Franchising Opportunities for
International Fast Food Companies in
Russia
Denis Pryamonosov
MKTG - 465
Overview of Presentation
I.
Evaluating the market
1. Economic environment and competition
2. Political and legal environment
3. Social and cultural environment
Overview of Presentation
II. Framework of market entry into Russia
1. Mode of entry
2. Product
3. Price and franchise fees
4. Place
5. Promotion
III. Conclusion and questions
Economic Environment
Macro Environment
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•
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Population 148 mln.
Nominal GNP per capita $2,740
Real GNP per capita $4,190
Inexpensive labor market:wages vary from $70/month to
$2000/month
• Monetary instability. Ruble was devaluated from RUB 6/$
to RUB 28/$ Fall 1998
• Weak banking system
Economic Environment
Estimated Annual Food Sales (year 2000)
McDonald’s
Rosinter
56 outlets
22 outlets
$ 137 million
$ 34 million
Russian Bistro
29 outlets
$ 6.2 million
Yolki Palki
Baskin Robbins
10 outlets
72 outlets
$ 10 million
?
Markon-Express 109 mobile stands $ 19 million
Metro Express
Overall Sales
37 outlets
$ 5 million
$ 211.2 million
Political and Legal Environment
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•
•
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Political risk
Corruption and bribery
Political and governmental affiliation is important
Franchising law was introduced in 1996:
– Franchising agreement to be written and registered
– Franchisers cannot set standards or limits on the franchisee’s prices
• Weak legal protection
Social and Cultural Environment
• This type of environment is generally favorable for
franchisers
• The eating habits are close to that of Western countries.
( Not unlike Japan where fast food culture faced difficulties while
introduction)
• Russians are positively oriented towards western goods
and products. Demand for those is healthy and depends
only on income
First McDonald’s Restaurant in
Moscow was open in 1990
Modes of Franchising Entry
Sole Ventures
Usually pilot operations to
promote the trademark, conduct
market research, and modify
products to local needs
Direct Franchising
Franchising in its purest form.
More difficult to handle.
Joint Ventures
Having a local franchising
partner in Russia is the most
popular strategy, especially id
the partner has been in the
business and connected to
government
Master Franchising
Agreement between franchiser
and independently owned
subfranchiser to develop the
number of franchises in the
given area. This mode of entry
is not practiced at all.
Product
• Small product/service selection in comparison with
Western countries
• Local production is more beneficial (McDonalds – Mac
Complex in Moscow, Basking Robbins – Ice Cream Plant)
• Providing the consistent service at affordable prices
• Mac Complex – can process 150 tons of beef and 180 tons
of milk, bake 2 millions buns and cook 63 of sauce a day
Pricing
• Providing lower prices than on the Western markets.
• Use of limited assortments and local input to achieve lower
prices
• Operating in local currency, i.e. rubles
• Charging lower franchise fees and loyalties.
•
Allied Domecq which runs Dunkin’ Donuts and Baskin
Robbins in Russia waived franchise fees for its first Baskin
Robbins investors, but not for Dunkin’ Donuts. As a result
there are 84 outlets of B.R. and 5 outlets of D.D.
• Company counted on the growing brand recognition and
popularity, planned to accumulate the revenue in the from
of ongoing royalties.
Place
• Moscow and St. Petersburg are the best cities to start with.
Represent most of the Russian income and demand
• Expansion beyond the metropolitan areas is still needed
• Usually the large investments are requires into the
distribution and channel system (McDonald’s invested
more than $ 45 million, Allied Domecq - $ 40 million)
Promotion
• Direct marketing including couponing is efficient in Russia
• Television, print, billboards and radio
• The promotion does not face any obstacles the Western and
American culture images are appealing to Russian
consumers
Conclusion
• Low competition because of the political and economic
risks can be turned into an opportunity (Moscow, 9 million
people, has only 700 hundred restaurants. For this city it is
a tiny figure)
• The strategy has to be long term. Increasing royalties with
the sales and brand expansion is the good example.
• Achieving low prices is important (10% of the Russian
population can afford spending money in the fancy
restaurants)
• On the current stage of market development the joint
venture is almost necessary
The End
Thank You! Questions?