Costa, Rosinter Plan Coffee Shops

Rosinter RestaurantsDercach, left, and Ordovsky-Tanayevsky Blanco announcing their plans for a coffee shop chain on Tuesday in London.
Leading British coffee shop chain Costa Coffee is set to open in Russia early next year, after parent company Whitbread announced that it had signed a joint venture with restaurant group Rosinter on Tuesday.

The deal will see Costa become the second major foreign chain to break into the congested Russian market, after U.S. giant Starbucks opened up its first Moscow store last week.

The first Costa will open on Moscow's central Pushkin Square in the first few months of 2008, Costa's managing director, John Dercach, said in an interview from London on Tuesday.

Over the next five years, the companies have set themselves the target of opening up 200 Costa cafes across the country, but that number could well be exceeded, Rosinter chairman Rostislav Ordovsky-Tanayevsky Blanco said by telephone Tuesday.

"We really intend to do much more. But instead of announcing that we are going to do 500,000, we are being on the conservative side," Ordovsky-Tanayevsky Blanco said.

For the first 12 months, the companies will concentrate on Moscow, St. Petersburg and possibly Novosibirsk, Ordovsky-Tanayevsky Blanco said. Costa will then look to expand into the other approximately 20 cities around the country where Rosinter already has an operating network, he said.

"Moscow is not Russia and they are two markets," Ordovsky-Tanayevsky Blanco said. "Our plan is not Moscow-based."

Rosinter, which runs a string of eateries including TGI Fridays, Il Patio and Planet Sushi, is one of the country's biggest restaurant operators.

Of the 200 total proposed outlets to open around the country, approximately 50 to 70 cafes could be set up in Moscow, Dercach said.

The chain is also eager to expand into other CIS countries and will look into options in Belarus and Ukraine in about a year, the companies said.

Costa, which currently has over 900 stores in 20 countries around the world and opened in both Shanghai and India last year, has been eyeing an entrance into the Russian market for about a year, Dercach said.

The company approached Rosinter earlier this year and the partnership was forged after Rosinter insisted that the deal be a joint venture and not a franchise.

"It is a very unique situation," Ordovsky-Tanayevsky Blanco said. "It is a 50-50 joint venture, 50-50 putting in the money, 50-50 sharing the risks and 50-50 sharing of the benefits."

In recent years, Moscow's coffee shop sector has boomed, with an array of domestic chains, such as Coffee Bean, Coffee House and Shokoladnitsa, flooding onto the market.

Ordovsky-Tanayevsky Blanco acknowledged that competition in Moscow was tough but said that with rising incomes and a growing middle-class fueling demand, the country's coffee shop market was still far from saturated.

"There is a little bit of uphill to climb in Moscow because of the very strong position of other brands, but we think that there is the possibility for us to get a leading position, although it will be more difficult than in the other cities," Ordovsky-Tanayevsky Blanco said.

Tuesday's announcement comes on the heels of the opening of the first Moscow store by U.S. coffee house giant Starbucks. Last week, Starbucks opened its first Moscow branch on the historic Arbat. The store is the second Starbucks to start work after one opened up in a Khimki shopping center outside Moscow in September.

Starbucks is opening in Russia under a franchise agreement with Kuwaiti firm MH Alshaya, which also runs Mothercare stores in the country.