“Croneyburger please, easy on the austerity”: Inside Russia’s fast-food farce

Map of Russia and Russian Flag adapted from images at state.gov

(Business New Europe – bne.eu – Nick Allen in Berlin – April 13, 2015)

The trademark meat dish could perhaps be called “The director’s cut”: Two prolific Russian film directors recently sought a $19mn state credit from President Vladimir Putin to launch an unlikely new national fast-food chain as a counterweight to McDonald’s and other foreign operators. And they got it.

Combining their profile, chummy ties with the Kremlin boss, the buy-local mantra and rising anti-Western sentiment, Andrei Konchalovsky and Nikita Mikhalkov landed almost RUB1bn for Yedim Doma! (“Let’s Eat at Home!”), after plugging its “socio-political nature” in a letter to Putin in March, Kommersant reported.

Nice work, said rivals, given the parliament voted on April 10 to cut the federal budget for the first time since 1998 in view of the immense financial pressures on the country. “To develop a business using the state’s money and placing the risks on its shoulders is probably the dream of every entrepreneur,” Mikhail Kudryavtsev, marketing director of Russian jacket potato chain “Kroshka Kartoshka”, told the slon.ru website after the news broke that Let’s Eat at Home! will be dining out.

Giving such a label to a fast food start-up might seem like calling a trekking company “Couch Potato” to this 17-year veteran of the Russian market. “Nonsense”, was its marketing director’s verdict – with one vital qualification: The brand is already known to the public, since it belongs to Konchalovsky’s wife Yulia Vysotskaya, who presents a home cooking TV show by the same name, and uses it to sell frozen vegetables and berries.

Putin, known to occasionally socialise with the directors (who are brothers and the sons of the man who composed the words of the Soviet and Russian anthems), had Deputy Prime Minister Arkady Dvorkovich handle the proposal, which was promptly approved.

70% of the cash needed for construction of two factory kitchens, 41 cafes and 91 stores selling prepared meals will now come as a state-guaranteed loan, which the directors claim can be recovered in about five years. The remaining 30% will be private investment, according to Russian media reports.

Rivals off the table

The Russian fast food market was worth RUB1.131 trillion ($21bn) in 2013, according to Kommersant. Helpfully for domestic brands, economic hardships and tensions with the West have cleared some of the competition since Russia’s annexation of Crimea from Ukraine in March 2014.

File Photo of Russian McDbnald's Crew with U.S. Diplomat

As US and EU economic sanctions kicked in, McDonald’s closed its three restaurants on the peninsula, citing “manufacturing reasons independent of” the corporation. This prompted demands in the parliament in Moscow that the fast-food giant exit Russia altogether.

As the Ukraine crisis deepened, so did scrutiny of America’s most famous eatery: In July, Russia’s consumer rights watchdog accused McDonald’s of misleading customers about the energy values of some burgers and said it had found coliform bacteria in its wraps and salads. Shortly after, a second authority opened an investigation into the cheese used by McDonald’s.

Having in 2010 announced plans to open 180 restaurants across Russia, US hamburger chain Wendy’s said last summer it was withdrawing from the country. The decision had nothing to to do with politics and was brought about by the new management’s lack of interest in the Russian market, the company said.

And in January, California-based fast-food chain Carl’s Jr. said it would shut down more than 30 outlets in three Russian cities amid the volatile economic environment.

You can’t have your burger and eat it

While 56% of the population have eaten in McDonald’s, a survey conducted in September by the FOM pollster found that 67% supported calls for the company’s ejection from the country.

But in the same poll, Russian chains did not even make the top five favourite choices of respondents who regularly tuck into fast food. McDonald’s took 40%, followed by KFC, assorted pizzerias, Burger King and Subway. No companies serving Russian food garnered more than 2.5%.

It’s all a far cry from the heady days of 1990, when the concept of fast food was alien but the Soviet Union allowed McDonald’s to open its first restaurant in Moscow amid détente with the West. Huge numbers of people queued for hours to spend several days’ wages on a taste of the outside world’s most famous forbidden fruit.

Empire strikes back

But as people will jump to tell you, fast food is partly a Russian invention anyway, with the English word “bistro” coming from the Russian bystro, meaning quick. As the story has it, impatient Imperial troops who had just defeated Napoleon in 1814 would bark this at Parisian waiters, embedding the word in international usage.

This story featured in the conception of one of the first Russian fast food chains Russkoe Bistro, which opened in 1995 to offer high-quality cuisine in a cheaper format than foreign competitors. Its logo showed a uniformed Cossack, evoking tradition and great victories, but also a questionable dash of Russian nationalism. The chain failed due to shoddy products, but roll the clock forward 20 years and the imagery is the flavour of the day again as the country squares up to the West.

The new Kremlin-blessed venture already seems to have stuck in the public’s throat, though, despite the current patriotic climate. In an online poll of more than 1,800 people by the Rossbalt news website, 88% said they do not agree with allocating so much state money to the project. But 9% still support it. “It is a great initiative, since in Russia we do not have a national fast-food network. In the 90s we already tried to do it with Russkoe Bistro but failed,” says Andrey, a top manager with a Moscow telecoms company, who did not want his surname used. “The irony is that these guys will have to hire foreign management anyway, since Russians do not have one historically, not in fast-food operations at least. It’s common knowledge that there are three areas where we don’t make the grade, hotels, tourism and fast food – not even after 25 years of practice!”

Meet the new New Russians

After years of emulating Western mores, Russians may just be getting fed up with fast food anyway. They are becoming healthier, and drinking and smoking less thanks to government initiatives and a public health awareness campaign. Almost 30% of Russians now also exercise regularly, according to polls, up from 20% in 2012. “In our family we encourage our kids (aged 15 and 5) to regard fast food as ‘junk’, no matter if it’s foreign or local, and not to be consumed on a regular basis,” adds Andrey.

Yedim Doma! might yet hit the right spot in the fast evolving new environment. Russians are genuinely interested in supporting home industry – if it cuts the mustard. The success of the brother directors’ pitch reportedly owes much to its promotion of localism, with around 35% of ingredients sourced in the region, and produce also to be supplied to nearby orphanages and boarding schools.

But people should also be aware that very little Russian produce these days is really all-Russian, notes Kroshka Kartoshka’s Kudryavtsev. “You have to understand that ‘Russian products’ is a myth,” he told slon.ru. “With our company there would be no eggs and meat without imports of chicken feed and so on. So to build a brand on ‘hurrah patriotism’ is nothing more than a PR stunt.”

The new chain can easily go the same way as others before it, Kudryavtsev believes: “Everyone shouts about it when the press release goes out, and two weeks later it’s forgotten.”