Cloning Success: Franchising in the Restaurant Business

Gennady Borisovich Kochetkov
Vice President
Subway Russia Franchising Company, LLC

Impartial statistics show that the restaurant business is by far the world leader by scale of using franchising: overall 35 percent of full-service restaurants and 60 percent of fast food establishments use this form of business organization. When franchising is mentioned, the first thing that comes to mind is the restaurant industry. And vice versa too: when people start to discuss restaurant projects, they start with opportunities for acquiring franchises, which makes starting a new business relatively pain free with minimum expenditure of resources and time. Unfortunately, this is not quite the case in Russia. Until recently, Russian entrepreneurs have preferred to develop their concepts independently. The situation started to change only with the start of the crisis, when many had to start searching for ways to diversify their business. In 2009 the number of applications that we have received, as the leaders of franchising, has grown several fold.

Franchising as a phenomenon is an inseparable part of modern economics, one of the largest sectors of the innovative economy. We will start with a universally recognized fact that modern economics of developed countries is the economics of services. Their gross internal product is 70 percent to 80 percent formed in this sphere. And the restaurant business is part of the three fastest developing types of service. In the restaurant business it is the fast food sector that is growing the fastest.

To satisfy this fundamental human need ultimately occupies the whole agricultural-industrial complex of any country. This relay race takes in chains of shops selling foodstuffs as well as restaurants, cafes and bars in all their variety. Because of growth and stabilization of the Russian economy, our population is spending more and more money in various eating establishments, the market is broadening, and the number of good restaurants is growing not just in the capitals and cities with more than a million people but also in smaller cities.

The economic niche of the restaurant business is steadily growing. The population of developed countries cooks and eats food at home less and less and eats in more and more varied establishments. If in the middle of last century the average family in a developed country spent 25 percent of their food budget in public eating establishments, then at the start of the 21st century this share is more than half of the family’s food ­budget, which has opened vast ­perspectives for widening the restaurant market.

Americans calculated that every dollar spent in a restaurant generates $2.34 in associated sectors, and so restaurants are a rather powerful engine of development, and it would be unwise to underestimate that. But at the same time, restaurants solve the biggest social tasks of providing occupation for many people and raising the general quality of life. The economic niche of the restaurant business is growing steadily. If we look at the analytical reports of united Russian restaurateurs then it is easy to see this trend. And this means that there will be a stable field of opportunities for enterprising people for a long time yet.

The market of fast food service in Russia, despite the significant successes of recent years, is still in the first stages of development. World brands have entered the country and at the same time national brands have appeared. The modern assortment of types of fast food is basically international. There are about 30 recognized concepts on the world market. All of them, inherently national, passed through the strict sieve of the capitalist market, which is outside the realm of national influence and are now forming their own traditions.

The most famous of all — the hamburger — is a German method of satisfying hunger, while the sandwich owes its origins to an Irish lord; pizza was imported from Italy; seafood comes from the countries of South East Asia, and only fried chicken is traditionally American. But when we think of fast food today, no one would think of suggesting that it is connected with national roots. Fast food is international and our buyers have become very well disposed to fast food in general. Our sales are growing by 27 percent to 30 percent every year in natural expression. And this growth has not been curtailed by the crisis.

But it must be remembered that fast food restaurants are not places to socialize and to spend free time. Fast food operates on the busy person. Establishments must be present in busy places where there will be a lot of people who are spending a lot of time away from home. This includes places of work, study, travel, entertainment, shopping etc. It is easiest to find these conditions together these days in shopping centers. But fast food can also work excellently on city streets, and it is namely these establishments, as shown by our towns, that are much more effective than those in shopping centers. But to establish a presence on the streets, you need to own a large amount of commercial real estate and an organized market in that sphere. Only the crisis has led to the appearance of conditions for its formation.

With reference to the sphere of services, it is impossible to divide the market into federal and local. This classification was taken from the economics of mass production when products were manufactured centrally and then distributed to markets of varying sizes. A service is always local by definition. It is manufactured and consumed only in the moment of contact between producer and consumer of these services.

An ideal franchise creates a tried and tested business model around itself. This model, on one hand, should be well described in corresponding documents and on the other hand should offer opportunities for adapting to the constantly changing conditions of the market. These should not contain grounds for conflicts of interest and at the same time should create all the prerequisites for forming effective partnerships. Furthermore, the service or product offered by the franchise system should be of the highest quality and satisfy the most exacting demands of the consumer.