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. Last Updated: 07/27/2016

Iconic Brands Making Late Entry to Market

It's been 17 years since McDonald's landed spectacularly in Moscow and a whopping 35 years since Pepsi snuck behind the Iron Curtain, but some of the most iconic U.S. brands are only now finding their way into the market.

Attracted by rising incomes and increased economic stability, two mega-brands from the store shelves and main streets of the United States are ready to move in. The Campbell Soup Company will start selling its products on the broader retail market in October and the Starbucks coffee chain will open locations in Moscow by the end of the year.

With coffee shops already occupying every corner and major players established in the soup market, the question is whether the two may have already missed the boat.

They obviously don't think so.

"Moscow is a big market, Russia is a big market," said Carole Pucik, communications manager for Starbucks.

"We are not an American soup company trying to tell Russians how to make soup," said Campbell's general manager in Moscow, Peter Ellis.

Thirty-two billion bowls of soup are consumed annually in the country -- or 228 for every man, woman and child -- so opportunities are still huge, Ellis said.

"If we convert 3 percent of the combined market in Russia and China from homemade to commercial soup, it will be worth $5 billion a year," he said.

Even if the retail market seems cluttered, analysts argue that rapid expansion will mean ample opportunities for the newcomers.

"Russia is the second most attractive retail market in the world, after India," said UralSib consumer analyst Andrei Nikitin, citing a study by AT Kearney, a management consulting firm. "Smart businesses understand that."

"The underlying reason for their entrance into the Russian market at this point is quite common. It is the emergence of a middle class on the back of political stability and growing disposable income," Nikitin said. "Both markets are far from being saturated."

Preparation and market research have been painstaking, and both Starbucks and Campbell's having spent several years planning their entry.

"We have been here almost 2 1/2 years talking to consumers and have conducted around 5,000 interviews," Ellis said.

The company has even hired a cultural anthropologist to help it understand the roots of Russia's soup obsession.

When McDonald's opened its first restaurant in Moscow, consumers may have been willing to line up for hours for a taste of the West, but experts say that the allure of foreign brands has diminished over the last few years and big brands cannot rely on their names for success.

"The fact that these companies are big in the United States means nothing here," said Alexei Krivoshapko, chief consumer analyst at Deutsche Bank.

"Both companies will have to adapt to the Russian consumers and to 'Russianize'," said Jean-Luc Viard-Gaudin, general manager of London-based branding company Identica.

Campbell's Russian products will have the iconic branding, but be tailored to the Russian consumers, Ellis said.

Under the Campbell's Domashnaya Klassika logo, a pointed mixture of the Latin and Cyrillic alphabets, the company will sell soup bases designed to speed up the cooking process.

"We consider the Russia homemaker in the kitchen a partner rather than a competitor," Ellis said.

The biggest challenge for the company will be to convince people to change their established habits. To help do this, Campbell's will spend big on a comprehensive marketing campaign, including television and newspaper advertising and shop-floor sampling, Ellis said.

Citing bottled water and disposable diapers as good examples over the past decade, Ellis argued that certain product areas can be commercialized quickly. Although companies like Uncle Ben's have had some success, this has still yet to happen with soup.

"With respect to Campbell's, I think that the market is more or less open to what they have to offer," Krivoshapko said. "The convenience-food segment is set for rapid growth."

The most import factor is the ability to set up production in Russia to minimize costs, he said.

For now, Campbell's products for the Russian market will be produced in Germany, but the company is looking to start producing locally as soon as possible.

If Campbell's is looking to compete in a traditional bastion of homemade soup, Starbucks is leaping on the back of a very modern phenomenon -- Russian coffee culture. Here, the fact that companies like Coffee Bean, Coffee House and Shokoladnitsa have already blazed a path could help.

"It is only during past the few years that there has been mass demand for coffee houses and other inexpensive cafes," UralSib's Nikitin said. "Mass marketing is successfully promoting different consumption habits among younger, busier Russians."

Identica's Viard-Gaudin said Starbucks had been successful in countries where drinking coffee was not at all a tradition, so Russia should represent less of a challenge.

"If you look at McDonald's and how successful they are in Russia, I see no reason why Starbucks can't do the same," Viard-Gaudin said.

Starbucks spokeswoman Pucik said the pricing policy would be competitive, without providing specifics. A cappuccino at Coffee Bean costs 93 rubles ($3.65), while the price is 99 rubles at Coffee Bean and 119 rubles at Coffee House. In the United States, Starbucks charges around $3, or about 75 rubles, for a 350 ml latte.

The biggest challenge Starbucks faces is finding locations in Moscow's booming property and real estate market, Krivoshapko said.

The next step will be establishing a presence outside of the capital. Both Campbell's and Starbucks say they are currently looking only at Moscow and the surrounding region, but that if all goes well, they are keen to cast their gaze farther.

"The companies will be looking outside of Moscow and St. Petersburg," UralSib's Nikitin said. "The regions are much lower on the growth curve -- on average from three to seven years behind Moscow -- and will be yielding much higher growth rates."

And while foreign companies prefer to have a clear idea of the political situation before making investment decisions, the approaching State Duma elections in December and the presidential election in March don't seem to have caused much concern.

"Elections and international relations have nothing to do with soup and coffee," Nikitin said.