Home-court advantage?

Perhaps the most interesting variables in play in Russia are the local competitors that are standing firm against the global giants. While McDonald's and its ilk face formidable local competition in a number of developing markets, Russia is unique in the number of local operators that remain significant in the competitive landscape. Four of the top ten fast food concepts in the market are locally-owned, and all four have consistently increased in market share over the past five years, even as the shares of Yum! Brands, Sbarro, and Baskin-Robbins remained comparatively stagnant. These local players include fifth-ranked crepe chain Teremok and sixth-ranked baked-potato chain Kroshka-Kartoshka, each of which have grown to over 100 outlets within the last decade. Yum! Brands also recently acquired 100% ownership of Rostik's-KFC, a 160-unit chain that had previously been a co-branded partnership between Yum! Brands and chicken fast food-competitor Rostik's International. Acquisitions like this will likely become more common as additional players ramp up their attempts to secure a Russian presence.

The growth potential in Russia is clear: Per capital spending on foodservice is still very low, consumers have demonstrated a preference for fast food, and the country's considerable wealth is concentrated around two large cities that offer widespread expansion opportunities. Given these factors, operators that invest in Russia are poised to reap considerable benefits relative to those in other developing markets, many of which feature tougher competition from independent operators and less enthusiasm for fast food. What's less clear, however, is exactly how much risk may be involved with this volatile market. Given the country's turbulent political history and economic dependence on natural resources, the health of the Russian market depends, in large part, on unpredictable external forces. Furthermore, the Russian consumer population is incredibly diverse, and rural and urban demographics are often subject to wildly different economic conditions. As such, Russia offers real opportunities for foodservice players, but any growth in this market won't come without exposure to real risk, as well.

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