Culverizing in Russia
Prepared For:
Amy Coon
Prepared By:
Troy Bauer
Ashley Drews
Alaina Muche
Aleece Sullivan
November 25, 2008
Table of Contents
Executive Summary…………………………………………………………………………….3
Situation Analysis……………………………………………………………………………4
Market Summary………………………………………………………………………4
Market Demographics…………………………………………………………...4
Market Needs……………………………………………………………………4
Market Trends……………………………………………………………………5
Market Growth………………………………………………………………5
Industry Analysis……………………………………………………...…………………5
Market Analysis……………………………………………………………………….…5
SWOT Analysis…………………………………………………………………………7
Competition……………………………………………………………………………8
Products Offered……………………………………………………………………8
Keys to Success………………………………………………………… .…8
Critical Issues…………………………………………………………………………….9
Marketing Strategy..........................................................................................................10
Mission…………………………………………………………………………………10
Marketing Objectives…………………………………………………………………10
Financial Objectives………………………………………………………………11
Target Markets……………………………………………………………………11
Positioning…………………………………………………………………………11
Strategies…………………………………………………………………………11
Marketing Mix………………………………………………………………………14
Marketing Research………………………………………………………………15
Financials………………………………………………………………………………………15
Break-even Analysis………………………………………………………………15
Sales Forecast…………………………………………………………………………15
Expense Forecast……………………………………………………………….16
Controls………………………………………………………………………………………17
Implementation…………………………………………………………………………17
Marketing Organization………………………………………………………………18
Contingency Planning………………………………………………………………18
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EXECUTIVE SUMMARY
Amy Coon, Professor of International Marketing, has presented her class with an
international marketing project involving expanding into one of four foreign countries
and choosing one of four product categories. A strategy was also created detailing our
expansion strategy into the selected country. Russia was our chosen country and the
food and beverage industry was our chosen product category. The project was broken
up into two parts, Part A and Part B.
PART A: In Part A, the main objective was to select the product category and
come up with quantitative data on the food and beverage market. We looked at
company sales potential, market potential and initial investment. Demand was also
researched and it was found there is a huge demand for fast food restaurants at the
current time and into the future. There are currently a small amount of fast food
restaurants in Russia and many are expanding into the recently free economy. Due to
the demand, Culver’s was selected as our foreign partner. Culver’s is a very well run
franchise, so we have decided to franchise with them. Also, with their current success
in the U.S., moving into a foreign market can help boost sales and brand awareness.
PART B: In Part B, the main objective was to prepare a plan for market entry. It
was decided to enter the market with one restaurant and then reevaluate our success to
see if more expansion is necessary. The key elements of the product policy were
discussed as well as advertising elements, customer service activities and our targeted
sales in the next three years. Lastly, prices and policies were put into place to help our
foreign partnership run smoothly and to ensure that all operations are run correctly.
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SITUATION ANALYSIS
Market Summary
With an increasing population and personal income in Russia, spending patterns
are starting to reflect those of the United States. Introducing Culvers in Russia will open
up an inexpensive restaurant for families and single people to go to. As competition is
very minimal for the type of experience Culvers is offering, this allows a strong
opportunity for growth and for Culvers to initiate a strong brand name in Russia. The
restaurant industry accounts for around half of the retail sales in Russia showing that
eating out is an increasing trend and provides potential opportunity for Culvers. Culvers
offers an edge in the Russian economy with the different features, a unique menu and a
friendly atmosphere.
Market Demographics
Russia has a population of over 142.5 million people. Since the fall of the Soviet
Union, the population has been decreasing by approximately 700,000 people per year.
The life expectancy in Russia is 73 years of age for women and only 59 years of age for
men. The average salary in Russia is $545 USD per month or $6540.00 USD per year.
Market Needs
Russia’s spending patterns have started to reflect those of people in the United
States and Western Europe. They are also starting to focus more on name brands and
quality products. Their interest in franchising has increased due to better education on
established brand recognition, use of modern business practices and technologies and
lastly, an environment where the rule of law is not always assured. Russians are also
looking for inexpensive restaurants where they can go out to eat with their families or
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their significant others. Establishing a Culvers in Russia is a great opportunity because
there is currently nothing else compared to it in the market.
Market Trends
According to recent market research, half of Russian men and women between
the ages of 16 to 50 buy fast food at least once a week. In Russia, consumer spending
has risen quickly over the past few years, driven by an increase in come at a rate of 10
percent two years ago (2006) and 11 percent the prior year. The Russian restaurant
industry accounts for 46 percent of all retail sales in Russia. This shows that eating out
in restaurants is truly a significant trend occurring in Russia and illustrates the potential
our company has.
Market Growth
The food industry grew 24 percent during 2001 to 2006. According to the U.S
Commercial Service, the solid growth in personal incomes and ongoing real Ruble
appreciation will help food retail reach sales of more than $350 billion USD by 2011.
With its fast food market growing at a 25 percent rate annually and a net worth of $1.5
billion USD in 2006, Russia’s market is prime for new entrants.
Industry Analysis
There are many things to consider when determining the industry’s
analysis. One thing to consider is whether there are other competitors in the area. As
previously mentioned, our Culvers franchise will be strategically placed in
Moscow. There is a decent amount of competition in Moscow, with our main American
competition consisting of McDonald’s and Baskin Robbins. Another factor to consider is
whether any of the competitors have been able to expand. Currently, the food market in
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Moscow and Russia, as a whole, has been booming and generating an impressive
amount of revenue. With profits on the rise, growth and expansion are valid
opportunities. Next, it is important to consider why other similar businesses have not
been entering the market. This could mean there is a possible flaw with the
market. For our situation, similar businesses have established themselves in Russia,
but not many. We do not believe this is due to flaw, but rather lack of strategy and
planning. We feel that with the proper amount of preparation, our company will be
extremely successful in Russia. Another aspect to consider is if competition is large for
a small area or small for a large area. In the large food industry in Russia, we believe
competition is small. There are not many restaurants similar to Culvers already
established there. Our restaurant is a mixture of classic American fast-food, authentic
street vendors and warm hospitality which reduces the amount of competition.
The history of the market is almost important. This involves the extensive
research that we have already conducted on the sales McDonalds had when first
entering the market in Russia. Another concept is whether there is room for
improvement for our company which can offer an edge. This refers to the special
features that Culvers has to offer its customers. Our products are unique and an
upgrade from the products already established in the Russian market. All of these are
thoughts to consider while analyzing the industry.
2001
2002
2003
2004
2005
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Potential Customers
Growth
Individuals
8%
12,457
13,454
14,530
15,692
16,947
8.00%
Families
9%
8,974
9,782
10,662
11,622
12,668
9.00%
Take out
10%
24,574
27,031
29,734
32,707
35,978
10.00%
Total
9.27%
46,005
50,267
54,926
60,021
65,593
9.27%
CAGR
This chart shows that the growth for potential customers has been increasing
from 2001 through 2005 when looking at individuals and families. The Compound
Annual Growth Rate (CAGR) looks at the year over year growth rate applied to potential
customers.
Russia was ranked as the second most attractive retail market in Global Retail
Development Index 2006. Russia saw an increase in consumer spending and demand
for consumer products that ultimately led to increased retail sales from 2001 to 2006 at
a CAGR of 25 percent. The central regions of Moscow and St Petersburg had the
dominant share (38 percent) of the market.
SWOT Analysis
Strengths


Already strong, established brand domestically
Franchisor offers helpful, continued support to franchisees
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

Inexpensive fast-food that has an “atmosphere” to it
Adapt menu to Russian culture to increase sales opportunities
Weaknesses
 Culvers has never gone international before
 Russians have limited spending money and Culvers is slightly higher than most
fast-food restaurants (i.e. McDonalds)
 Introducing products Russians are not aware of (i.e. custard and Butterburgers)
Opportunities
 Full-fill a need that has not been met with new products
 Expand into a new market and expand sales
 Creating new products that could be used throughout other restaurants in the
United States
 Expand brand awareness internationally allowing us to expand into other
countries
Threats
 Inability to obtain necessary raw goods to produce final product
 Cost of raw goods could increase prices
 Russians brand loyalty to our competitors
Competition
Our main competitor is McDonalds, the industry leader in the fast-food market in
Russia. McDonald’s chain's profit margins in Russia are in the mid-20 percent range.
They also serve over 500,000 customers daily in their 127 restaurants in Russia.
Another competitor is Baskin Robbins; they entered the market in 1993 with one
location called a “café.” There are currently over 105 Baskin Robbins in Russia. At this
time, there are 16 Baskin Robbins in Moscow. There are chain pizza restaurants in
Moscow, but they are not our direct competitors. McDonalds and Baskin Robbins are
the two restaurants that have product categories most similar to Culvers, burgers and
ice cream.
Products Offered
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Our Culvers franchise will be offering the product of food, beverages and a great
family experience. Our products will be high quality and with competitive prices. The
people of Russia define quality foods as warm hearty meals that taste good. They want
traditional foods that aren’t considered “fast-food” but rather a family meal that tastes
like they cooked it themselves. This information shows that our products will not only be
American food, but also authentic Russian food intended to please our target market,
families. Some products we will be serving are Butterburgers, cabbage pies, soups, ice
creams and custards and promotional products.
Keys to Success
By franchising Culvers in Russia, we want to offer our products to the middle and
lower middle class citizens. We want to maintain a brand image that is consistent with
Culvers in the United States and will carry over into Russia. This image is an
inexpensive, fast-food restaurant whose main goal is to bring families together. To
adapt Culvers to Russian culture we will customize the menu in accordance to their
cuisine. Other aspects, such as branding, technology and features of Culvers will be
consistent with Culvers in the US. This way, everything will be standardized throughout
the entire company. Consistency and standardization, while still customizing the
product, are keys to success in franchising Culvers in Russia. We will be sending Troy
Bauer to Russia to oversee this project.
Critical Issues
Franchising Culvers in Russia is a risk because there are not many comparable fast food restaurants. Critical issues include:

Building brand awareness which will drive repeat customers and help with
marketing efforts
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

Expand at a reasonable rate based on success
Approach anticipated sales rationally and realistically
These issues need to be considered when franchising Culvers in Russia.
MARKETING STRATEGY
Mission
For people that live in Moscow, family may not be the most important part of their
lives as it is in more rural areas. Culvers will be a fast-food restaurant dedicated to
providing its customers with more than just a meal, but an experience. We want to
establish ourselves as a family- orientated restaurant. We will dedicate ourselves to
bringing families together at the dinner table, not at home, but at Culvers. By creating
this experience, Culvers will be supporting Russian culture through family values. At
the same time, we are still able to provide a product that is within the budget of people
with limited income.
Not all of our potential customers fit in this “family” market though. For this
market segment Culvers will be an alternative to other fast-food restaurants. Still,
Culvers will be about more than food, but the experience. For those without families,
we will be able to provide them with a traditional atmosphere, less traditional food and a
sense of home. Target markets aside, we will try to create loyalty by establishing
ourselves as a “Russian experience.” The food might not necessarily be authentic
Russian cuisine, but it is the experience that embodies Russian culture. Through this
experience we will be able to appeal to a wide variety of people and create brand loyalty.
Marketing Objectives
To franchise Culvers in Russia our marketing objectives consist of:
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


Informing potential customers of the benefit of our products and services and its
competitive advantage
Creating a relationship with customers to develop repeat business and brand
loyalty
Maintaining a positive, steady growth over the first three years
o this will also create an opportunity for continued franchising of Culvers in
Russia
Financial Objectives
Pricing will be determined by the Russian suppliers we utilize. We will have to
shop around to find one that offers the best price with the greatest amount of quality.
Russians have a lower set of income and are not willing to spend a lot of money on fastfood dining. For this reason, we will have to try to keep the prices low to maintain profit
while still considering great quality. One way to keep the prices low is to consider
redesigning our food products to remove unnecessary, costly features. Also taking less
popular foods off the menu would help cut costs to focus on popular and traditional
products. Other aspects to consider are shortening the distribution channel, shipping
products we do send overseas unassembled to help lower tariffs and having products
re-classified using a different tariff category to lower the costs. Prices will also be
determined by looking at what Russians are willing to pay for our meals, our sales and
profits and the economy. Additional financial information can be found in the sales and
expense forecasts.
Target Markets
When franchising Culvers in Russia we are looking to target families and singles
in the middle and lower class. We want to offer singles an atmosphere to enjoy foods
similar to those cooked at home. We also want to primarily focus on families in Russia
and bringing them together at a dinner table in a fun, relaxed environment. The main
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focus will be spent targeting the 16 to 50 age groups because they east fast-food the
most.
Positioning
Culvers will be positioned as a fast-food family restaurant in Moscow which
serves home cooked foods including: mashed potatoes, soups, meat entrees and
additional authentic Russian cuisine. Although, we will be looked at as a restaurant
slightly more expensive than its competitors, Culvers will offer higher quality products
than those of other fast-food restaurants with a unique dining environment. Cooking in
Russia is complicated and takes much longer due to the lack of half ready products. A
family style restaurant will be more convenient and relaxing for families.
Strategies
We are going to use standardization throughout our franchise while adapting
specific elements to the Russian culture. Adaptation can become extremely costly, but
we feel by adapting our products, we will increase our customer base. We are going to
adapt to the Russian consumers by incorporating their culture into beverages and foods
offered. One menu change would be the addition of cabbage pie. McDonalds included
this item on their menu and has had a successful turnout as it is a popular item in
Russia. Soup is also a staple in Russian diets. In addition to soups currently offered,
Culvers will feature over 15 varieties of home-style soups featuring two specials a day.
They enjoy grain soups, fish soups, cold soups, noodle soups, vegetable soups,
cabbage soups and thick soups based on meat broth. We will continue to serve our line
of soups and add new flavors to appeal to our target market.
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Although Russians enjoy drinking alcoholic beverages, we have decided not to
include these beverages on our menus. The main branding of Culvers is that of a family
orientated restaurant. We also recognize that Russians are trying to steer clear of
stereotypes about their drinking habits. By adding alcohol to the menu, it would
reinforce those drinking habits and possibly harm Culver’s image.
Another lifestyle adaptation is the aspect of delivering the food. General
manners are similar to American manners but food should be served to the oldest or
most honored guest at the table. Russians also do not believe in starting their meal
until the host invites them to. Our servers could initiate that the customers should begin
eating by saying something similar to, “Please enjoy your meal”. Quantities of food will
also be adapted as it is expected in Russia that they will always be offered portions that
are too large to eat. We could consider increasing are small, medium, and large sizes
or decide to only serve larges to accommodate this tradition.
Customer service will also have to be adapted to Russian culture. Culvers will
offer an extensive training program to Troy to emphasize the concept of customer
service and simulate American standards. In prior years, Russians were not aware of
how customer service should be applied and they still need more training on these
ideas. Great customer service will enhance the experience that customers will have at
our restaurant and separate us apart from traditional Russian restaurants.
Prices will remain relatively the same as the prices in the United States. We will
also be implementing different pricing promotions to take into consideration the low
income in Russia. As a franchisee, we will consider increasing prices of less popular
foods and decreasing the prices of foods that are eaten most often. This will allow more
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Russians to purchase foods they like best and increase the sales. We will use TV and
radio to advertise Culvers and focus on mass communication methods most often used
in Russia.
The internet penetration is increasing rapidly. According to Euromonitor
International, in 2008, there are currently over 3.4 million internet users in Russia. For
this reason, we will initiate a Russian website to inform our customers of menu options
and other specials. The technology available in the United States is consistent which
means that checkout registers and other machinery equipment will not have to change
in order to be successful.
With Culvers already a strong brand in the United States, we hope to inspire the
same confidence and trust in Russian Culvers. We also want to reinforce the family
aspect of Culvers and keep the idea of quality. We will still use “Scoopie” to help
market Culvers to children. Team Scoopie will encourage families to eat there to build
up their prize tokens to win Scoopie gear. The original American Scoopie gear consists
of basketballs, flashlights, plush Scoopie toys and Scoopie t-shirts. We can adapt our
Team Scoopie gear to reflect Russia’s culture and include hockey pucks, long sleeve tshirts, soccer balls and winter hats. The concept of the “Flavor of the Day” will also
remain as a special for customers to consider.
Marketing Mix
A marketing mix consists of controllable elements of a marketing plan; they
include product, price, place and promotion.


Product: This includes our menu items that are consistent with the current Culvers
brand, as well as adapting the menu according to Russian cuisine.
Price: While price is dependent on cost of goods, it will also be driven by price of
competitors and industry standards.
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

Place: To be a successful franchise, and abide by Culvers franchising standards, we
are going to open Culvers in Moscow, Russia. It is important to franchise in a highly
populated, urban area to help ensure success.
Promotion: The most successful advertising will be implemented in radio, TV,
magazines, and the internet.
Marketing Research
The main source of market research that we used was competitive
analysis/appreciation. Through different websites and current articles, we were able to
find a wide variety of information that helped us assess our target market, current
Russian market and competition in Russia. This information presented facts that helped
reinforce our strategies for potential success.
FINANCIALS
Break-even Analysis
To determine whether our company has broken even, we will look at sales and
expenses forecasts. We hope to have our sales exceed our expenses in order to
determine our profits. By breaking even, it will mean that our sales and expenses are
equivalent. From research of previous Culvers franchises, it is unlikely that we will
break-even or even earn a profit the first year. Within three years though, we hope to
generate revenue.
Sales Forecast
To determine the level of sales we will look at past sales, current sales and sales
of McDonalds in Russia. From this information we will develop the level of sales in the
years to come. Our best estimate of our company sales potential and market share for
this product for each of the next three years will be a combination of looking at how
other new entrants faired in their first three years, the size of the potential market and
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how Culvers performed in the United States within the first three years of opening a new
franchise. McDonalds first entered into Russia’s market in 1990. In 2005, the food
industry was the second largest market for Russia. This reiterates the amount of
potential Culvers should be able to gain in Russia with the right amount of strategy and
planning. When we look at specific markets, of the $1.5 billion market share, a
whopping $600 million of the market share resides in Moscow. This is where we plan
on targeting our entrance into the market. Along with this, we have looked at Culver’s
initial sales the first three years, which has given us a good foundation of how to set our
goals. According to the Funding Universe, the first Culvers was established in 1984
with sales of $300,000 and in the red by $40,000. The next year, they broke even and
did not actually turn a profit until the following year. This gives us an idea of how the
first three years by look for our international Culvers franchise.
Expense Forecast
To franchise Culvers, we must have between $300,000 to $500,000 USD in
liquid assets. Total investment need to franchise Culvers can range from $340,000 to
$2.9 million USD. There is also the cost of property and the franchise fee of $55,000
USD. Monthly costs of rent and utilities must also be evaluated when establishing this
franchise. We will also look at the cost of food products and how we will receive these
shipments. Paying general employees also needs to be considered; minimum wage in
Russia is 1,100 rubles or $40 USD per month. According to The Franchise Mall, in
order to operate a Culvers franchise, approximately 40 to 50 employees will need to be
hired. McDonalds currently employs over 500 people in the supplying of goods and
they use 130 independent Russian suppliers. One Russian supplier they utilize is
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Valentine 2000, primarily for buns. We will most likely try to utilize some of these
suppliers to get our food products.
Another cost to consider is the cost of advertisement. As Culvers is not currently
prominent in Russia, we need to spend a considerable amount of money on advertising
our products and developing special promotions. Next, we will need to acquire
information on the cost of equipment and machinery to produce the inventory. The total
initial cost for Culver franchises had grown to close to $2 million USD in the early 2000’s,
while a McDonald's franchise, only required an investment of about $700,000 USD,
according to the Funding Universe.
CONTROLS
Implementation
As previously mentioned, radio and television commercials are a strong part of
the mass communication in Russia. With television as the most influential media,
commercials will be placed on the most popular TV stations including ORT and RTR.
Every household in Russia contains a socket for radios. Advertisements will therefore
be placed on the most well-known stations, including, 105.9. We will also utilize
newspaper ads, including the largest newspaper in Russia, “TRUD”. This paper is one
of the most largely circulated newspapers and we feel it would best help our franchise.
Another way to implement our brand and company is through customer service
activities. As mentioned previously, we will be offering different promotions to get our
brand recognized in Russia, mainly in Moscow. Upon our franchise opening, we will
have grand opening specials and promotions to allow our products to be sampled by
potential customers. As Culvers currently does, we will be using different deals
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including but not limited to: two burgers for $3 USD, Butterburger basket deals, “Flavor
of the Day” and a free Butterburger with the purchase of a $25 USD gift card. By
offering great customer service, our franchise is likely to have a great start towards
success.
Contingency
Culvers is dedicated to creating a safe and suitable place for the whole family to
enjoy not only food, but an experience. To ensure that this is upheld, they currently
perform routine checks to make sure stores are sanitary and healthy. Main objectives
are to ensure safety of its employees as well as avoid damage of property. Having a
company emergency plan already set is the best way to get through disastrous
situations. Culvers also believes in strong communication during emergency situations.
What’s more, they have a team of specialists to help them with press releases to inform
the public on how they are correcting the emergency situation that has occurred.
When it comes to the business side of the contingency plan, our marketing and
advertising must help us gain support from company and corporate stakeholders. They
need to be informed of any and all changes that could affect their company and their
stake in that company. Since there is an expansion into a new country, with new
products and culture, the stakeholders should be informed of any and all changes
throughout the process of expanding.
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References
Russia. www.euromonitor.com. 2008. <http://www.euromonitor.com/Russia>.
Culver’s. “Franchise: Own your own Culver’s Franchise”. www.Culver’s.com. 2008.
<http://www.Culver’s.com/franchise/default.aspx>.
Travel Russia. “Eating and Drinking in Russia Review”. www.travelrussiaguide.com. 2008.
<http://www.travelrussiaguide.com/Eating-and-Drinking-in-Russia.html>.
The Federation of International Trade Associations. “Russia”. www.fita.org. January 2008.
<http://www.fita.org/countries/russia.html>.
Central Intelligence Agency. “The World Factbook”. www.cia.gov.com. 23 October 2008.
<https://www.cia.gov/library/publications/the-world-factbook/appendix/appendix-b.html>.
Breaking News on Food and Beverage Development. “McDonald’s Plans to Double Russian
Presence”. http://FoodNavigator.com. 2005. < http://www.foodnavigator.com/FinancialIndustry/McDonald-s-plans-to-double-Russian-presence>.
Funding Universe. “Culver Franchising System, Inc.” International Directory of Company
Histories, Vol. 58. St. James Press. http:// www.fundinguniverse.com. 2004.
<http://www.fundinguniverse.com/company-histories/Culver-Franchising-System-IncCompany-History.html>.
Mplans: “Food Services Marketing Plans”. Mplans.com. 2008.
<http://www.mplans.com/sample_marketing_plans/Food_Services_Marketing_Plan/>.
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