Russia‟s Evolution, Seen Through Golden Arches
Alexander Nemenov/Agence France-Presse — Getty Images
A McDonald’s restaurant in Moscow
On Monday, the company celebrated the 20th anniversary of the opening of its first store in the Soviet Union.
By ANDREW E. KRAMER
Published: February 1, 2010
MOSCOW — Viktor A. Semenov was growing lettuce on a collective farm outside Moscow in 1990 when a representative of McDonald‟s stopped by.
The company had just opened a restaurant. Could he sell it a few boxes of lettuce each week?
James Hill for The New York Times
At the Mc Complex outside Moscow, buns are made now by a contractor, and McDonald's has put the building up for sale.
Mr. Semenov‟s assistant turned it down. One restaurant was too small an order.
“I said, „My friend! You see how many McDonald‟s there are in the West?‟ ”
Mr. Semenov recalled recently. “I said, „Sell them lettuce at any price. It‟s
our new strategy.‟ ”
With that, Mr. Semenov started a company that has all but cornered the market on packaged fresh vegetables in Russia.
With a buy-one-get-one-free deal on hamburgers and a traditional Russian accordion band, McDonald‟s celebrated on Monday the 20th anniversary of
the opening of its first store in the Soviet Union, a restaurant that drew long lines.
But the company celebrated a different milestone earlier this year by outsourcing the last product — hamburger buns — it had made at a
proprietary factory outside Moscow called Mc Complex. It was built before the chain opened its first restaurant. Nearly everywhere else, McDonald‟s buys ingredients, rather than making its own. But in the Soviet Union, there simply were no private businesses to supply the 300 or so distinct ingredients needed by a McDonald‟s outlet.
Everything — from frozen French fries to pie filling — had to be made from
scratch at a sprawling factory.
McDonald‟s is always a good lens through which to view the 118 or so countries where it operates. In the 20 years since McDonald‟s arrived in Russia, enough private enterprises have sprung up to supply nearly every ingredient needed to operate one of its restaurants.
Today, private businesses in Russia supply 80 percent of the ingredients in a McDonald‟s, a reversal from the ratio when it opened in 1990 and 80 percent of ingredients were imported.
Starting with pickles, which now come from the farm of Anatoly M. Revyakin, every item has been spun off from the nine production lines at
Mc Complex, spawning dozens of new businesses, some now among the most successful in the Russian food catering industry.
Buns and pies are still made at the Mc Complex site, but by an independent contractor; the building is for sale.
“Our goal is to put the business in the hands of independent suppliers,” Jim Skinner, the global chief executive of McDonald‟s, said in an interview.
Mr. Revyakin, a cucumber farmer in 1990, went on to become the Pickle King of Russian processed food after taking over the marinating line from Mc Complex; he now sells pickles to three restaurant chains and is moving into relish for Heinz.
“We make $2 million a year selling cucumbers,” he said in a phone interview.
Mr. Semenov‟s shredded lettuce business, Belaya Dacha, already accustomed to working with Western companies from the McDonald‟s
contract, exploded when Western-style supermarkets arrived in Russia in the last decade, bringing coolers capable of displaying prepackaged salads. He now sells 150 types of salad and is the lettuce magnate of Russia. And after his business success, Mr. Semenov has gone into politics, serving in Parliament with the ruling United Russia party.
Dairy went to Wimm?Bill?Dann, a milk and juice packager that became
the first Russian food company to list on the New York Stock Exchange, in
Just last year, a Russian company, Miratorg, took over supplying Chicken McNuggets. It could hardly have come at a better time for McDonald‟s — a
trade war is threatening to cut off the importation of chicken into Russia. Today, frozen French fries are still imported, oddly enough, given that Russians are famous for growing potatoes. The problem, though is finding economy of scale in processing, McDonald‟s executives said. Russians still
buy raw potatoes at supermarkets, instead of processed frozen potatoes. Until frozen potatoes catch on, McDonald‟s alone cannot provide the
volumes needed to open a processing plant.
From the day it opened the gates on the $50 million factory, McDonald‟s had intended to hand out its functions to other businesses and eventually shut it down, said Khamzat Khasbulatov, the director of McDonald‟s in
Arms-length transactions for supplies allow McDonald‟s to step back from the interaction of franchisees and food-processing companies, sparing them a headache. Russia‟s 235 restaurants have not yet been franchised.
“We knew from Day 1 that our goal was to outsource all its functions,” Mr. Khasbulatov said.
Today the restaurants in Russia employ 25,000 people, a number far eclipsed by the businesses in McDonald‟s supply chain, which employ 100,000, Mr. Khasbulatov said.
Even as it leaned on the proprietary factory in its early years, the McDonald‟s Russia operation, quick on its feet out of necessity to keep up with all the changes, has also been on the leading edge of other global business initiatives.
The worldwide pushback against coffee chains, for example, had an early test run here. Mc Cafés opened here in 2003 and espresso-style drinks are available in many restaurants; the concept was introduced in America last year.
For McDonald‟s, bringing Russia in line with its horizontal business model
is more important than ever because the country is an important market and its same-store sales are growing fast. The overseas business is generally leading both in the number of restaurant openings and growth in sales at existing restaurants.
Russian restaurants are on average twice as busy as those in the United States, with 850,000 visitors a year per site compared with 400,000 domestically.
McDonald‟s plans to invest $150 million in Russia this year to open 45 new restaurants and refurbish current sites.
And that is good news for suppliers, too; those outlets will need a lot of shredded lettuce.