A small market primed for growth

Russia's consumer foodservice industry is still relatively immature and, at US$8.1 billion in value sales in 2010, it's much smaller than other similarly developed markets like Brazil, India and China. Russia's Soviet Union-era planned economy, mass early-nineties privatisation and 1998 financial crisis all made the market—up until about 15 years ago—a very difficult place in which to run a business. Many restaurants were forced out of the market during this period, leaving behind a very thin foodservice industry that hasn't yet returned to full-strength.

However, unlike conditions in larger developing markets, where consumers tend to favour full-service dining models, Russian diners love their fast food. In fact, fast food value sales in Russia accounted for 60% of total consumer foodservice sales in 2010, a figure that compares favourably to fast food sales in Brazil (16% of total value), India (12%) and China (23%). This distribution will increase to 64% of total consumer foodservice value sales by 2015, as 84% of total foodservice value growth in Russia will come from the fast food category. Even the fast food-loving US only attributed 39% of value sales to the quick-serve category in 2010, evidence Russia is uniquely fertile ground for fast food expansion.

Russian consumers are getting richer, too. Real per capita disposable income is expected to grow at an average rate of 7% from 2010-2020, and the percentage of middle class households (those earning between 75% and 125% of the median household income) grew 6 percentage points to 30% of total Russian households in 2010. Furthermore, wealth in Russia continues to flow to urban areas, resulting in disproportionately high concentrations of money in areas easily targeted by fast food operators. Urban areas are also seeing a boom in spending on fast-food-friendly highways and commercial centres with food courts that invite sales of quick and convenient fast food. The result is an expanding, urban middle class—all located within a concentrated area with plenty of newly viable outlet locations.

Granted, Russians traditionally prepare their meals at home, and there's a heavy cultural bias toward “from scratch” cooking. However, this growing middle class is made up primarily of young professionals, a group with busy working schedules, increasingly hectic social lives, and, in many cases, no family for which to cook. As a result, these single, urban dwellers are relying increasingly on prepared foods or quick foodservice meals that take little time and effort. Single-person households are actually the most rapidly growing household type in Russia, lending an increasingly large demographic—one with a need for convenience and an open-minded approach to foodservice—to fast food operators' target market.

All about burgers

Russia's current fast food market is dominated by the “other” fast food category, which contributed 47% of total fast food value sales in 2010 and is highly fragmented, with no player claiming more than 2%. However, the lion's share of fast food growth over 2010-2015 (50%) is expected to occur in burger fast food, a category dominated by global concepts.

McDonald's has leveraged its first-mover advantage to become the largest consumer foodservice player in Russia, with a 2010 fast food market share of 19%. When the first restaurant opened in 1990, 80% of McDonald's ingredients had to be imported from other markets and processed in an enormous factory dubbed the “McComplex.” Now, private local businesses supply 80% of the ingredients at Russian McDonald's outlets, evidence of how far the market has come in terms of supply chain feasibility. Also among the top ten fast food operators in Russia are Sbarro, Doctor's Associates, Yum! Brands, Dunkin' Brands and Burger King, which joined the market most recently in 2010. With major expansions being planned by many existing players—most notably Subway, which plans to grow from 167 to 1,000 units by 2015—and competitors Papa John's, Domino's, Cinnabon and Carl's Jr. also moving into the market, things are about to get a lot more crowded.

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