Adapting to a Mega-market

 
McDonald's first branch in Russia, with 700 inside seats and a 24 m long, 27 till counter, served 30,000 curious customers on its first day when it opened in Pushkin Square, Moscow, 20 years ago. The branch is still claimed to be the world's busiest. Khamzat Khasbulatov, first manager of the store and now Russian CEO and president of McDonald's Eastern Europe, explains the special challenges posed by a vast region which has provided the burger giant with its fastest-growing market.
 
According to Khamzat Khasbulatov, the biggest challenges in building a Russian presence have been logistical and financial. There were also inevitable ideological issues back in January 1990. His previous experience involved traditional fullservice restaurants catering for people with high incomes. "Most of the Russian public were state employees and could not afford to dine out," he comments.
 
Khasbulatov started working for McDonald's in 1988 as manager of its first Russian store, following ten years at Moscow city foodservice department. The low cost base promised by American-Style fast food had obvious long-term potential but Khasbulatov had only travelled outside of the country a few times, mostly to socialist countries, and at the time he joined the business, had never visited a McDonald's. Development of a Russian presence came at a time of huge political and social change as the country moved from a socialist economy to a more democratic culture. The complexities of the situation led to a ground-breaking joint venture between McDonald's and Moscow City Government, brokered by George Cohon of the chain's Canada business. He had pursued Russian market entry since a chance encounter with the Soviet Olympic team in 1976.
 
"Everything was complicated, but perhaps the biggest issue was the lack of a supply chain," Khasbulatov says. "We could not find any reasonable suppliers with reasonable products and the commitment to the kind of quality standards which McDonald's expected." This led the embryo Russian business to take the risky step of investing in its own food processing facility - the McComplex built at an initial cost of US$45 m at Sointsevo on the outskirts of Moscow.
 
"That was a very big decision to make but it proved the right one because we needed the right quality of product and we wanted it to be reliably available in our restaurants," he says. The second big issue was the non-convertibility of the rouble, which meant spending large sums bringing goods into the country. Another important strategy to offset the impact of the non-convertible currency was re-investment of rouble income in high quality commercial real estate in Moscow, including a premium 13-storey office block close to Red Square. McDonald's branches were installed at street level with the space above leased to foreign companies, thus generating much-needed hard currency income.
 

 
| 19 February 2010 | Bruce Whitehall |