The Fast Food Phenomenon
In 1990 fast food exploded on the Russian market in one of the Cold War’s
most memorable dying images. Today, the industry is one of Russia’s
“healthiest” - experiencing steady growth from both foreign and domestic
investment, perhaps despite the challenges the Russian market offers.
The first western arrivals were Pizza Hut, McDonald's, and Baskin
Robbins. McDonald's is today the market leader, with an impressive 80+
percent of the total market, achieved by the early, substantial, and continual
investment by the parent company. Most brands rely on franchising, and thus
have grown slower. The burger giant now operates in more than a dozen
Russian cities and has ambitious plans to open a restaurant at every Moscow
metro stop, which are perhaps ten minutes walk apart. 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. Although the business policy of increased volume has faltered in
America, it is still working well in Russia. With 10 times the service capacity
of its average competitor, the restaurant is booming in the still under-served
market.
Baskin Robbins is one of Russia’s largest franchises. Combining the allure
of a western brand name and the quality assurance of a local factory with the
traditional Russian passion for ice-cream (street kiosks for ice-cream operate
even in winter) has been a perfect recipe. Other franchises such as Pizza Hut,
its sister company KFC, Sbarro’s, and Subway all have smaller presences
and have faced more problems in the market. KFC closed a franchise on the
heavily trafficked Arbat after the store “failed to meet quality standards.”
Subway experienced a major setback after it unwittingly became involved in
a Mafia dispute over a St. Petersburg location. Also, the largely undefined
nature of franchising within Russian law is problematic. Franchises must
register with the government twice, once as a business as once as a patentsharer, and are not seen as financially independent from the parent company.
This, combined with the new scarcity of suitable real estate, has led to a
recent tapering of foreign investment and new brand names.
Another problem for western brands has been the successes of Russian
competitors. Opening a Russian franchise costs half of what a western
franchise does, with name recognition being nearly equal. Georgian chains
like the buffet-style Moo-Moo and the salad bar based Yolki-Polki have
funny names and growing pocketbooks. Both capitalize on Russian
nationalism, offering tasty traditional dishes in pseudo-traditional
atmospheres of rustic wood, vine overhangs, and costumed servers. Other,
more non-traditional options have also succeeded. Rostik’s (Russia's KFC)
has become a market leader in drive-through restaurants. The company now
has a deal with KMB Bank to open two-year credit lines for new franchises,
poising it for substantial growth.
Furthermore, most Russian fast food locations are, quite literally, based on
the streets of Moscow in the form of kiosks. The largest chains are KroshkaKartoshka (stuffed baked potatoes) Russkoe Blini (filled Russian pancakes)
and Stop Top (hot dogs). Collectively, no-name kiosks selling roast chicken
and shawrma meat rank second in popularity (following only McDonald's)
despite the infamous poor quality of their raw materials and sanitation. To
combat the food-poisoning deaths, Moscow passed a law that would have
shut down any food-service establishment without water and sewage (which
no Russian kiosk possesses) in 2002. This law has apparently been ignored or
amended, however, as kiosks are still a-plenty in Moscow (although
employees can be seen washing their hands from a bottle).
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 recent market research, half of men and women of 16-50 buy
fast food at least once a week. Most of this clientele considers location (64%)
and cost (54%) most important, while fewer regard quality (43%) and
cleanliness (25%) as important factors. This means that rapid expansion,
even with cut corners, will likely be rewarded.
Above all, history will recall fast food in Russia as an image of the dead
Cold War. McDonald's, of course, turned their arrival to the market into a PR
coup; broadcasting on morning shows across the US the lines of shapkatoped patrons waiting in line for their taste of capitalism’s victory. In 1997,
Pizza Hut aired a commercial featuring Mikhail Gorbachav addressing a
crowd praising pizza and freedom. But whatever its theoretical implications,
fast food will be fast growing in Russia for several more years.
10.10.2004
www.sras.org