Russia Becomes a Magnet for U.S. Fast-Food Chains
2011-08-09
The New York Times
MOSCOW — Earlier in his career, Christopher Wynne put his Russian expertise to work researching arms proliferation for the American government. Now he’s engaged in geopolitics of another sort: deploying American fast food for the emerging Russian middle class.
James Hill for The New York Times
A Wendy's restaurant in central Moscow.
Mr. Wynne is the top franchisee in Russia for the Papa John’s Pizza chain. His competitors include the American chains Sbarro and Domino’s, and a Russian upstart, Pizza Fabrika. But so far, compared with the largely saturated United States market for fast food, Mr. Wynne says he is finding plenty of demand.
“I could succeed in my sleep there is so much opportunity here,” said Mr. Wynne, who has just opened his 25th Papa John’s outlet in Russia, doubling the number in the last year.
American fast food has been going global for years, of course. And China and India continue to be big expansion markets. But lately, the industry is finding a growing appetite for its fare in Russia — not only pizza, but Burger King’s Whoppers, Cinnabon’s Classic Rolls and Subway’s barbecue pulled pork sandwiches, among others.
“As consumers have more disposable income they will spend it on fast food,” Jack Russo, a fast-food industry analyst at Edward Jones, said in a telephone interview. He compares the market here to the United States half a century ago.
James Hill for The New York Times
A Papa John's Pizza delivery man making a call in Moscow. Many fast-food chains are growing quickly in Russia.
For years, McDonald’s, which opened its first restaurant on Pushkin Square in 1990 and generated gigantic lines, was the only American fast-food chain in Russia. McDonald’s now operates 279 restaurants in Russia.
But other chains are flocking in. Burger King has opened 22 restaurants, mostly in mall food courts, in two years. Carl’s Jr. has 17 restaurants in St. Petersburg and Novosibirsk. Wendy’s has opened two restaurants including a flagship on Arbat Street in Moscow, and plans 180 throughout Russia by 2020. The Subway sandwich chain has opened about 200 shops in Russia, working through several franchisees. Yum Brands, which owns KFC, Pizza Hut and Taco Bell, operates a co-branded chicken restaurant chain in Russia, called Rostik’s-KFC, and Il Patio in the Italian food segment. Yum now has about 350 restaurants in Russia.
Paving the way has been Russia’s development in many cities of the modern infrastructure needed for fast food to flourish — including malls with food courts, highways with drive-through locations, and specialty suppliers of frozen foods and packaging.
Moreover, Russian consumers are increasingly affluent, partly because of the trickle down from the nation’s lucrative oil exports. And though they still trail far behind the average household income of Americans — $43,539 in the United States versus $7,276 here — Russian consumers tend to have a large portion of their money for discretionary spending.
They are unburdened by the hangover of consumer debt that has curbed American purchasing power. Nor do Russians have high medical bills because the health care system, if flawed, is largely socialized. The income tax is a flat 13 percent. And a majority of Russians own property mortgage-free, as a legacy of the mass privatization of apartments in the 1990s.
As a result, the fast-food chains find they can charge higher prices in Russia than in America. The average check at a Russian fast-food outlet — $8.92 according to research by a Wendy’s franchisee here — is significantly higher than the United States average of $6.50.
A large “the works” pizza at Papa John’s in the company’s home base of Louisville, Ky., for example, costs $14, compared with $21.62 for the same pizza in Moscow.
Ready buyers include Valery V. Mamayev, a man who reached his 30s without ever ordering a pizza. But he has been a steady Papa John’s customer since a shop opened in the spring in his neighborhood, the Maryino district, an hour’s drive from central Moscow. Maryino is a cityscape of concrete apartment blocks, tangled skeins of traffic-clogged thoroughfares and, these days, an ever growing array of food chain outlets.
On a recent Sunday, Mr. Mamayev padded into the hallway of his apartment building in boxer shorts to take delivery of a pie topped with chorizo, salami, ham, Italian sausage and pepperoni.
“All I have in the refrigerator is a jar of lightly salted pickles,” said Mr. Mamayev, a 32-year-old diesel mechanic. “I thought, that’s not really something to eat. It’s easy and fast to order pizza. And pizza is tasty.”
James Hill for The New York Times
Russian consumers are increasingly affluent, allowing fast-food chains like Wendy's to charge higher prices than they do in the United States.
By opening 19 restaurants in Moscow — besides the six in other cities — Mr. Wynne’s Papa John’s franchise has become the third-largest takeout pizza company in the city.
“The bottom line is the opportunity is here,” said Mr. Wynne, who in a presentation to prospective investors earlier this year said the Russian operation had 21 percent annual revenue growth in stores open more than a year. The franchise does not disclose its average sales per restaurant but says it is the highest figure among 35 countries where Papa John’s operates.
Mr. Wynne, who is 34, speaks fluent Russian and holds a master’s degree in international affairs from George Washington University. He was formerly in the United States National Nuclear Security Administration, entrenched enough that he had a top security clearance. But in 2007, sensing the time had come to beat swords into pizza pans, he acquired 51 percent of the Papa John’s Russian franchise.
Mr. Wynne says it costs about $400,000 to set up a store in Moscow, which can turn an operating profit in three months. The enterprise is well financed, with a $10 million loan at 7 percent interest from the United States Overseas Private Investment Corporation, an agency that encourages American exports.
Moscow, a city of 13 million, so far has only about 300 pizza restaurants — compared with 4,000 in Manhattan, which has a population of about 1.6 million. That, for Mr. Wynne, is a market begging to be mined, which Papa John’s is doing in part with advertising focused on developing pizza delivery customers among men ages 25 to 35. Because pizza can be delivered with beer here, a free bottle is sometimes part of the promotion.
Not everything has gone smoothly for Mr. Wynne. Russia’s weak courts and poor protection of intellectual property rights have posed problems for all American chains.
Papa John’s settled out of court with a pizza restaurant in Moscow that called itself Papa John’s, by persuading the owner to rename his location Papa’s Place.
Starbucks had more severe run-ins with Russian trademark squatter. For years, a Russian man, Sergei A. Zuykov, claimed to own the brand here and was trying to sell it for $600,000. Starbucks never paid, but the dispute delayed its entering the market until 2007. It now has 47 Starbucks outlets in Russia.
And not all Western food forays have succeeded here, as some companies have stumbled over cultural differences difficult to anticipate.
Campbell Soup, for example, left Russia this year because of soft sales on four flavors of soup stock sold in pouches. It had seemed a sure bet because the varieties included a broth that could cut the labor time for making borscht. But as it turned out, Russians prefer to build their borscht from scratch.
On the other hand, Papa John’s hottest-selling pizza this spring was a recipe made especially for the local market but found in no Russian cookbook: a topping of blue cheese, chicken, celery and Tabasco sauce.
