. Last Updated: 07/27/2016

The Rise and Rise Of a Fast-Food Baron

For Rostislav Ordovsky-Tanaevsky Blanco, 38, just returned from the opening of a new restaurant in the remote Siberian city of Omsk, the future of both his company Rosinter and Russia look bright. And they both involve fast food.

"One can't go wrong with fast food in a country like Russia," the businessman said in an interview last week, recalling the crowds at the opening.

"It was like McDonald's first day in Moscow," he said, his animated gestures and energy betraying what is perhaps the dynamo behind his company's rapid expansion. "Think how many cities like Omsk there are in the CIS!"

Although many Moscow diners may not recognize the name Rosinter, they are undoubtedly familiar with many of the names that make up the company's restaurant empire -- Kombi's sandwich shops, Rostik's fried chicken, American Bar and Grill, Patio Pasta, Patio Pizza, El Rincon Espa–ol, Le Chalet, Cafe Artistico and the Santa Fe restaurants.

The story of the creation of the chain began in 1984 when Ordovsky-Tanaevsky Blanco first returned to the land of his ancestors. He found two things conspicuously missing -- quality color film and good places to eat.

"I couldn't find film," said Ordovsky-Tanaevsky Blanco, who had come to the Soviet Union as part of an official South American delegation in hopes of finding Soviet movies to distribute back home. But during that visit, he saw other, more urgent, opportunities. "I couldn't find a place to eat."

"Possibilities for business are unlimited here," said the Venezuelan-born restaurant magnate, who traces his ancestry on the Russian side to a noble family that governed a Siberian province at the turn of the century. "But in 1984, these were two business options that came to me."

Ordovsky-Tanaevsky Blanco saw the opportunity, and he pounced.

He entered the Soviet market in 1987, bearing an exclusive contract for retail sales and processing of Kodak film. Soon afterward, he received dealerships for TDK, Pioneer and Aiwa electronics.

Now, less than 10 years later, his Rosinter chain includes 22 restaurants and 300 photo outlets, and employs some 7,000 people. Plans are in the works, he said, to expand the Rosinter name by opening hundreds of franchise restaurants throughout Russia. Rosinter has already begun to fuel its expansion by a private stock-market placement, and plans are also in the works to float an initial public offering.

One of the chain's restaurants, the American Bar and Grill near Mayakovskaya metro, produces a higher revenue per square meter than any other restaurant in the world, he said.

Rosinter's founder said he opened his first restaurant -- El Rincon Espa–ol, or "The Spanish Bar," located in the Moskva Hotel -- as a way of generating much-needed hard currency. His photo business was profitable, he explained, but an unconvertible ruble meant that he needed a way to generate hard currency to continue buying Western products for the retail photo business.

Although circumstances have changed -- his original convertibility concerns are a thing of the past, and his restaurants are now unable to accept payments in hard currency -- Rosinter is still firmly entrenched in both the restaurant and photo businesses.

Rosinter's eateries -- most of them reasonably priced spots such as Rostik's fried chicken, Patio Pizza and Kombi's -- have been enormously successful and cut a high-profile in Moscow. But less is known about Rosinter itself, and of those behind it.

The low-profile policy is intentional, said Henrik Winther, the head of Rosinter restaurant operations and one of the founders of the restaurant chain. "What we promote is the brand, the restaurant names," he said. "We don't stress the company side of things, simply because there is no value added that way."

However, Rosinter may soon find it harder to keep the corporate side of its affairs out of the public eye. The company is set to go public within the next two years, said Ordovsky-Tanaevsky Blanco. He would not disclose the size of the initial public offering.

"By 1998, the total value of the company should be in several hundreds of million dollars," he said, adding: "It depends on what the situation will be like after two years."

Meanwhile, to keep its expansion plans on schedule, Rosinter has turned to private investors. Last year, the investment bank Renaissance Capital did a private equity placement for Rosinter, which reportedly yielded $15 million. Winther said Renaissance will probably also be involved in the IPO.

Though Renaissance Capital refused to confirm the exact sum raised by the placement, an independent analyst said the placement had gone "extremely successfully." Though the identity of the other investors remains a secret, a large stake was acquired by the First NIS Regional Fund managed by the London-based ING Barings bank.

The analyst, who asked not to be named, said that "given Rosinter's track record in the restaurant industry and their growth perspectives," a public offering by the company would probably meet just as warm a reception.

An official for Barings' NIS Fund said the decision to invest in the restaurant company was guided by Rosinter's excellent progress in Russia over the past few years.

"Rostislav and his team are extremely effective operators. In the Russian market, implementation capability is the most critical factor for success," said the official, who asked not to be named. In coming years, Rosinter should be among the leading companies poised to take advantage of the demand for consumption in Russia, he said.

He did not say how much his bank had paid for its share, but specified it was a minority holding.

The Barings representative said an initial public offering would be, at the moment, too early for the Russian market. But he added that Rosinter would be "a very attractive company for investors who want access to the rising domestic consumption graph."

Although outsiders have been able to buy a piece of the company, the controlling stake in Rosinter is still held by Ordovsky-Tanaevsky Blanco and his family in Venezuela. The company is tight-lipped about shareholders' details, but it is known that the family controls a sprawling business empire, Cadenas Commerciales, in Venezuela. The holdings include a real-estate business, electronics dealerships, an interest in TropiBurger, Venezuela's largest fast food chain, and the distributorship for Eastman Kodak in Venezuela. Many of the company's holdings in South America are now either closed or dormant, said Ordovsky-Tanaevsky Blanco, citing as the reason the current economic crisis in Venezuela.

Lars Gudbergsen, a hospitality industry specialist with accountants Arthur Andersen, said Rosinter would profit by the equity sale because this would help improve the company's financial affairs.

"Rosinter's operational management has been a success -- they have shown they can professionally run and develop restaurants in Moscow. What they needed was financial management," said Gudbergsen, adding that Rosinter's record in running its outlets was significant in the face of the tremendous challenges in the Russian restaurant sector.

Competitive prices were the reason Rosinter's restaurants have been so successful, Winther said, adding that the company's booming sales from the first day proved it was possible to avoid the "fancy prices" charged by most Moscow restaurants -- and still turn a profit.

"We were the first to start coming into the market with reasonably priced restaurants," said Winther, who said his background as a hotelier helped him see the gap in Moscow's restaurant scene.

On the low-priced end of the Rosinter spectrum, for example, Kombi's offers deli sandwiches for about 15,000 to 25,000 rubles ($2.75 to $4.50). Patio Pizza offers pizzas in the $8 to $15 range.

Rosinter's most successful venture, according to Winther, has been the Tex-Mex restaurant Santa Fe, which falls into the medium to expensive price range. The chain does have some upper-price range restaurants, but the management says that the company's focus will continue to be on the lower-priced venues.

Restaurant watchers say Rosinter's policy of sticking to medium-range restaurants may be the right one. Sean Kennedy, director of the public relations company Kennedy & Kennedy and a former Rosinter employee, said Russia's restaurant industry is potentially very profitable because, despite its huge size, the country has just 10 percent of the number of restaurants found in any industrialized country -- and most of them are high priced.

"You can open exclusive restaurants here, and they will do well because customers have few options," he said. "But though there are a lot of overheads in this industry, it is still possible to run cheaper restaurants, which will do better because they are affordable."

Rosinter is also pushing hard to make its presence felt outside Moscow, with a 1 1/2-year-old Spanish Bar in Minsk and a Patio Pizza and Rostik's soon to follow. Also, new outlets are in the cards in St. Petersburg and Kiev, said Winther, adding that Rosinter is now scouting out Siberia and already has a Patio Pizza and a Rostik's in Omsk.

Ordovsky-Tanaevsky Blanco said he believes Russia's size, coupled with the lack of quality eateries in the provinces, eliminates the possibility that the country's fast-food market will reach its saturation point any time soon.

To take advantage of the demand, the company hopes to have 150 outlets across Russia by 1999, Winther said, a target it hopes to achieve by franchising its principal concepts of Rostik's fried chicken and Patio Pizza. Though final decisions on franchisees are yet to be taken, Ordovsky-Tanaevsky Blanco and Winther said they were looking over several proposals, mostly from the regions.

Besides this, Rosinter is also handling franchising operations in Russia for the U.S. casual dining group T.G.I. Fridays. Under a contract signed earlier this year, Friday's Worldwide and Rostik's International, a Venezualan-based investment group associated with Rosinter, will start 10 T.G.I. Friday's restaurants in Russia by the year 2003. The first is slated to open in February in Kodak Kinomir cinema near Pushkin Square.

T.G.I. officials said their choice had fallen on Rosinter after nearly two years of interviewing potential franchisees.

"We went around all their restaurants and met many of their staff," Friday Hospitality's vice presidents John Brisco and Dan Cronk said in a telephone interview from Dallas, Texas. "We were highly impressed by their marketing strategies, resource management and other operations."

Although Rosinter's restaurants are the most highly visible part of the company, they are but one item in the company's business buffet. The company still has an agreement with Kodak and owns about 300 retail photo labs across the country, which generate twice as much business revenue as the restaurants, said Ordovsky-Tanaevsky Blanco.

Rosinter's total revenues have not been made public. A 1994 New York Times article on Rosinter estimated the company's restaurants to yield revenues of about $24 million a year. A source close to the company said Rosinter's revenues have grown to an expected $80 million for the current financial year. But another source said the figure was likely to be higher, as the restaurants alone yielded as much as $60 million annually.

By nearly any measure, the company is expanding. But Ordovsky-Tanaevsky Blanco believes his company could expand faster. To achieve this, Rosinter was subjected to a thorough restructuring last year.

"When you start out, you need to keep a tight grip on all the departments," he said. When the company registered in 1989, he said, it originally had three divisions, each dealing with a separate aspect of the business -- photography, restaurants and electronics. Rosinter's electronics distributorship ended in 1994.

"But once you are established, you need a more flexible policy; each department should be allowed to live a life of its own. Only then can you keep growing," he added.

With this view in mind, Rosinter was split into several separate companies. While Rosinter remained the sole legal entity handling restaurant operations in western Russia, it also coordinates the activities of sister concerns in Siberia and other CIS cities, he said. The photo labs -- called Focus -- are supervised by Roscorp.

Another company, Rosservice, incorporates the company's broad range of service facilities, including automobile servicing, transportation, warehousing, distribution facilities and a bakery. Rosinter has also made forays into real estate -- they hold long-term leases on many of their properties -- but running restaurants and the photo outlets remains the company's main focus.

"We prefer to concentrate on the restaurant business but there are some cases when we have no other choice but to get involved in other activities," Ordovsky-Tanaevsky Blanco said, citing his company's real-estate projects. He said these were primarily motivated by the need to provide good sites and settings for the restaurants.

Last year, Rosinter also registered an offshore parent company in Europe. All the shares of Rosinter and its sister concerns were transferred to the new company, called RIG Ltd, that will serve as an investment vehicle for restaurant operations in Russia. Funds from the Barings equity placement, he said, went to this parent company. Also linked to Rosinter is Rostik International, the Venezuelan company set up to invest in Russia and other CIS countries.

Rosinter does have its share of detractors, many of whom believe that the company's financial standing has been hurt by its whirlwind expansion in the earlier stages. In this process, they say, Rosinter's present restaurants are suffering in terms of quality -- of food, as well as service.

"Rosinter is getting too big and their restaurants are suffering as a result," said one restaurant specialist.

Another source close to Moscow's restaurant industry said that funds raised by Rosinter through the equity placement have been diverted toward repaying high-interest loans taken by Rosinter to finance early expansion.

"They still have this huge debt hanging over their heads. It's well-hidden because it's been transferred from Rosinter to one of the other firms," said the source, who asked not to be identified. This, according to the source, was the reason why rates in Rosinter's eateries have consistently been creeping toward the price levels in other city restaurants.

Winther attributed the steep prices of a meal in Moscow partially to sky-high real estate rates in the Russian capital. "As long as prices for land and buildings stay at present levels, restaurant meals will be expensive," he said. "Besides this, there are import duties -- a large part of our stuff still has to be imported."

But Winther considers doing business in Russia today a piece of cake compared to just a few years ago. The restaurants now have little difficulty finding Russian service staff that match the company's demands, he said. "While earlier we'd have to spend ages training lower level staff, most of the people we hire now are well up to scratch."

Rosinter has also coped successfully with the harassment that often accompanies doing business here.

"We have to admit that organized crime is a serious problem here, especially for the smaller investor," said Ordovsky-Tanaevsky Blanco. He said the company has a special security department to protect it from racketeers and works closely with the Interior Ministry and law enforcement agencies.

Ordovsky-Tanaevsky Blanco himself believes business prospects in Russia can only improve despite the country's state of economic and political turmoil, which he says is linked to Russia's passive government.

"Rosinter is here for the long term," he said. "We know Russia and we know the restaurant business."

Rosinter's chief offers a few more reasons for his success. His own experiences growing up in a Third World country, he said, have influenced his partnerships: "I know the importance of taking care of everybody -- your employees, your partners and colleagues," he said.

And one more thing. "I never take no for an answer," he said.