starbucks java this Thursday.” Seattle Times 04 Sep 2007, Business & Technology
Claus, Dietwald. Fast Food Giant Enters Russia .” Moscow News Weekly 31 May 2007, No 21
Willmer, Karen. “PepsiCo to open second snack plant in Russia.” CEE – Foodindustry.com 11 Jun 2007 05 Mar 2008 .
Doing Business in Russia.” Buy USA.gov. 2001-2008. United States of America Department of Commerce. 5 Mar 2008