Firm Finds Fast-Food Success Easy as Pie

New fast-food networks and brands are starting to emerge from the rubble of the 1998 ruble devaluation to take their place in the local market among the multitude of nameless pies and hot dogs. One of the most successful of these, Nyam-Nyam, is already making headway into the regions.

Before the crisis Igor Chepenko, director of the firm Valentine-2000, opened a small realty office. Last year he was forced to shut up shop and decided to move into manufacturing. Initially, Chepenko and his employees, all eight of which are close relatives, opened 10 kiosks to sell pies, which they bought half-baked and frozen from other firms. Within three months, Chepenko and his family had their own production line of frozen raw materials working.

Chepenkos factory, mainly through the Nyam-Nyam outlets, now turns out half of all puff pastry pies in Moscow. He said the idea came to him in Germany, where he came across similar pie vendors at gasoline stations.

The technology is simple: At the factory pies are made from puff pastry dough with different fillings 25 in all which are then frozen at a temperature of minus 25 degrees Celsius and delivered to the kiosks, which are equipped with a refrigerator and an oven.

The pies are cooked directly in the kiosk and sold piping hot to the customers, 30 percent to 40 percent of whom are schoolchildren and students, says Chepenko.

Roughly $300,000 so far has been invested in the Valentin factory, which turns out as many as 70,000 frozen pies a day that are sold on the market for 6 to 8 rubles. Fifty percent to 65 percent of the pies go to the companies kiosks while the rest goes to other kiosks, cafes and restaurants.

Chepenko thought up the Nyam-Nyam brand for his kiosks half a year ago, after which the network started to grow much more rapidly as other businessmen decided to operate under his trademark. Now the Nyam-Nyam chain has 60 kiosks, only half of which actually belong to Valentin.

"Our niche is between the more expensive fast-food and the non-brand goods the pirozhki, pies, hot dogs and so on," Chepenko said.

Now other firms are trying to break into this niche, including the Avtokholod firm that previously produced the ovens for roadside fast-food outlets. Seeing the success of its clients, Avtokholod resolved to get involved in fast-food more specifically, in the business of selling low-price pies.

In one year, Avtokholods Pies From the Oven chain has grown to 16 outlets, said Yevgeny Kobzar, general director of the company. Avtokholds franchising experience ended unsuccessfully: It was difficult to control the quality of the pies as well as the pricing policy and the firms style. Now Avtokholod is only developing its own chain.

"I think that [such chains] will gradually squeeze onto the hot dog market and others," said Mikhail Goncharov, director of Teremok Russkiye Bliny.

Chepenko is already set on implementing more grandiose plans. He intends to triple the size of Nyam-Nyam over the next year, mainly by expanding into the regions.

"We already deliver our frozen goods to 10 cities, including Yekaterinburg, St. Petersburg, Tver, Kazan and Kursk. In Moscow the potential is much lower. Here we can increase the number of kiosks by a maximum of 50 percent," he said.

Pavel Chizhenko, a private entrepreneur from Kazan, is currently pondering whether or not he should work under the Nyam-Nyam logo or think up his own name.

"In Kazan there are only ichpachmaki and peremyachi (a type of belyash)," said Chizhenko. Ichpachmaki and hot dogs cost about 5 to 6 rubles in Kazan. Chizhenko plans to sell pies for 6 to 7 rubles, as compared to the 8-ruble average in Moscow. Chizhenko said he expects the investments in one kiosk, which is about $1,500, to pay for itself in only two to three months, after which he expects to expand.

Valentin hopes to ensure that regional enterprises buy its frozen pies by drastically reducing transportation costs by renting out refrigeration bases in St. Petersburg, Yekaterinburg and Novosibirsk that can hold 20,000 to 30,000 pies each. The present manufacturing capacity wont cope with volumes such as these and therefore a new Valentin factory will start to operate in Moscow in 2001.