Franchising Opportunities for International Fast Food Companies in Russia

1. Franchising Opportunities for International Fast Food Companies in Russia Denis Pryamonosov MKTG - 465

2. Overview of Presentation • Evaluating the market • 1. Economic environment and competition • 2. Political and legal environment • 3. Social and cultural environment

3. 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

4. Economic Environment Macro Environment • 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

5. Economic Environment Estimated Annual Food Sales (year 2000)

6. Political and Legal Environment • 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

7. 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

8. First McDonald’s Restaurant in Moscow was open in 1990

9. Modes of Franchising Entry

10. 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

11. 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.

12. 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)

13. 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

14. 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

15. The End Thank You! Questions?