Challenge ahead, locals say, to Pizza Hut, KFC growth in Russia

Sept. 9, 2003

VEDOMOSTI, Russia -- The number of Pizza Hut restaurants in Russia is set to grow as Yum! Brands reported it will push further into the former communist stronghold.

According to the Moscow Times, Steve Varsano, head of European business development for Yum!, was in Moscow this week to meet with Russian companies willing to open Pizza Hut and KFC franchises.

"We want to work with local companies that are capable of opening 20 KFC and Pizza Hut restaurants," he said.

Yum is planning to open at least 120 restaurants in Moscow by 2010. Four Moscow companies have already been selected as franchisees, and negotiations are still underway with two more, Varsano said.

This is the third attempt to expand the presence of Pizza Hut and KFC in the country. Presently there are just 10 Yum outlets in Russia. McDonald's, by comparison, has 104 outlets.

In Moscow alone, the fast-food market is estimated to be worth $350 million per year.

In 2000, Singapore's Acma Technologies won KFC and Pizza Hut franchise rights for Moscow. But two months ago its KFC restaurant on the Arbat was closed because it "didn't meet standards," Varsano said.

Vitaly Rudov, general manager of the "Singaporean" Pizza Hut chain in Moscow, said that AMR, an abbreviation for American Restaurants, has opened both a KFC and a Pizza Hut inside the Ramstore on Leningradskoye Shosse. AMR is a subsidiary of Pizza Nord, the only company to operate KFC and Pizza Hut outlets in St. Petersburg, where it has four Pizza Huts and two KFCs.

Pizza Nord general director Vladislav Ivanov said that in the next five years his company will open 20 additional restaurants in St. Petersburg and 30 in Moscow.

According to the report, opening franchise restaurants will require a serious investment, since Yum itself isn't planning to invest in Russia. Ivanov estimated that it would cost $500,000 to $1 million to open a new KFC or Pizza Hut site.

Andrei Petrakov, a restaurants analyst at Asessor consulting agency, doubted whether Yum could meet its target of opening 120 restaurants in Moscow by 2010, a pace of about 20 per year. He believes the lack of suitable real estate locations and the administrative barriers to acquiring such property will slow growth.

Topics: Operations Management , Pizza Hut

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