Scheduled Report - Public distribution

**Date:** 7/28/2008

**GAIN Report Number:** RS8305

RS8305

**Russian Federation**

**HRI Food Service Sector**

**Russian HRI Sector Growth Fueled by Rising Incomes**

**2008**

**Approved by:**

![](media/image1.wmf)Dana Johnson

U.S. Embassy

**Prepared by:**

Alla Putiy and Cynthia Barmore

**Report Highlights:**

The Russian HRI sector is growing quickly as consumer incomes rise.
National restaurant sales are increasing at a rate of 20 to 30 percent
annually, and the regional expansion of chain restaurants is driving
much of this growth. Many restaurants import the vast majority of their
ingredients, creating opportunities for U.S. exports of meat, seafood,
wine, and specialty foods. Growing consumer demand and favorable changes
in Euro/Dollar and Ruble/Dollar exchange rates are creating even more
opportunities for U.S. food and beverage products. Difficulties with
customs, port delays, and protectionism all present challenges, but the
size and growth of the HRI sector make Russia a valuable market for U.S.
producers.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Moscow ATO \[RS4\]

\[RS\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[SECTION I: MARKET SUMMARY 3](#section-i-market-summary)

[HRI Sub-Sectors 4](#hri-sub-sectors)

[Restaurants 4](#restaurants)

[Hotels 17](#hotels)

[Institutions 21](#institutions)

[SECTION II: ROAD MAP FOR MARKET ENTRY
23](#section-ii-road-map-for-market-entry)

[Distribution Channels for HRI Products in the Russian Market
23](#distribution-channels-for-hri-products-in-the-russian-market)

[Advantages and Challenges for U.S. Products in Russia
24](#advantages-and-challenges-for-u.s.-products-in-russia)

[Entry Strategy 24](#entry-strategy)

[Food Suppliers for the HRI sector
26](#food-suppliers-for-the-hri-sector)

[Section III. COMPETITION 28](#section-iii.-competition)

[Section IV. BEST PRODUCT PROSPECTS
30](#section-iv.-best-product-prospects)

[Section V. POST CONTACT AND FURTHER INFORMATION
32](#section-v.-post-contact-and-further-information)

[Contact Information for FAS Offices in Russia and in the United States
32](#contact-information-for-fas-offices-in-russia-and-in-the-united-states)

[Other Useful Contacts 34](#other-useful-contacts)

[Other Relevant Reports 35](#other-relevant-reports)

# Executive Summary

The HRI sector is one of the fastest growing segments of the Russian
economy, increasing at a rate of 20 to 30 percent per year. There are
significant opportunities for American producers to benefit from this
boom, as many importers, distributors, and managers in the HRI sector
have expressed an interest in buying new products and high-quality
ingredients.

Most of the HRI sector's growth is in the fast-food, casual-dining, and
coffee-shop segments. The majority of HRI customers are price sensitive,
but they are nonetheless interested in new and innovative products. As
the Russian restaurant culture grows more sophisticated, the demand for
different products increases.

To succeed, American exporters must be prepared to do extensive
marketing and to educate potential buyers on how to use their products.
Logistics may be a problem, especially as shipping traffic overloads the
St. Petersburg port, Russia's primary gateway for American food imports.
American products also face substantial competition from Western Europe,
Asia, and South America.

While the main markets for American products are still in Moscow and St.
Petersburg, the HRI sector is rapidly developing in other large cities.
These include Nizhniy Novgorod, Yekaterinburg, Kazan, Novosibirsk, and
tourist cities on the Black Sea such as Sochi, the site of the 2014
Olympic Games. Operating outside major regions, however, adds an
additional layer of logistical complication for American exporters. To
overcome these difficulties, they will need to collaborate with strong
importers or distributors.

# 

# SECTION I: MARKET SUMMARY 

Russia has one of the fastest growing economies in the world. Its real
GDP growth rate was 8.1 percent in 2007 and 7.4 percent in 2006. The HRI
sector is growing even faster, at a rate of 23 to 26 percent annually.
Consumer income rose 10.4 percent in 2007 after having grown 13.3
percent in 2006. In 2007 consumer demand rose 15.2 percent over the 2006
level. Russians now spend more of their income on food than any other
country in Europe, and dining out is beginning to replace the home as
the preferred venue for entertaining.

The number of restaurants and hotels in Russia lags behind that in other
countries. In the mid-1990's new restaurants first opened in Moscow and
St. Petersburg. Since then, there has been a shift in people's outlook,
and dining out is becoming the norm rather than a special occasion.
Restaurants are appearing in suburbs and smaller cities across Russia
and the development of modern shopping malls, hypermarkets, trade
venues, and entertainment centers has helped leading foodservice
operators enter regional markets more easily.

Socio-demographic factors, including urban growth and the entry of more
women into the workplace, have led increasing numbers of people to eat
their main meals in restaurants. More people are dining out for lunch,
and business lunches are standard in many mid-range restaurants. People
are also increasingly health conscious, and the younger generation often
looks for low-calorie options. As a result, in 2006 the leading
fast-food operator, McDonald's, began including calorie information on
its packaging in Russia. Other fast-food restaurants and cafes report
increased sales of healthy menu-offerings.

Russian consumers are also traveling abroad more often. Travel exposes
them to a wide variety of tastes and foods that they subsequently wish
to find at home. Russians have discovered a variety of cuisines such as
Italian, Japanese, and American in addition to long-familiar Georgian
and Central Asian culinary traditions. Russian menus are quite diverse,
and consumers tend to order multiple courses even in fast-food
restaurants and coffee shops.

Russians are also spending more on alcohol, but they are moving away
from the traditional vodka. Beer and wine are becoming increasingly
popular, as are fashionable drinks such as whisky, cognac, and brandy.
Cocktail drinks have also become fashionable and customers are
increasingly ordering spirits by brand name. Figure 1 shows the overall
increase in spending on food and beverages.

  -----------------------------------------------------------------------
  **Figure 1. Russia: Food and Beverage Spending**

  ![](media/image2.wmf)

  Source: Euromonitor
  -----------------------------------------------------------------------

## HRI Sub-Sectors

### Restaurants

The Russian restaurant market has grown considerably in the past few
years. According to Russia's State Statistics Bureau (Rosstat), the
volume of the restaurant industry in Russia reached \$14.6 billion in
2006, of which \$3.52 billion was located in Moscow.

The restaurant market grows annually at a rate of about 20 percent per
year nationwide. The Moscow market is the fastest growing, increasing
annually by 25 to 30 percent, while other regional markets have annual
growth rates between 12 and 15 percent. The high tempo of growth seems
to be tracking along with rising household incomes and "restaurant
culture" is advancing in Russia as a regular part of social and business
activities. Since 2003, consumers' "away-from-home" food expenditure as
a share of total consumer expenditures has grown annually by 3 to 4
percent.

The number of cafes, restaurants, and other food outlets in Russia
totals about 30,000. Although Moscow and St. Petersburg are still by far
the largest restaurant cities in Russia, leading foodservice operators
have begun regional expansion into other wealthy cities. The markets of
Moscow and St. Petersburg are expected to reach saturation in the near
future, so modern retail formats such as shopping malls, business
centers, and entertainment hubs play a significant role in regional
expansion of foodservice competitors.

The Russian restaurant market consists of several market niches, each of
which is different in terms of total food sales, number of players, and
growth rate:

-   Fine-Dining/Full-Service Restaurants: higher priced/exclusive
    outlets;

-   Casual-Dining restaurants: affordable, family dining outlets;[^1]

-   Fast-food, which is divided into two separate segments: Stationary
    fast-food and street/mobile fast-food (kiosks, stalls, etc.); and

-   Coffee shops.

Fast-food outlets, casual restaurants, and coffee houses are currently
the most popular and fastest-growing sectors in Russia. Figure 2 and
Table 1 show the growth of restaurant sales by sector.

  -----------------------------------------------------------------------
  **Figure 2. Russia: Restaurant Sales by Sub-Category**

  ![](media/image3.wmf){width="5.999305555555556in"
  height="4.113888888888889in"}
  -----------------------------------------------------------------------

  ------------------- ---------- ---------- ---------- ---------- ---------- ----------
  **Table 1. Russia:                                                         
  Restaurant Sales by                                                        
  Sub-Category**                                                             

  **RUR, billion**    **2001**   **2002**   **2003**   **2004**   **2005**   **2006**

  Cafes/bars          23.5       27         30         33         35.7       38.8

  Fast-food           63.4       78.7       103        126.2      162.7      179.6

  Self-service        3.3        3.5        3.7        3.8        4          4.3
  cafeterias                                                                 

  Street              13.3       15.3       16.5       17.9       19.2       20.3
  stalls/kiosks                                                              

  Full-service        43.7       48.9       53.5       57.6       62.4       67.8
  restaurants                                                                

  Total               147.2      173.4      206.7      238.5      284        310.8

  Source: Euromonitor                                                        
  ------------------- ---------- ---------- ---------- ---------- ---------- ----------

Three main segments of the market stand out clearly. The highest-priced
segment, "fine-dining" in Western terminology, has an average check of
more than \$70 per person. Patrons receive refined cuisine, unique
design, good service, and the availability of private dining space. The
lowest-priced segment, fast-food, mainly consists of chains such as
McDonald's, Rostik's-KFC, and Kroshka-Kartoshka. The medium-priced or
casual segment has an average check of \$20 to \$70 per person, and it
includes chains such as Il Patio, Yolki-Palki, Goodman, and Planet
Sushi. The medium-priced segment has achieved a high growth rate by
successfully combining the advantages of the other two: quality cuisine
and service at affordable prices.

Chain and franchised restaurants are no longer the exception in Russia,
especially in Moscow and St. Petersburg where the food service market is
more developed. More restaurateurs are recognizing the advantages of
developing chains due to the higher popularity and profitability of such
outlets. Chain operators have a strong market position, holding an
increasing value share of Moscow restaurants. Today, foodservice chains
comprises about 31 percent of the market. While it is clear that a
restaurant chain has more money and more clients, a stand-alone
restaurant is not necessarily less profitable. Table 2 shows the number
of Russia's independent and chain outlets in 2006.

The self-service cafeteria was the main foodservice format during the
Soviet period, and most self-service outlets are currently concentrated
in institutional catering. Institutional self-service cafeterias usually
operate with the financial support of an institution and offer
lower-quality food and services. Consequently, many clients are
switching to other foodservice formats such as fast-food and cafés/bars.

According to analysts' predictions, the market will continue to grow for
at least another five years. The market potential for Russia's
restaurants is enormous. The average public outlet in the U.S. caters to
150 people per day. In Europe, that figure grows to 300, and in Russia,
it reaches 2000.

  ---------------------- ----------------- ------------- ----------- -------------
  **Table 2. Russia:                                                 
  Consumer Foodservice                                               
  by Independent versus                                              
  Chain Outlets (2006)**                                             

  **Outlets**            **Independent**   **Chained**   **Total**   **% of
                                                                     Total**

  Consumer foodservice   45,340            8,651         53,991      100

  Cafés/bars             8,235             1,337         9,572       17

  Full-service           5,939             1,517         7,456       12
  restaurants                                                        

  Fast-food              15,346            4,047         19,393      35

  100% home              430               135           565         1
  delivery/takeaway                                                  

  Self-service           2,030             50            2,080       4
  cafeterias                                                         

  Street stalls/kiosks   13,360            1,565         14,925      26

  Pizza consumer         2,809             600           3,409       5
  foodservice                                                        

  Source: Official                                                   
  statistics, trade                                                  
  associations, trade                                                
  press, company                                                     
  research, trade                                                    
  interviews, and                                                    
  Euromonitor                                                        
  International                                                      
  estimates                                                          
  ---------------------- ----------------- ------------- ----------- -------------

**Moscow's Restaurant Market**

In 2007, Moscow is the largest city in Europe with a population of 10.47
million (according to official statistics)[^2]. While Moscow has only 9
percent of Russia's population, it generates 20 percent of Russia's
gross domestic product. With 8,000 restaurants excluding office
cafeterias, Moscow is Russia's largest restaurant market. Direct Contact
Group, a market research firm, conducted a study that estimates
consumers spent \$3.52 billion in 2006 in Moscow restaurants.
Casual-dining restaurants generated \$1.8 billion, quick-service
restaurants \$780 million, fine-dining restaurants \$340 million, coffee
shops \$180 million, and fast-food restaurants including bars, canteens,
and self-service snack bars \$420 million.

The DISCOVERY Research Group forecasts that the value of Russia's
restaurant industry will reach 630 billion rubles (\$27 billion) in
2009, with 120 billion rubles (\$5.15 billion) in Moscow. Nevertheless,
Moscow's restaurant market is far from saturated when compared to the
number of food outlets per 100,000 inhabitants in other major cities
throughout the world.

Coffee shops and casual-dining restaurants saw the most active profit
growth in 2006, with profits rising 38 percent and 32 percent
respectively. Profit growth in the fast-food sector was 26 percent.
Chains are also gradually replacing independent restaurants.

In 2006, the total number of Moscow restaurants grew by 11 percent,
while total revenue grew by 16 percent. About 4.8 million people
regularly visited the city's restaurants excluding office cafeterias.
This audience gradually increases by about 3 to 5 percent annually as
incomes rise. Figure 3 show's restaurant revenue by sub-category.

  -----------------------------------------------------------------------
  **Figure 3. Russia: Revenue by Sub-Category, Moscow 2006**

  ![](media/image4.wmf){width="6.499305555555556in"
  height="4.445833333333334in"}

  Source: Industry data
  -----------------------------------------------------------------------

**Major Restaurant Operators in Russia**

According to Formen Consulting, a consumer and market research company,
there are currently 25 to 35 restaurant chains operating in Russia, each
of which manages between 20 to 250 outlets. McDonald's, Rosinter
Restaurant Holding, Arkadiy Novikov Restaurants, and Coffee House are
the largest restaurant chains in Russia. Table 3 shows the brands,
types, and number of outlets of Russia's largest restaurant chains.

+-----------------------+----------------+----------------+----------+
| ** Table 3. Russia:   |                |                |          |
| Large Chain           |                |                |          |
| Restaurants**         |                |                |          |
+-----------------------+----------------+----------------+----------+
| **Holding Company**   | **Brands**     | **Type**       | **\#     |
|                       |                |                | Outlets  |
|                       |                |                | March    |
|                       |                |                | 2008**   |
+-----------------------+----------------+----------------+----------+
| **Rosinter**          | Planet Sushi   | Casual         | 79       |
|                       |                |                |          |
|                       |                | (Asian)        |          |
+-----------------------+----------------+----------------+----------+
|                       | Il Patio       | Casual         | 90       |
|                       |                |                |          |
|                       |                | (Italian)      |          |
+-----------------------+----------------+----------------+----------+
|                       | T.G.I.         | Casual         | 20       |
|                       | Friday's       |                |          |
|                       |                | (American)     |          |
+-----------------------+----------------+----------------+----------+
|                       | American Bar & | Casual         | 5        |
|                       | Grill          |                |          |
|                       |                | (American)     |          |
+-----------------------+----------------+----------------+----------+
|                       | Sibirskaya     | Casual         | 14       |
|                       | Korona         |                |          |
|                       |                | (be            |          |
|                       |                | er-restaurant) |          |
+-----------------------+----------------+----------------+----------+
|                       | Coffee houses  |                |          |
|                       | and            |                |          |
|                       | fine-dining    |                |          |
|                       | restaurants    |                |          |
+-----------------------+----------------+----------------+----------+
| **Rostik\'s-KFC**     | Rostik\'s-KFC  | Fast-food      | 141      |
+-----------------------+----------------+----------------+----------+
| **McDonald's**        | McDonald's     | Fast-food, and | 190      |
|                       |                | coffee houses  |          |
+-----------------------+----------------+----------------+----------+
|                       | McCafe         |                |          |
+-----------------------+----------------+----------------+----------+
| **Novikov Group**     | Different      | Fine-dining    | 30       |
|                       | concept        |                |          |
|                       | restaurants    |                |          |
+-----------------------+----------------+----------------+----------+
| **Alfa Capital        | Yolki - Palki  | Casual         | 60       |
| Partners**            |                |                |          |
|                       |                | (Russian)      |          |
+-----------------------+----------------+----------------+----------+
|                       | Malenkaya      | Casual         | 6        |
|                       | Yaponiya       |                |          |
|                       |                | (Asian)        |          |
+-----------------------+----------------+----------------+----------+
| **Coffee House**      | Coffee house   | Coffee house   | 200      |
+-----------------------+----------------+----------------+----------+
|                       | Asia café      | Casual         | 14       |
|                       |                |                |          |
|                       |                | (Asian)        |          |
+-----------------------+----------------+----------------+----------+
| **GMP Planet          | Sbarro         | Casual         | 114      |
| Gostepriimstva**      |                |                |          |
|                       |                | (Italian)      |          |
+-----------------------+----------------+----------------+----------+
|                       | Vostochnyy     | Casual         | 31       |
|                       | bazar          |                |          |
|                       |                | (Asian)        |          |
+-----------------------+----------------+----------------+----------+
|                       | Viadzhio       | Casual         | 7        |
|                       |                |                |          |
|                       |                | (Italian)      |          |
+-----------------------+----------------+----------------+----------+
| **Restaurants         | Yakitoriya     | Casual         | 53       |
| Association Vesta     |                |                |          |
| Center                |                | (Asian)        |          |
| International**       |                |                |          |
+-----------------------+----------------+----------------+----------+
|                       |                |                |          |
+-----------------------+----------------+----------------+----------+
|                       | Gi-No Taki     | Casual         | 6        |
|                       |                |                |          |
|                       |                | (Asian)        |          |
+-----------------------+----------------+----------------+----------+
|                       |                |                |          |
+-----------------------+----------------+----------------+----------+
| **RP-Com**            | Goodman        | Casual         | 8        |
|                       |                |                |          |
|                       |                | (steakhouse)   |          |
+-----------------------+----------------+----------------+----------+
|                       | Filimonova &   | Casual         | 3        |
|                       | Yankel         |                |          |
|                       |                | (fish-house)   |          |
+-----------------------+----------------+----------------+----------+
|                       | Kolbasoff      | Casual         | 8        |
|                       |                |                |          |
|                       |                | (be            |          |
|                       |                | er-restaurant) |          |
+-----------------------+----------------+----------------+----------+
|                       | Mamina Pasta   | Casual         | 2        |
|                       |                |                |          |
|                       |                | (Italian)      |          |
+-----------------------+----------------+----------------+----------+
| Source: Official      |                |                |          |
| statistics, trade     |                |                |          |
| associations, trade   |                |                |          |
| press, company        |                |                |          |
| research              |                |                |          |
+-----------------------+----------------+----------------+----------+

**McDonald's**, the largest chain of fast-food restaurants in the world,
entered Russia in 1990 and opened its first restaurant in the center of
Moscow. Currently, 196 McDonald's restaurants, including 34 McCafes,
operate throughout Russia and serve 200 million customers annually.
There are 80 McDonald's restaurants in Moscow and 35 in St. Petersburg.
The company operates in 29 Russian cities.

All McDonald\'s restaurants operating in Russia are corporate facilities
rather than franchises. McDonald\'s Russian business model contrasts
with the model used in the U.S. and Europe, where franchisees run 80
percent and 50 percent of McDonald\'s restaurants respectively.

McDonald's operates in 113 countries, and Russia is one of the ten top
countries by sales volume. McDonald's growth rate in Russia is between
20 to 30 percent annually. The fast-food giant plans to open 36 new
restaurants in Russia by the end of 2008. The company spends between
\$1.5 million to \$2 million to set up each new restaurant. Opening one
cafe costs about \$250,000. McDonald's opened 21 outlets in 2007 and 23
restaurants in 2006.

McDonald's also plans to expand its McCafe chain, its premium class
coffeehouse format. The first McCafe opened in Russia in 2002 and now
there are currently 34, 17 of which are in Moscow and 10 in St.
Petersburg. McCafe also operates in Yaroslavl, Nizhniy Novgorod,
Yekaterinburg, Volgograd, Kazan, and Ufa.

The corporation also owns the McComplex food processing plant and
distribution center in the Moscow region. It has invested \$45 million
in the McComplex.

**Rosinter Restaurants Holding** (Rosinter) is a major player on the
Russian restaurant market. Its market share, according to the
Renaissance Capital research group, was 8.5 percent in 2007. The company
gained its leadership role by its early deployment of chain restaurants
in the upper/middle-priced segment of the market where Rosinter
ownership is 17 percent. As of June 30, 2008, the holding company
operated 262 outlets, including 67 franchised restaurants in 29 cities
in Russia, the CIS, Central Europe, and the Baltic states. The company
offers Italian, Japanese, American, and Russian cuisine under its
proprietary brands (Il Patio, Planet Sushi, and 1-2-3 Cafe) and its
licensed brands (T.G.I. Friday\'s and Sibirskaya Korona).

Rosinter created a strategic alliance with the American Yum!Brands, and
it opened a chain of fast-food restaurants under the Rostik's-KFC brand
in 2006. In a joint venture with Whitbread PLC, the company is currently
developing the Costa Coffee chain in Russia.

In May 2007, Rosinter Restaurants Holding held its IPO and offered 26
percent of its shares at the price of \$32 per share. The move attracted
\$100 million and fixed the market value of the company at \$384
million. Rosinter reported consolidated revenues of \$268.2 million in
2007.

The company holds three main objectives. The first is to accelerate the
expansion of its coverage in Russia, the CIS, and Europe. The second is
to increase its presence in transportation facilities, trade centers,
and Moscow residential areas. The third is to develop new formats of its
brands for high-traffic locations. In 2008, Rosinter plans to open 90
outlets, including 27 franchised restaurants.

**Arkadiy Novikov Restaurant Group** (Novikov Group) includes nearly 45
restaurant-retail-entertainment projects of various formats and price
ranges. The company has launched and managed restaurants since 1992. The
Novikov Group is slightly less chain-oriented. It operates more than 30
different Moscow high-end concept restaurants, along with a few
restaurant chains such as Yolki-Palki, Malenkaya Yaponiya, Kish-Mish,
and Sushi Vesla. It also operates the premium grocery chain Globus
Gourmet, the Russian branch of the French gourmet chain Hediard, the
greenhouse complex OOO Agronom, and the Premium Class catering business.
The Novikov Restaurant Group's consolidated revenue was \$180 million in
2006.

Six months ago, the rapidly growing mid-priced restaurant chain
Yolki-Palki, which specializes in traditional Russian cuisine, attracted
the interest of the portfolio investor Alfa Capital Partners. The
alliance now concentrates on developing the current brands Yolki-Palki
and Malenkaya Yaponiya, which specializes in Japanese cuisine. The
Yolki-Palki chain, established in 1996, currently operates 47
restaurants of both Yolki-Palki and Malenkaya Yaponiya, nine of which
opened last year.

**RP-Com** (Restaurant Professional Company) is one of the top 10
foodservice operators in Moscow. RP-Com currently owns the following
restaurants in Moscow: eight Goodman steakhouses, three Filimonova &
Yankel fish-houses, eight Kolbasoff beer-restaurants, the French café Le
Gâteau, and three Italian Mamina Pasta restaurants. While RP-Com is not
the leader in any one foodservice format, the company's future growth
seems promising because it has built a reputation on quality and
service. During its five years of foodservice experience, the company
has gained success in the niche of North American full-service
restaurants. This type of restaurant is less developed in Russia, and
currently only a few independent operators specialize in grill menus.
The Goodman chain became the third largest chain of North American
full-sevice restaurants in Moscow as well as in the whole of Russia. The
company is planning significant expansion beyond the capital city,
including plans to open Goodman's steakhouses in each city in Russia and
the CIS with a population of one million or more.

Table 4 shows the revenue of Russia's largest restaurant chains.

+-------------------------------+-------+-------+--------+-----------+
| **Table 4. Russia: Revenue of |       |       |        |           |
| Restaurant Chains, \$         |       |       |        |           |
| million**                     |       |       |        |           |
+-------------------------------+-------+-------+--------+-----------+
| **Holding Company**           | **2   | **2   | **     | **2007    |
|                               | 004** | 005** | 2006** | (plan)**  |
+-------------------------------+-------+-------+--------+-----------+
| McDonald\'s                   | \~    | \~    | 840    |           |
|                               | 550   | 700   |        |           |
+-------------------------------+-------+-------+--------+-----------+
| Rostik Group                  | 146   | 18    | 3      |           |
|                               |       | 8.3\* | 05\*\* |           |
+-------------------------------+-------+-------+--------+-----------+
| Novikov Group                 | 81.9  | 94.9  | 180    |           |
+-------------------------------+-------+-------+--------+-----------+
| Coffee House                  |       | \~ 50 | 90     |           |
+-------------------------------+-------+-------+--------+-----------+
| Restaurants Association Vesta |       |       | 70-80  |           |
| Center International          |       |       |        |           |
+-------------------------------+-------+-------+--------+-----------+
| Kroshka-Kartoshka             | \~ 20 | 39    | 58     | 85-90     |
+-------------------------------+-------+-------+--------+-----------+
| Shokoladnitsa                 | 13    | 25    | 57     |           |
+-------------------------------+-------+-------+--------+-----------+
| GMP Planet Gostepriimstva     | \~ 40 | \~ 60 | over   | over 100  |
|                               |       |       | 50     |           |
+-------------------------------+-------+-------+--------+-----------+
| RP-Com                        | 9     | 35    | \~ 40  | 70        |
+-------------------------------+-------+-------+--------+-----------+
| Source: Restaurator Magazine, |       |       |        |           |
| trade press                   |       |       |        |           |
+-------------------------------+-------+-------+--------+-----------+
| \* This is Rosinter's         |       |       |        |           |
| revenue. The consolidated     |       |       |        |           |
| sales of the Rostik Group in  |       |       |        |           |
| 2005 were                     |       |       |        |           |
|                               |       |       |        |           |
| \$235 million.                |       |       |        |           |
|                               |       |       |        |           |
| \*\* Rosinter's revenue was   |       |       |        |           |
| \$205 million, while          |       |       |        |           |
| Rostik\'s-KFC's revenue was   |       |       |        |           |
| over \$100 million.           |       |       |        |           |
+-------------------------------+-------+-------+--------+-----------+

**Fine-Dining/Full-Service Restaurants**

Haute cuisine appeared in Russia in the mid 1990's, and there is no
shortage of high-end restaurants with extravagantly expensive checks in
Moscow and St. Petersburg. Fine-dining restaurants are associated with
names such as Arkadiy Novikov and Andrey Delos, but most experts agree
that the top-category restaurant sector is saturated. Restaurateurs are
moving toward casual restaurants where tables turn over more quickly and
profit margins are higher. Nevertheless, there is still an opportunity
for U.S. products in the fine dining segment because consumers are loyal
to high-quality imported products such as marbled beef, seafood,
high-end wines, and spirits.

**Casual-Dining Restaurants**

Casual dining is one of the fastest-growing segments of the restaurant
market, with growth rates between 15 to 25 percent annually. The leading
position in this segment belongs to the chain operators, including those
specializing in Russian, North American, Italian, and Asian cuisine. The
value growth rate of full-service chain restaurants increased
significantly from 11 percent in 2001 to 27 percent in 2006. Moreover,
the leading chains occupied 36 percent of total full-service chain
restaurant sales in 2006. The poor development of independent operators
across most full-service restaurant formats decreased the number of
non-chained casual restaurants, especially in Moscow and St. Petersburg.
Independent restaurants face strengthening competition from cafés, bars,
and fast-food outlets, which provide good-quality food at lower prices.
Even though Russian consumers are becoming wealthier, most of them are
not willing to visit high-priced foodservice outlets on a regular basis.
They prefer a diverse menu at democratic prices. The average price for a
meal at one of these restaurants ranges from \$20 to \$70 per person.

Although meat dishes are a staple of almost every Russian restaurant,
North American--style steakhouses are not yet widespread, accounting for
only 3 to 4 percent of the Moscow market. Experts attribute this to the
fact that opening a steakhouse costs 15 to 20 percent more than opening
a regular restaurant, due to the need for special grilling equipment and
a downtown location to attract a profitable number of customers. Rent is
significantly higher in the city center than in the suburbs. Another
added expense is the marketing and education necessary to promote
steakhouse culture.

Currently, the main American-cuisine restaurants in Moscow are T.G.I.
Friday's and the American Bar & Grill chains (operated by Rosinter),
Goodman steakhouses (operated by RP-Com), and three Torro Grill and Wine
Bars. Even though the number of steakhouses is growing slowly, overall
consumption of steaks is increasing steadily. These restaurants use
imported meat, usually from Australia or the U.S., since local suppliers
do not provide consistent quality.

The enormous popularity of Japanese cuisine made Asian full-service
restaurant chains the most dynamic category of casual restaurants in
2006, with value growth rate of 25 percent. Japanese restaurants, with
sushi and fish menus, strongly represent the fish and seafood concept
restaurants in Russia. As Russian consumers become increasingly health
conscious, sushi's image as a healthy food is an essential component of
this growth.

Very few casual chain restaurants have a centralized system of
purchasing. Most decisions regarding products and purchasing are made at
the restaurant level. On the one hand, there are many more opportunities
for sales, since each restaurant is a separate account. On the other
hand, individual sales are smaller and do not allow for the development
of exclusive distribution rights and consistent volumes.

According to industry experts, casual eateries use imported meat,
seafood, desserts, seasonings, and a variety of ingredients. While
quality is of some concern, prices dominate purchasing decisions.
American products will need to be cost-competitive to attract business
in this segment.

**Fast-Food**

The fastest-growing restaurant category in Russia is the fast-food
sector with an annual growth rate of 25 to 30 percent from 2004 to 2007.
According to restaurant consulting group RestCon, Russia\'s fast-food
market was worth \$1.5 billion in 2006, including \$640 million in
Moscow alone. Experts predict that the fast-food and street-food market
will not reach saturation until 2014 to 2016.

McDonald's, Rostik's-KFC, and Sbarro chains together occupied 36 percent
of fast-food chain sales in 2006. McDonald's remained the absolute
leader with a 30 percent value share of fast-food chain sales.
McDonald's' experience has become a "how-to manual" for leading Russian
fast-food operators. From McDonald's, they learned how to create a
system of quality control and standardized foodservice technologies.
Table 5 shows the market shares of fast-food chain operators.

  ------------------- ------------------------ ---------- ---------- ---------- ----------
  **Table 5. Russia:                                                            
  Market Shares of                                                              
  Fast-Food Chain                                                               
  Operators**                                                                   

  **Company**         **Global Brand Owner**   **2003**   **2004**   **2005**   **2006**

  McDonald\'s         McDonald\'s Corp         35.3       30         30.7       30.3

  Rostik\'s           Rostik\'s International  3.6        5          5.9        4.3
                      Inc                                                       

  Sbarro              Sbarro Inc               2.8        2.9        3          3

  Rostik\'s-KFC       Rostik\'s International                                   2.8
                      Inc                                                       

  Teremok             Teremok - Russkie Bliny             0.4        0.6        1.4

  Kroshka-Kartoshka   Tekhnologiya & Pitanie   0.4        0.6        1          1.4
                      Ltd                                                       

  Chaynaya Lozhka     Solo OOO                 0.5        1.2        1.3        1.4

  Baskin-Robbins      Dunkin\' Brands Inc                                       1.3

  Others                                       57.4       56.9       57.5       54.1

  Total, %                                     100        100        100        100

  Source: Official                                                              
  statistics, trade                                                             
  associations, trade                                                           
  press, company                                                                
  research, trade                                                               
  interviews,                                                                   
  Euromonitor                                                                   
  International                                                                 
  estimates                                                                     
  ------------------- ------------------------ ---------- ---------- ---------- ----------

The food-court format is gaining popularity among fast-food operators.
The most dynamic chains - including Rostick's-KFC, Chaynaya Lozhka,
Sbarro, and Baskin-Robbins - have opened numerous outlets in shopping
malls and hypermarkets.

Russian consumers are growing fond of the simple menus, good-quality
food, and affordable prices offered by fast-food outlets. Consequently,
more Russians are visiting fast-food outlets on a regular basis.
According to an online inquiry by Online Market Intelligence, 91 percent
of Moscow and 93 percent of St. Petersburg consumers frequented a
fast-food restaurant in 2007. Pancakes, burgers, chicken, pizza, and
baked potatoes are the most popular types of fast-food in Russia.

Americans often move quickly through food courts, stopping for a quick
bite while shopping. Russians, however, usually visit food courts to
socialize. In Russia, the food court is a popular venue for young people
to spend time together.

Stand-alone kiosks are popular in Russia, but there is some
consolidation in the industry. The number of independent stands is
decreasing, but sales and the number of chained outlets are increasing.
Domestic chains dominate the street fast-food market. Chains such as
Krosha-Kartoshka (potato stand), Stardog!s (hot dogs), and Teremok
(Russian crepes) are ubiquitous throughout the major cities and are
expanding regionally as well. Table 6 shows the growth of different
restaurant chains in Russia.

  ------------- ----------------- --------------- ----------- ---------- ---------- ----------
  **Table 6.                                                                        
  Russia:                                                                           
  Fast-food and                                                                     
  Free Flow                                                                         
  Chains**                                                                          

  **Chain       **Country of      **Year est. in  **Number of                       
  Name**        Origin**          Russia**        Outlets**                         

                                                  **2005**    **2006**   **2007**   **March,
                                                                                    2008**

  Kroshka-      Russia (Moscow)   1991            141         170        230        252
  Kartoshka                                                                         

  Stardog!s     Russia (Moscow)   1993 (2003 new  186         197        224        234
                                  brand)                                            

  McDonald\'s   USA (Canada)      1990            137         157        174        190

  Baskin        USA               1992            118         132        139        139
  Robbins                                                                           

  Teremok       Russia            1998            62          92         135        142

  Rostik\'s -   Russia/USA        1993 (2005 new  87          97         135        141
  KFC                             brand)                                            

  Sbarro        USA               1997            52          83         111        114

  Riksha I Van  Russia (Moscow)   1998 (2006 new                         79         90
                                  brand)                                            

  Chaynaya      Russia            2001            28          42         59         64
  Lozhka        (St.Petersburg)                                                     

  Eurasia       Russia            2001            30          49         49         49
                (St.Petersburg)                                                     

  Moo - moo     Russia (Moscow)   2000                        14         17         17

  PrimeStar     Russia/USA        2007                                   13         14

  Grabli        Russia (Moscow)   2003            1           3          4          5

  Source:                                                                           
  Restaurator                                                                       
  Magazine,                                                                         
  trade press                                                                       
  ------------- ----------------- --------------- ----------- ---------- ---------- ----------

Fast-food restaurants tend to use a higher percentage of local
ingredients (around 50 percent) as compared to other restaurants. This
decision is driven by high turnover and the need for a consistent
supply-chain more than by direct preference. Several fast-food chains
have created internal supply-chains based in Russia. For example,
McDonald's created McComplex to produce nearly 56,000 hamburger patties
daily, but McComplex cannot produce enough to meet its needs. The
company therefore buys additional hamburger from meat suppliers.

Produce, dairy, and egg products are usually sourced locally, but import
opportunities do exist. Many chains use imported sauces and ingredients.
Smaller fast-food restaurants that do not have the capital or scale to
justify creating their own production facilities may also import meat
and produce. Poultry and beef are the leading imported meats in this
category. Most of the larger international chains have an internal
distribution network, while some independent and smaller chains rely on
traditional or specialty distributors.

Fast-food is an increasingly attractive market for overseas investors
and the appearance of new fast-food players in Russia is not surprising.
Experts explain the active interest of global restaurant chains in the
Russian fast-food market by its high, steady annual growth rate.

CKE Restaurants, a major U.S. fast-food company, sold its franchise for
Carl's Junior, its main brand, to St. Petersburg-based Yarkaya Zvezda in
2005. The franchise is estimated to have sold for \$300,000 to \$500,000
plus a royalty ranging from 1.5 to 2 percent of the chain's future
turnover. The agreement stipulates that by 2013, Yarkaya Zvezda will
operate no fewer than 50 Carl's Junior restaurants in Russia. In
September 2007, Yarkaya Zvezda opened its fifth premium fast-food
restaurant in St. Petersburg, and it plans to enter the Moscow market in
2008.

Church\'s Chicken, the American fried-chicken restaurant chain, opened
its first Texas Chicken restaurants in Moscow and St. Petersburg in 2007
through its franchise European Active Corp. It plans to open up to 30
restaurants in Russia over the next three years. Church\'s main
competitor is KFC, operating as Rostik\'s-KFC in Russia. In March 2008,
KFC operated 141 restaurants in Russia, and it plans to open 300 more by
2010.

Quick, a Belgian fast-food restaurant, signed an agreement in July 2007
with Russian Tashir Group to invest about \$100 million to build 80
restaurants over five years. Quick is a competitor for McDonald's. Quick
Russia will create three market lines, opening restaurants in
shopping-center food-courts, street retail, and drive-ins. Quick Russia
opened its first restaurants in Moscow and Tula shopping centers in
April and in Kaluga and Yaroslavl in May 2008.

**Coffee Houses**

Today, Russia's coffee-shop market is one of the most dynamic segments
of the HRI sector with profits of 30 percent. The Russian State
Statistics Committee (Rosstat) estimates that there are approximately
1,000 coffee shops in Russia with revenues of about \$400 million.
Specialized coffee shops chains continue to demonstrate the highest rate
of value growth, reaching 45 percent in 2006.

Coffee shops have become increasingly popular over the past several
years among urban consumers in the largest Russian cities. They view
coffee houses as the most convenient place for socializing, while most
provincial citizens still prefer tea and pay visits to each other's
homes.

Currently, coffee-shop chains are highly prevalent in Moscow and St.
Petersburg. There is an increasingly high concentration of the leading
chains, including Coffee House, Shokoladnitsa, Moka-Loka, McCafé, and
Idealnaya Chashka. Non-chain coffee shops are significantly less common.
Industry analysts have begun to forecast saturation, so leading
operators are increasing investment in regional expansion. Rapid
development of modern hypermarkets, trade centers, shopping malls, and
business centers helps leading operators, more so than independent ones,
to enter regional markets. Coffee shop-chains increased their value
share of total cafés from 8 percent in 2001 to 22 percent in 2006.

Two leading coffee-shop chains, Coffee House and Shokoladnitsa, together
opened 146 new outlets in 2007. Most of these are located in the food
courts of new shopping malls and business centers. Large companies in
the market benefit from placing their outlets in shopping centers that
attract a large number of visitors. Highly profitable coffee shops
continue to attract new customers, and new local chains such as Kofejnya
No 7 in Ekaterinburg, Traveler\'s Coffee in Novosibirsk, and Pitjcofe in
Rostov-on-Don have strengthened their competitive positions in local
markets.

In 2007, two leading multinational coffee-shop chains appeared on the
Russian market, adopting different development strategies. The world
leader, Starbucks Coffee Company, opened its first outlet in Moscow in
September 2007 and, as of July 2008, operates 6 coffee shops in the
capital. Following Starbucks, Whitbread and Rosinter Restaurants Holding
"Rosinter" signed a joint-venture agreement and announced their
intention to launch the Costa Coffee chain in Russia. According to the
contract between Whitbread and Rosinter, more than 200 Costa stores will
open in the next five years. They will concentrate on Moscow and St.
Petersburg during the first year, expanding to other Russian regions
thereafter. In the near future, the leading restaurant chain in Russia,
Rosinter, will rename its Moka-Loka coffee chain as Costa Coffee. The
appearance of these leading multinational coffee chains on the Russian
market may change the situation of the coffee-shop segment. Table 7
shows the growth of Russia's coffee-shop chains.

  --------------- ----------- ---------- ---------- ---------- -------------------- -------------
  **Table 7.                                                                        
  Russia:                                                                           
  Coffee-Shop                                                                       
  Chains**                                                                          

  **Chain Name**  **Number of                                  **Locations**        **First Year
                  Outlets**                                                         of
                                                                                    Operation**

                  **2005**    **2006**   **2007**   **March,                        
                                                    2008**                          

  Coffee - House  81          115        180        200        Moscow,              1999
                                                               St.Petersburg,       
                                                               regions              

  Shokoladnitsa   35          74         155        158        Moscow,              2001
                                                               St.Petersburg,       
                                                               regions              

  Moka - Loka     22          21         16         16         Moscow,              2002
                                                               St.Petersburg,       
                                                               regions              

  Idealnaya                              13         13         St.Petersburg,       2000
  Chashka                                                      Moscow, regions      

  Coffee - Mania                         11         11         Moscow               2001

  Coffee Bean     4           5          8          8          Moscow, regions      1996

  Starbucks                              2          2          Moscow               2007

  Costa Coffee                                      1          Moscow               2008

  Source:                                                                           
  Restaurator                                                                       
  Magazine, trade                                                                   
  press                                                                             
  --------------- ----------- ---------- ---------- ---------- -------------------- -------------

The Russian coffee-shop format differs from Western standards, because
Russian consumers require a larger assortment to satisfy their eating
patterns. According to industry sources, coffee accounts for 80 percent
of sales for Idealnaya Chashka and Coffee Bean, but only 40 percent of
those for Coffee House and 15 percent for Shokoladnitsa. Coffee shops in
Russia constantly increase their non-coffee selections to include
alcoholic drinks, dairy cocktails, salads, hot dishes, desserts, and
tea. The average bill at one of these coffee shops is between \$15 and
\$25, and drinks average only 30 to 40 percent of the total check.

Russian coffee shops that sell a variety of desserts and confectionery
products have created a new market for U.S. exporters of nuts, fructose,
marzipan, and dried fruit.

The rise of chained coffee shops has boosted consumer interest in
specialty coffees such as cappuccino and flavored coffee. This trend has
created a growing demand for Ready to Drink (RTD) coffee. RTD coffee
gained a Russian presence in 2003. It is regarded as a fashionable
western drink and has proven particularly popular among urban consumers
in the larger cities. RTD coffee, especially with milk, is another
interesting market for U.S. exporters.

### Hotels

According to Russia's State Statistics Bureau (Rosstat), Russia had
approximately 4000 functioning hotels able to accommodate about 354,000
guests at the end of 2006. Almost 17 percent of hotel rooms are in
Moscow, 13 percent are in Russia's popular Black Sea resort area Sochi,
and 9 percent are in St. Petersburg.

Russia's hotel industry is facing a severe room shortage. Jones Lang
LaSalle and Colliers International, the real estate money management and
services firms, estimate that there are currently only 14,000 Western
business-style hotel rooms available. In fact, most existing four and
five-star hotels in Moscow and St. Petersburg were built during the last
decade. As a result, Moscow currently has just 8,000 Western
business-style hotel rooms, and St. Petersburg has only 3,000. This
pales in comparison to other European capitals. For example, London and
Paris each have 100,000 such rooms. Other large cities in Russia often
have few lodging options other than old Soviet-style hotels. Given the
increase in tourism in recent years, the surge in demand for hotels and
other types of accommodation is causing major problems in Moscow, St.
Petersburg, and almost all other regional centers. Moscow alone hosts
about 4.5 million tourists every year, with St. Petersburg close behind.
In contrast, Vienna attracts 3 million and Berlin attracts 3.2 million.
Due to its close proximity to Europe, St. Petersburg attracts most of
the international business travel. The current average occupancy rate in
Moscow is an estimated 73 percent overall, rising to around 80 or 90
percent in the three-star hotel segment. There is an estimated shortage
of 10,000 rooms every year. Table 8 shows the available rooms by
category in Moscow and St. Petersburg in 2007.

  ----------------------- ---------------------- ------------------------
  **Table 8. Russia:                             
  Available Rooms in                             
  Moscow and St.                                 
  Petersburg by Category,                        
  2007**                                         

  **Star Rating**         **Moscow**             **St. Petersburg**

  5                       8%                     9%

  4                       16%                    20%

  3                       43%                    50%

  2                       28%                    7%

  Small hotels            5%                     14%

  Total                   100%                   100%

  Source: Becar                                  
  Commercial Property                            
  Moscow and St.                                 
  Petersburg municipal                           
  government                                     
  ----------------------- ---------------------- ------------------------

Accommodation costs, high by international standards, are a symptom of
the room shortage. Table 9 shows the increase in accommodation costs
over time. Room prices have risen from 20 to 40 percent per year since
2000, and a typical room in a Western hotel now costs more than \$300
dollar per night. While these prices are good for hotel operators'
profits, the lack of good affordable accommodation reduces Russia's
tourism potential, particularly for business travel. Other sectors such
as restaurants and theaters could grow even faster if there were higher
tourist capacity.

  --------------- ---------- --------- ---------- --------- ------------- ---------- --------- -------------
  **Table 9.                                                                                   
  Russia:                                                                                      
  Accommodation                                                                                
  Costs in Moscow                                                                              
  Hotels (\$/per                                                                               
  double room/per                                                                              
  night)**                                                                                     

  **Star rating** **2004**             **2005**             **% change    **2006**             **% change
                                                            2005/2004**                        2006/2005**

                  **Price    **Mean    **Price    **Mean                  **Price    **Mean    
                  range**    price**   range**    price**                 range**    price**   

  5               330-439    398       413-750    554       +39           445-1000   720       +30

  4               115-348    246       140-566    332       +34.9         150-650    400       +20.5

  3               60-186     123       76-255     149       +21.1         100-275    188       +25.8

  2               45-57      50        53-67      61        +22           65-80      73        +19.7
  --------------- ---------- --------- ---------- --------- ------------- ---------- --------- -------------

Hotels, however, take time to develop. The bureaucratic requirements to
operate a hotel have slowed the pace of development for large
internationally managed hotels. Most internationally branded hotels are
operated as franchises rather than under the direct control of the home
office. Business tourism makes up a substantial share of the market,
with almost 2 million international visitors per year on top of domestic
business travelers. Business travel has steadily increased without
showing the same seasonal fluctuations of tourism. The number of
business travelers in Russia is forecast to grow 300 percent by 2015.
Table 10 describes Russia's five and four-star international hotels.

Regions outside of Moscow and St. Petersburg represent a small fraction
of the tourist industry, but some areas such as Sochi and Vladivostok
are growing quickly. Yekaterinburg, Novosibrisk, Nizhny Novgorod,
Krasnoyarsk, Kaliningrad, and Kazan are other regions where tourism is
growing, particularly for business travel. Major hotel chains are
opening facilities in these regions, and the Radisson just opened a
160-room Park Inn Hotel in Yekaterinburg.

As many experts predicted, the 2014 Sochi Winter Olympic Games is
spurring hotel development in the region. All in all, 390 new hotels are
expected to be built across Russia by 2010, with many in Moscow and
several in major regional capitals. International hotel operators are
building hotels before upcoming events in the Russian regional centers.
The following events are planned for the near future: the Shanghai
Cooperation Organization Summit in Yekaterinburg in 2009, the APEC
Summit in Vladivostok in 2011, the World Students Games in Kazan in
2013, and the Sochi Winter Olympic Games in 2014. Hyatt and Marriott
will soon open hotels in Yekaterinburg, while Accor Group and Marriott
will open hotels in Vladivostok by 2011.

There are usually two restaurants in four-star hotels and three
restaurants in five-star hotels. According to industry sources, tourists
often eat breakfast and dinner in their hotel, but they eat lunch in the
city. In an attempt to attract more of the tourist industry, hotels are
offering special catering services for different events. On average,
room rentals account for 70 percent of hotel income, services account
for 10 percent, and food and beverages account for 20 percent.

+-----------+---------------------+-----+-----------+-----------------+
| **Table   |                     |     |           |                 |
| 10.       |                     |     |           |                 |
| Russia:   |                     |     |           |                 |
| Five and  |                     |     |           |                 |
| Four-Star |                     |     |           |                 |
| Hotels    |                     |     |           |                 |
| Managed   |                     |     |           |                 |
| by        |                     |     |           |                 |
| Inte      |                     |     |           |                 |
| rnational |                     |     |           |                 |
| Corpo     |                     |     |           |                 |
| rations** |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| **Hotel   | **Moscow Hotel      | *   | **Other   | **Planned       |
| O         | Name**              | *\# | Lo        | Expansion**     |
| perator** |                     | of  | cations** |                 |
|           |                     | R   |           |                 |
|           |                     | oom |           |                 |
|           |                     | s** |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Raffles   | Swissotel Krasnye   | 233 |           |                 |
|           | Holmy 5\*           |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Marriott  | Renaissance Moscow  | 475 | Samara    | Vladivostok     |
| Inte      | Hotel 4\*           |     |           |                 |
| rnational |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Courtyard Moscow    | 218 | St.P      |                 |
|           | City Center 4\*     |     | etersburg |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Ritz Carlton Moscow | 334 |           |                 |
|           | 5\*                 |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Marriott Grand      | 392 |           |                 |
|           | Hotel  5\*          |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Marriott Royal      | 230 |           |                 |
|           | Aurora Hotel 5\*    |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Marriott Tverskaya  | 162 |           |                 |
|           | Hotel 4\*           |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Hyatt     | Ararat Park Hyatt   | 219 | Eka       |                 |
| Inte      | Moscow 5\*          |     | terinburg |                 |
| rnational |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Inter     | Holiday Inn         | 154 | Samara    |                 |
|           | Vinogradovo 4\*     |     |           |                 |
| Co        |                     |     |           |                 |
| ntinental |                     |     |           |                 |
| Hotels    |                     |     |           |                 |
| Group     |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Holiday Inn         | 312 |           |                 |
|           | Sushevski 4\*       |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Holiday Inn         | 523 |           |                 |
|           | Sokolniki 4\*       |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Holiday Inn Lesnaya | 301 |           |                 |
|           | 4\*                 |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Crown Plaza         | 577 |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Starwood  | Le Meridian         | 221 | St.P      | Rostov on Don   |
| Hotel &   | National 5\*        |     | etersburg |                 |
| Resort    |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Le Meridien Moscow  | 131 |           |                 |
|           | Country Club 5\*    |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Sheraton Palace     | 204 |           |                 |
|           | Hotel 5\*           |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Best      | Art-Hotel 4\*       | 85  | St.P      |                 |
| Western   |                     |     | etersburg |                 |
| Inte      |                     |     |           |                 |
| rnational |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Kempinski | Balchug Kempinski   | 232 | St.P      |                 |
| Hotels &  | 5\*                 |     | etersburg |                 |
| Resorts   |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Accor     | Novotel             | 488 | St.P      |                 |
| Group     | Sheremetievo 4\*    |     | etersburg |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           | Novotel Moscow      | 257 |           |                 |
|           | City-Center 4\*     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Small     | Savoy 5\*           | 84  |           |                 |
| Luxury    |                     |     |           |                 |
| Hotels of |                     |     |           |                 |
| the World |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Rezidor   | Radisson SAS        | 410 | Sochi     | Kaliningrad     |
| SAS       | Slavjanskaya 4\*    |     |           |                 |
| Ho        |                     |     |           |                 |
| spitality |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           |                     |     | Rostov on |                 |
|           |                     |     | Don       |                 |
+-----------+---------------------+-----+-----------+-----------------+
|           |                     |     | St.P      |                 |
|           |                     |     | etersburg |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Hilton    | Hilton Moscow       | 279 |           | Perm,           |
| Hotels    | Leningradskaya 4\*  |     |           | Novosibirsk     |
| Co        |                     |     |           |                 |
| rporation |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Orco      | MaMaison Pokrovka   | 84  |           |                 |
| Group     | 5\*                 |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+
| Source:   |                     |     |           |                 |
| D         |                     |     |           |                 |
| epartment |                     |     |           |                 |
| of        |                     |     |           |                 |
| External  |                     |     |           |                 |
| R         |                     |     |           |                 |
| elations, |                     |     |           |                 |
| Moscow    |                     |     |           |                 |
| City      |                     |     |           |                 |
| G         |                     |     |           |                 |
| overnment |                     |     |           |                 |
| and       |                     |     |           |                 |
| Industry  |                     |     |           |                 |
| Data      |                     |     |           |                 |
+-----------+---------------------+-----+-----------+-----------------+

Figure 4 shows sales of restaurants at the Moscow hotels, including food
and beverages.

**Figure 4. Russia: Sales of restaurants at the Moscow hotels, including
food and beverages**

![](media/image5.wmf){width="6.492361111111111in"
height="4.451388888888889in"}

Source: The Mosvneshinform marketing company

> \*Average exchange rates by years: 2002 - \$1 = RUR31.3; 2003 -- \$1 =
> RUR30.7; 2004 -- \$1 = RUR 28.8; 2005 -- \$1 = RUR 28.3; 2006 - \$1 =
> RUR 27.2

**Luxury Hotels**

The luxury hotel market, concentrated primarily in Moscow and St.
Petersburg, is saturated. These hotels often feature cafes, bars, and
restaurants with internationally recognized chefs. Unfortunately, hotel
restaurants are rarely profitable. Since tourists only visit seasonally,
hotel restaurants cannot rely exclusively on hotel guests for customers.
The local population, however, does not regard hotel restaurants as
"real" restaurants, even if they boast famous chefs. Hotel restaurants
outside of Moscow and St. Petersburg (such as the new Radisson in
Rostov-on-Don and the Park Inn Hotel in Yekaterinburg) may perform
better due to a lack of other dining options. Despite the relatively
flat growth in this sub-category, these hotels still represent the best
opportunity for selling American products to hotels. Other
sub-categories usually have very limited foodservice offerings. Hotel
restaurants operate like other restaurants and purchase items through
distributors. American meat, wine, and spirits are some of the better
prospects for this segment.

## 

**Mid-Range Hotels**

Mid-priced hotels do not usually have restaurant facilities. Some offer
breakfast or other limited offerings. Most of these hotels are small
enough that they purchase their food products from the local Cash &
Carry or the retail market rather than from distributors. Some hotels
contract with a local restaurant to provide food. Price is a very
important consideration, and a large percentage of the products are
domestically produced.

**Budget and Economy Hotels**

This includes hostels, apartments, and dorms. This segment does not
offer many opportunities for foodservice. Few provide dining options,
and customers in this segment usually rely on fast-food, cafes, and
self-catering.

### Institutions

Institutions are challenging customers for American producers. Before
the 1990's, catering was a miniscule segment of the Russian hospitality
market. Over the past four years, however, catering enjoyed a staggering
annual growth rate of 30 to 70 percent, depending on the region.
Catering is a quickly evolving industry, with Moscow claiming 62 percent
of the market and St. Petersburg at 22 percent. There are an estimated
500 catering companies operating in Russia, including 30 major ones.
Each year, 15 new companies enter and 20 companies exit this intensely
competitive industry. Table 11 shows the market share of Russia's
leading caterers.

+------------+-----------------+-----------------+--------------------+
| **Table    |                 |                 |                    |
| 11.        |                 |                 |                    |
| Russia:    |                 |                 |                    |
| Catering   |                 |                 |                    |
| Leaders,   |                 |                 |                    |
| 2006**     |                 |                 |                    |
+------------+-----------------+-----------------+--------------------+
| *          | **Market        | **Market share  | **Number of        |
| *Company** | share**         | %**             | customers in       |
|            |                 |                 | millions**         |
|            | **\$ million**  |                 |                    |
+------------+-----------------+-----------------+--------------------+
| Sodexho    | 44.5            | 26.2            | 5.4                |
+------------+-----------------+-----------------+--------------------+
| Mega Foods | 22.3            | 13.1            | 2.7                |
+------------+-----------------+-----------------+--------------------+
| Parad      | 14.8            | 8.7             | 1.8                |
| Catering   |                 |                 |                    |
+------------+-----------------+-----------------+--------------------+
| Brizol     | 11.1            | 6.6             | 1.3                |
+------------+-----------------+-----------------+--------------------+
| Master     | 8.9             | 5.2             | 1.0                |
| Food       |                 |                 |                    |
+------------+-----------------+-----------------+--------------------+
| Other      | 68.3            | 40.2            | 8.3                |
+------------+-----------------+-----------------+--------------------+
| Total      | 169.9           | 100             | 20.7               |
+------------+-----------------+-----------------+--------------------+
| Source:    |                 |                 |                    |
| The Amiko  |                 |                 |                    |
| c          |                 |                 |                    |
| onsultancy |                 |                 |                    |
+------------+-----------------+-----------------+--------------------+

The Russian catering market consists of several segments, each of which
has a different service audience, number of players, average bill per
person, and profit, including:

-   Lunch deliveries;

-   Corporate catering; and

-   Off-premise catering.

Urban dwellers have less time to prepare their own meals, so they often
dine out or have lunch delivered to the office. Lunch deliveries are a
strong component of the catering business. The estimated value of the
lunch catering business in Moscow was \$64 million in 2006. There is
room for development, however, as only 15 percent of Moscow's office
employees eat lunch prepared by qualified chefs.

Office cafeterias form another changing segment. Until recently, most
cafeterias operated in the Soviet fashion, offering few choices and low
quality. As incomes grow, however, the office cafeteria is transforming.
Corporate catering firms completely manage stationary foodservice
facilities, placing them in office buildings, business parks, shopping
centers, administrative complexes, and industrial facilities. Their goal
is to give people high quality meals in these institutions on a daily
basis. The average bill in office cafeterias is \$5 to \$7. Newer
cafeterias are beginning to use higher quality ingredients. They still
prefer to buy whole, non-processed items, and they are very price
sensitive. Like many restaurants, they monitor prices weekly and do not
hesitate to change suppliers or menus if they encounter a better price.

Catering for private events and parties, especially those in the premium
segment, is another attractive and profitable area of foodservice.
Consequently, well-known restaurateur Arkadiy Novikov entered the
catering business at the beginning of 2006. Other restaurateurs and
five-star hotels are also rushing to enter this lucrative market,
including Rosinter, Gurme Catering, Baltschug Kempinski, and Swissôtel
Krasnye Holmy. Their teams of culinary professionals are willing and
able to delight customers. Hotels are attractive caterers because they
are flexible enough to deliver a five-star experience in any venue, and
they have an extensive wine knowledge. The average bill for mid-level
off-premise catering is \$45 per person, but prices can be significantly
higher in the premium class.

Caterers use many categories to tailor their products to the client, and
they usually work with the same distributors as restaurants. Like
restaurants, caterers use a variety of distributors and suppliers
depending on their needs. Mid-level and high-end caterers import a
variety of food, presenting an attractive opportunity for U.S. products.
There is a particular demand for specialty items such as seasonings,
nuts, meat, wine, and seafood.

While there is not yet a national school lunch program in Russia, there
is interest in creating one. Packaging food for institutions may have
some potential in Russia, but the cost and logistics of importing U.S.
products may deter potential customers. Nevertheless, potential demand
exists for rice, peas, beans, and lentils. Soup bases, spices, and
institutional food packs could also appeal to some companies.

Universities, hospitals, and the army could be other potential customers
for catering companies, but tenders are often not competitively bid for
catering contracts with government institutions.

Recently, Russian Railways created a joint company with RP-Com, one of
the top 10 foodservice operators in Moscow. They intend to build five
commercial kitchens to cater to passengers on long-distance trains. The
company is building its first catering facility near St. Petersburg and
will serve hot meals to passengers on high-speed trains from St.
Petersburg to Moscow. Other catering facilities will be built in
Yekaterinburg, Novosibirsk, Sochi, and Rostov-on-Don. St. Petersburg's
commercial kitchen will supply about 20,000 meal trays per day. Russian
trains carried 1.3 billion passengers in 2007, including 137.7 million
passengers on long-distance trains.

Operators at the major airports in Moscow and St. Petersburg usually
function more as part of a restaurant chain than as an institutional
operator. According to airport statistics, 30 to 40 percent of
passengers eat in airports. Leading Russian foodservice operator
Rosinter has opened and operated restaurants in Russian airports since
2003. Its experience earned Rosinter the responsibility of being the
primary foodservice operator in St. Petersburg's Pulkovo airport in
2007. In addition to operating the airport's restaurants, Rosinter also
feeds the airport staff. Rosinter is currently building a kitchen
facility in the Pulkovo airport. The volume of passenger traffic through
Moscow's two main airports, Domodedovo and Sheremetyevo, exceeded 30
million passengers in 2007 and is increasing annually by 15 to 20
percent. Airlines contract with professional catering companies for
in-flight meals for passengers. JSC Domodedovo Air Service is the
largest Russian company serving up to 60,000 in-flight meals and rations
per day in Domodedovo airport. AeroMar has provided in-flight catering
services to the passengers of Sheremetyevo airport since 1990.
Considering the increasing demand for high-quality airline food, airline
foodservice could become an attractive niche market for U.S. food and
beverage exporters.

Another great opportunity for American producers and Russian foodservice
operators will be the Sochi Olympic Games in 2014. The Russian
government plans to renovate the Sochi airport, increasing capacity to
serve 1,300 to 2,500 passengers per hour. In the buildup to 2014, Russia
will construct restaurants, stadiums, and 57,000 hotel rooms to serve
sports teams and guests. These will all provide a valuable potential
market for American producers.

# 

# SECTION II: ROAD MAP FOR MARKET ENTRY

## Distribution Channels for HRI Products in the Russian Market

Figure 5 shows the distribution channels for HRI products in the Russian
market.

  -----------------------------------------------------------------------
  **Figure 5. Russia: Distribution Channels for HRI Products in the
  Russian Market**

  -----------------------------------------------------------------------

Domestic and imported food products for Russian foodservice
establishments come through importers, distributors, and wholesalers.
Large suppliers are typically also importers. For smaller restaurants
and hotels, most foodservice purchases are made through a wholesaler or
importer/distributor. Large chains may choose to purchase directly
through customized growing agreements or through a central buying
office. Most hotels and restaurants choose to purchase the majority of
products through foodservice importers/distributors in the HRI sector,
both large and small. Specialty and seasonal products are purchased
through smaller distributors or directly from local producers.

+--------------------------------+-------------------------------------+
| ##                             |                                     |
|                                |                                     |
| ## Advantages and Challeng     |                                     |
| es for U.S. Products in Russia |                                     |
|                                |                                     |
| ##                             |                                     |
+--------------------------------+-------------------------------------+
| **Advantages**                 | **Challenges**                      |
+--------------------------------+-------------------------------------+
| U.S. products have a           | Logistics can be difficult. There   |
| reputation for consistency and | are often long shipping times from  |
| high quality.                  | the U.S., the major Russian port in |
|                                | St. Petersburg operates slowly and  |
|                                | handles volumes way beyond          |
|                                | capacity, and there are complex     |
|                                | customs regulations.                |
+--------------------------------+-------------------------------------+
| The relatively weak dollar     | There is relatively low product     |
| makes U.S. exports more price  | awareness outside of U.S. poultry   |
| competitive with Euro-zone     | meat. Products need a lot of        |
| products.                      | educational support and promotion.  |
+--------------------------------+-------------------------------------+
| Rising consumer incomes and    | Increased health awareness          |
| changes in the consumption     | influences consumption. There is a  |
| culture are creating new       | perception that American products   |
| opportunities for high-quality | contain unnatural hormones and      |
| products.                      | chemicals.                          |
+--------------------------------+-------------------------------------+
| The HRI sector has a lot of    | Customers are very price sensitive. |
| room for growth. Restaurant    |                                     |
| chains are expanding out of    |                                     |
| Moscow and St. Petersburg to   |                                     |
| other cities with populations  |                                     |
| over one million.              |                                     |
+--------------------------------+-------------------------------------+
| Growing inflation and rising   | The Ministry of Agriculture is      |
| food prices in Russia create   | pushing to limit the number of      |
| export opportunities for U.S.  | importers for certain agricultural  |
| commodities.                   | products in order to develop the    |
|                                | Russian agricultural sector.        |
+--------------------------------+-------------------------------------+
| Russian trade and investment   | There is continuing debate over     |
| policy is converging with      | World Trade Organization (WTO)      |
| international standards.       | accession and adherence to          |
|                                | non-tariff barriers such as         |
|                                | unscientific sanitary and           |
|                                | phytosanitary restrictions that     |
|                                | keep trade below potential.         |
+--------------------------------+-------------------------------------+
| In 2008, Russia will become    | There is excessive government       |
| the largest consumer market in | bureaucracy, corruption,            |
| Europe, according to the       | contradictory and overlapping       |
| research "Russia: the largest  | regulations, economic               |
| consumer market in Europe"     | vulnerability, and dependence on    |
| prepared by the analysts of    | oil and mineral extraction for most |
| the investment company Troika  | wealth.                             |
| Dialogue.                      |                                     |
+--------------------------------+-------------------------------------+

## Entry Strategy

Entering Russia's market can be incredibly rewarding, but it requires
hard work and careful planning by U.S. exporters. Different types of
products require different marketing strategies. Several meat, seafood,
wine, and spirits companies, however, are selling to the HRI sector, and
their businesses are flourishing. Several general recommendations may be
helpful for developing a successful entry policy:

-   **Work with a Russian Importer:** Direct importation is difficult
    without a large customer base, so it is best to find an importer. To
    work with Russian Customs, it is essential to have a physical
    presence in Russia. U.S. exporters can approach the Russian HRI food
    and beverages market through a general importer, with whom good
    relations are essential. Selecting the right trading partner is one
    of the most important decisions for exporters when developing their
    businesses in Russia. A local Russian partner who is familiar with
    market conditions and the regulatory environment can help exporters
    navigate the Russian HRI market, resolve issues, and increase the
    likelihood of success. The importer should be able to handle customs
    clearance, veterinary and phytosanitary inspection requirements, any
    necessary guarantees, and all licensing procedures.

> Logistics must be carefully considered and monitored, so close contact
> with the importer is also necessary in order to avoid logistical
> problems and shipping delays. Consider the longer shipping time for
> U.S. products compared to products from Europe. It is essential, for
> example, that all required documents be filled as quickly and
> efficiently as possible. Most products will enter Russia through St.
> Petersburg, but if a U.S. exporter wishes to operate in the Russian
> Far East, Vladivostok is another option. Consistency and necessary
> quantities of production in the supply chain are frequently cited as
> primary concerns for the HRI segment.
>
> Exporters representing U.S. companies may contact the Moscow ATO for
> assistance in locating importers. Performing due diligence is
> nevertheless important, and exporters are expected to verify the
> banking and supplier references of potential importers. Local and
> U.S.-based organizations in Russia can also provide helpful
> information to exporters. Credit reporting, however, is a relatively
> new practice in Russia, and credit-reporting agencies may not have
> complete information on potential Russian business partners.

-   **Work with a Russian Distributor:** U.S. exporters will need a
    distributor in order to sell their products. Large suppliers are
    typically also importers, and most HRI outlets rarely import
    products directly, preferring to procure supplies through local
    distributors. International chains with internal distribution
    networks within the country are the exception. The larger
    distributors are suited for commodity and large-volume sales.
    Smaller distributors work well for specialty, high-end, or new
    products that require marketing and product education. The most
    promising categories of products fall into this segment.

-   **Provide Product Education:** Marketing and product education are
    essential. Many of the HRI industry personnel are interested in new
    products, but they want to be shown how to use them and how the
    products can be made to work for them. Without some level of
    promotion, broader market penetration may be difficult. HRI sector
    players often mention master classes and product demonstrations as
    useful for stimulating demand for new products. It is also important
    to determine the target audience and include both the distributor
    and the chefs in promotions. Technical support for U.S. producers in
    the form of printed material and/or seminars is critical to the
    effort to educate, dispel negative stereotypes, and ultimately build
    loyalty for U.S. products.

> While negative stereotypes about US products do exist, most
> interviewed HRI personnel said they were more interested in the
> quality and price of the food than in the origin. Negative stereotypes
> are more pervasive at the retail level, and restaurant consumers are
> not usually interested in the origin of their entrée.

-   **Attend Promotional Events:** One of the main challenges for
    exporters entering the Russian market is product promotion. A
    cost-effective way exporters can promote their products is to
    participate in World Food Moscow, the second largest and most
    professionally-run food and beverage trade show in Russia, held
    annually in September. Virtually all large food and beverage
    producers and importers participate in this show. If exporters are
    targeting specific regions within Russia, the Moscow ATO recommends
    participating in regional exhibitions.

> Participation in trade shows, technical demonstrations, and trade
> missions to the U.S. are all marketing strategies that work well in
> the Russian market. The ATO recommends two interesting culinary-show
> opportunities in this area: PIR (Catering and Entertainment) Russia
> held each October, and the Vladivostok Culinary Festival, held each
> September. Participation in industry associations (USA Poultry and Egg
> Export Council, California Almond Board, etc.) that have a presence in
> Russia is also beneficial.

## Food Suppliers for the HRI sector

Very few HRI businesses operate on exclusive contracts with vendors.
Most chain and independent restaurants change suppliers frequently,
particularly if there is a price difference. Most businesses use a
separate supplier for each product category (i.e. produce, meat, or
desserts) and very often work simultaneously with three to four
suppliers of their principal ingredients to ensure steady supply.

Whole foods are preferred and account for 70 percent of sales,
principally because labor costs are low. Smaller restaurants without
adequate space are usually the customers for semi-prepared items. Even
fast-food chains tend to buy whole products and prepare them at the
restaurant level. Exceptions to this include meat patties and fries.

Few restaurants use fresh produce markets as suppliers. In contrast to
U.S.-style produce markets, Russian markets have inconsistent supplies
and offer goods of questionable quality. Markets also tend to have
higher prices than other supply options.

There are a large number of importers and distributors in the HRI
sector, both large and small. A few work across a wide variety of
products, but many specialize in a particular category. The distribution
market is fragmented, and there are a variety of arrangements between
suppliers and customers. As noted above, imports make up the vast
majority of HRI products (more than 80 percent), with domestic suppliers
filling the gaps.

Metro Cash & Carry is one of Russia's leading membership wholesale
outlet chains. It has worked in Russia under the principles of small
wholesaling since 2000. The company currently has 40 stores in Russia,
including ten in Moscow and three in St. Petersburg. Foodservice
operators across Russia have bought food, beverages, and other
restaurant equipment from Metro Cash & Carry outlets.

Table 12 shows Russia's major suppliers of food products for
restaurants.

  --------------- --------------- ----------------------- --------------- ---------------
  **Table 12.                                                             
  Russia: Major                                                           
  Suppliers of                                                            
  Food Products                                                           
  for                                                                     
  Restaurants**                                                           

  **Company**     **Principal     **Country of origin**   **Customers**   **Locations**
                  Products**                                              

  **Emborg**      Marbled Beef    USA, Australia          Hotels          Moscow
                                                          Restaurants     
                                                          Supermarkets    

                  Veal            USA, New Zealand                        St. Petersburg

                  Beef            Russia, Brazil                          8 Russian
                                                                          regions

                  Pork            USA, Denmark, Russia,                   
                                  Brazil                                  

                  Fish and        Denmark, Norway, Spain,                 
                  Seafood         Asia                                    

                  Poultry         France, Russia, USA,                    
                                  Brazil                                  

                  Groceries       Poland, Germany,                        
                                  Russia, Netherlands                     

  **East-West**   Marbled Beef    USA, Australia          Hotels          Moscow
                                                          Restaurants     

                  Veal            USA, Australia                          St. Petersburg
                                                                          Yekaterinburg

                  Beef            Russia, Brazil                          

                  Pork            USA, Russia, Brazil,                    
                                  Denmark                                 

                  Lamb            New Zealand                             

                  Fish and        Norway, Spain, Thailand                 
                  Seafood                                                 

                  Poultry         France, Russia, USA,                    
                                  Brazil                                  

                  Groceries       Poland, Germany,                        
                                  Russia, Netherlands                     

  **Global        Marbled Beef    USA, Australia          Hotels          Moscow
  Foods**                                                 Restaurants     

                  Veal            New Zealand, Australia                  St. Petersburg

                  Beef            Russia, Brazil                          8 Russian
                                                                          regions

                  Pork            Russia, Brazil, Europe                  

                  Lamb            New Zealand, Australia                  

                  Poultry         Russia, USA                             

                  Fish and        Norway, Spain, Russia                   
                  Seafood                                                 

                  Groceries       USA, Europe, Russia                     

  **Australia     Marbled Beef    Australia               Hotels          Moscow
  Trade House**                                           Restaurants     
                                                          Supermarkets    

                  Veal            Australia                               

                  Beef            Australia                               

                  Lamb            New Zealand, Australia                  

                  Fish and        Thailand, Vietnam,                      
                  Seafood         Russia                                  

                  Butter          Australia                               

  **Marr Russia** Marbled Beef    USA, Australia          Hotels          Moscow
                                                          Restaurants     
                                                          Supermarkets    

                  Beef            Brazil                                  St. Petersburg

                  Veal            Australia                               

                  Lamb            New Zealand                             

                  Pork            Hungary, USA, Russia                    

                  Poultry         Brazi, Russia                           

                  Fish and        Spain, Indonesia,                       
                  Seafood         Denmark                                 

                  Groceries       Italy, Russia                           

  **Snow World**  Marbled Beef    USA                     Hotels          Moscow
                                                          Restaurants     

                  Veal            USA, Australia                          

                  Beef            New Zealand, Australia                  

                  Pork            Russia, Brazil                          

                  Lamb            New Zealand, Australia                  

                  Poultry         Hungary, France, Brazil                 

                  Fish and        Norway, Denmark,                        
                  Seafood         Russia, Asia                            

                  Groceries       Europe, Russia                          
  --------------- --------------- ----------------------- --------------- ---------------

Major suppliers of food products for the HRI sector have their offices
in Moscow and St. Petersburg, Russia's primary restaurant markets. These
offices handle foodservice-product imports and supply other Russian
regions. Despite the tremendous distance between European Russia and the
Russian Far East (RFE), 87 percent of the RFE's foodservice supply comes
from Moscow and St. Petersburg. Several food products can reach Russia's
Pacific Coast through the St. Petersburg port and still be price
competitive. High volumes enable large foodservice importers to gain
better prices from global exporters.

The RFE and Siberia are highly dependant on imported foodservice
products. RFE and Siberian suppliers bring products to their regions
from all over the world, using consolidated containers that have been
imported and cleared in St. Petersburg or Moscow. The majority of
foodservice products are still shipped through Moscow, but meat, fish,
seafood, cheesecake, and frozen bakery products are directly shipped
from the U.S. to Vladivostok.

There is a new trend in foodservice logistics. Suppliers in Novosibirsk
and other Eastern Siberia areas have started to order new products from
Vladivostok importers. If Siberian suppliers continue to use Vladivostok
importers, the product variety and import flow to the RFE could expand
significantly.

# Section III. COMPETITION

Russia imported approximately \$27.5 billion of agricultural products in
2007, an almost 400 percent increase from \$7.38 billion in 2000. Based
on official data, the U.S. share exceeded \$1.3 billion. This is an
underestimation, however, that does not account for transshipments via
Europe. Poultry meat accounted for roughly three-quarters of a billion
dollars, or more than half of the total, followed by pork, fish, nuts,
edible offal, and fresh and dried fruit.

Figure 6 and Table 13 show the increase of Russian agricultural imports
over time.

  -----------------------------------------------------------------------
  **Figure 6. Russia: Agricultural Imports**

  Source: Federal Customs Service
  -----------------------------------------------------------------------

  --------------- ---------- ---------- ---------- ---------- ---------- ----------
  **Table 13.                                                            
  Russia: Imports                                                        
  of Selected                                                            
  Foods,                                                                 
  2005-2007**                                                            

  **Product**     **2005**              **2006**              **2007**   

                  Value,     Volume, MT Value,     Volume, MT Value,     Volume, MT

                  \$ billion            \$ billion            \$ billion 

  Fresh Beef      40.1       23.7       65.2       22.5       70.8       21.1

  Frozen Beef     913.7      672.9      1529.4     647.2      1698.7     712.8

  Pork            818.8      562.8      1394.9     625.6      1636.6     671.7

  Poultry         847.5      1318.1     921.5      1274.2     1051.7     1287.3

  Lamb            9.5        6.8        27.6       14.9       24.8       11.4

  Fish and        950.6      868.8      1204.8     775.3      1731.1     997.9
  Seafood                                                                

  Cheese          661.2      259.7      593.8      218.4      842.9      234.2

  Dairy Products  22.9       15.9       19.6       13.3       35.2       24.5

  Vegetables      722.4      1967.7     930.8      2143.1     1380.6     2304.1

  Fruits & Nuts   2125.1     3998.1     2979.2     4659.5     3723.1     5087.1

  Tea             312.4      179.4      354.5      172.9      431.2      181.3

  Coffee          70.8       39.6       120.2      55.4       170.9      64.6

  Cereals         249.3      1457.7     373.9      2310.1     298        1066.6

  Sugar           930.7      3154.2     1280.1     2875.1     1394.2     3734.5

  Source: Federal                                                        
  Customs Service                                                        
  --------------- ---------- ---------- ---------- ---------- ---------- ----------

As noted earlier, imported products account for a large percentage of
ingredients used in the restaurant business. Russia's largest suppliers
(by sales) of all commodities to foodservice are Brazil, Germany, the
United States, Ukraine, Argentina, the Netherlands, Poland, and China.
No single country dominates the market.

The majority of products come from Europe. Europe's historical presence
in Russia and aggressive promotional campaigns have allowed European
brands to dominate even the RFE market. Poland and other Eastern
European states are significant exporters of bread and bakery products.
Since European companies can ship their products over land, they do not
face the same port problems that U.S. imports confront. Consequently,
they can provide perishables in a much faster manner. Major meat
competitors include Brazil (poultry) and Australia (beef). Scandinavia,
Asian countries, and occasionally South American countries are major
seafood competitors.

Ukraine, Germany, and the Czech Republic are major beer suppliers.
Italy, France, Spain, and the New World suppliers of Chile, Australia,
and New Zealand are major wine suppliers. Californian wines appeared in
Russia a few years ago, and sales are expanding rapidly. France, the
United Kingdom and the U.S. supply popular spirits such as Bourbon,
Tennessee and Scotch whiskey, cognac, and brandy.

Table 14 summarizes the major exporting countries of various products to
Russia.

  ------------------------- ---------------------------------------------
  **Table 14. Russia:       
  Import Competition for    
  Selected Products**       

  **Product**               **Country of Origin**

  Beef                      Brazil, Argentina

  Veal                      Lithuania, Germany, Australia

  Pork                      Brazil, Denmark, USA

  Poultry                   USA, Brazil

  Lamb                      Australia, New Zealand

  Fish and Seafood          Norway, Denmark, Asia

  Dairy Products            Germany, Finland, Poland

  Cheese                    Germany, Ukraine

  Vegetables                Netherlands, China, Turkey

  Fruits & Nuts             Ecuador, Turkey, Argentina

  Bread and Bakery          Europe

  Ice-cream                 Germany

  Confectionary             Europe

  Wine                      France, Spain, Italy

  Beer                      Ukraine, Germany, Czech Republic

  Spirits                   France, United Kingdom, Ukraine, USA

  Source: Federal Customs   
  Service                   
  ------------------------- ---------------------------------------------

While the HRI sector uses mostly imported products, some ingredients are
purchased domestically. These include root vegetables, such as carrots
and beets, and other basic vegetables like cabbage. Domestic potatoes
are occasionally used, but this is often a last resort, since the size
and quality are too inconsistent for restaurant use.

# Section IV. BEST PRODUCT PROSPECTS

Local companies' interest in new product categories is growing. Many
European specialty products are becoming more and more expensive.
American products are consequently more price competitive and attractive
to Russian importers. Importers are trying to find U.S. products
analogous to European products. Table 15 shows Russian imports of
selected U.S. food products.

+-----------------+-----------+----------+----------+-----------------+
| **Table 15.     |           |          |          |                 |
| Russia: Russian |           |          |          |                 |
| Imports of      |           |          |          |                 |
| Selected Food   |           |          |          |                 |
| from the U.S.,  |           |          |          |                 |
| Billions of US  |           |          |          |                 |
| Dollars**       |           |          |          |                 |
+-----------------+-----------+----------+----------+-----------------+
| **Product**     | **2005**  | **2006** | **2007** | **January --    |
|                 |           |          |          | March**         |
|                 |           |          |          |                 |
|                 |           |          |          | **2008**        |
+-----------------+-----------+----------+----------+-----------------+
| Fresh Beef      | 0         | 0        | 0        | 0.153           |
+-----------------+-----------+----------+----------+-----------------+
| Frozen Beef     | 0         | 0        | 0        | 0.351           |
+-----------------+-----------+----------+----------+-----------------+
| Pork            | 43.511    | 148.116  | 180.388  | 78.987          |
+-----------------+-----------+----------+----------+-----------------+
| Poultry         | 487.645   | 545.511  | 634.887  | 136.480         |
+-----------------+-----------+----------+----------+-----------------+
| Fish and        | 43.477    | 44.108   | 51.672   | 12.164          |
| Seafood         |           |          |          |                 |
+-----------------+-----------+----------+----------+-----------------+
| Cheese          | 0.029     | 0.017    | 0.153    | 1.712           |
+-----------------+-----------+----------+----------+-----------------+
| Fruits & Nuts   | 18.529    | 39.223   | 88.348   | 29.019          |
+-----------------+-----------+----------+----------+-----------------+
| Tea             | 0.007     | 0.074    | 0.244    | 0.302           |
+-----------------+-----------+----------+----------+-----------------+
| Coffee          | 0.106     | 0.167    | 0.157    | 0.082           |
+-----------------+-----------+----------+----------+-----------------+
| Cereals         | 5.973     | 4.781    | 3.027    | 2.819           |
+-----------------+-----------+----------+----------+-----------------+
| Sugar           | 4.536     | 5.239    | 8.782    | 2.510           |
+-----------------+-----------+----------+----------+-----------------+
| Source: Federal |           |          |          |                 |
| Customs Service |           |          |          |                 |
+-----------------+-----------+----------+----------+-----------------+

This is an excellent time for American companies to export new products
to Russia. Moreover, the U.S. is one of the world's leaders in
developing the hospitality industry. U.S. producers can offer a wide
range of products developed, manufactured, and packaged for the HRI
sector.

Several product categories are particularly attractive for export to
Russia. Fresh and frozen seafood, frozen and chilled poultry, pork and
high-quality beef, cheese, and tree nuts are in demand. Exports of dairy
to Russia are increasing, and, with the renegotiation of the veterinary
certificate, it is expected that new export opportunities will be
created.

Sauces, seasonings, and semi-prepared items have potential, but they
require market education. Several industry experts discussed the need
for low-fat goods, reduced-calorie dairy items, and bakery-preparation
products. Frozen breads may have potential, but they face competition
from European suppliers.

There is some interest in organic foods, especially as Russia has no
certification process for organics. Very few establishments in the HRI
sector use or promote organics, but the market may be moving in this
direction. The Novikov Group in particular has started marketing its own
line of organic dishes in its restaurants.

Potatoes may also be appealing, but the current ban on U.S. potatoes
prohibits trade. Potato products such as semi-prepared fries are
allowed, but whole, raw potatoes are not. If this ban is lifted, this
product has significant potential.

Wines and spirits also have high potential, but there is a lack of
awareness about American wines. Alcoholic beverages also must comply
with special rules regarding alcohol (see GAIN reports RS7301 and
RS7310). Figure 7 and Table 16 show the increase of wine and spirits
imports from the U.S. over time.

  -----------------------------------------------------------------------
  **Figure 7. Russia: Imports of Beverages from the U.S., in \$ billion**

  ![](media/image6.wmf){width="5.999305555555556in"
  height="3.671527777777778in"}
  -----------------------------------------------------------------------

  ----------------- ---------- ---------- ---------- ---------- ---------- ----------
  **Table 16.                                                              
  Russia: Imports                                                          
  of Beverages from                                                        
  the U.S., in \$                                                          
  billion**                                                                

  **Product**       **2002**   **2003**   **2004**   **2005**   **2006**   **2007**

  Spirits           3.306      3.906      5.648      7.464      9.859      24.574

  Wine              1.631      1.649      2.395      2.620      2.342      3.746

  Beer              0.122      0.024      0.027      0.006      0.023      0.028

  Source: Federal                                                          
  Customs Service                                                          
  ----------------- ---------- ---------- ---------- ---------- ---------- ----------

Many distributors and importers work throughout Russia. For details on
specific product segments, please contact the Agricultural Trade Office
for a Buyers List.

# Section V. POST CONTACT AND FURTHER INFORMATION

## Contact Information for FAS Offices in Russia and in the United States

Dana Johnson, Director, ATO Russia

Daniil Schultz, Marketing Specialist

Alla Putiy, Marketing Specialist

Natalia Merinova, Administrative Assistant

http://eng.usda.ru

*Street address (for express parcels):*

U.S. Agricultural Trade Office

American Embassy

8, Bolshoy Devyatinskiy pereulok

121099 Moscow, Russia

Tel: +7 (495) 728-5560; Fax: +7 (495) 728-5069

E-mail: atomoscow@fas.usda.gov

*For mail coming from the U.S. (American officers only):*

American Embassy Moscow

Agricultural Trade Office

5430 Moscow Place

Dulles, VA 20189-5430

*For international mail, especially from Europe*:

Agricultural Trade Office

U.S. Embassy - Box M

Itainen Puistotie 14

00140 Helsinki, Finland

Covering Northwest Russia (St. Petersburg):

Svetlana Ilyina, ATO Marketing Specialist

American Consulate General

25, Nevskiy Prospekt

191186 St. Petersburg, Russia

Tel: 7 (812) 326-2580; Fax: 7 (812) 326-2561

E-mail: Svetlana.Ilyina@fas.usda.gov

Covering Russian Far East (Vladivostok):

Oksana Lubentsova, ATO Marketing Specialist

32, Pushkinskaya Ulitsa

U.S. Consulate General

69001 Vladivostok, Russia

Tel/fax: 7 (4232) 300-089

atovladivostok@fas.usda.gov

For General Information on FAS/USDA Market Promotion Programs and
Activities:

Office of Trade Programs

U.S. Department of Agriculture

Foreign Agricultural Service

1400 Independence Ave., S.W.

Washington, DC 20250

<http://www.fas.usda.gov/OTP_contacts.asp>

**FAS Website:** [www.fas.usda.gov](http://www.fas.usda.gov/)

*For Trade Policy/Market Access Issues, General Information on the
Russian Agricultural Sector, etc:*

Scott Reynolds, Agricultural Minister-Counselor (ETA August 10, 2008)

Mary Ellen Smith, Senior Agricultural Attaché (ETA August 11, 2008)

Erik Hansen, Agricultural Attaché

Office of Agricultural Affairs

American Embassy

(addresses as above for ATO Moscow)

Tel: 7 (495) 728-5222; Fax: 7 (495) 728-5133 or 728 5102

E-mail: <agmoscow@usda.gov>

To learn more about USDA/FAS and ATO services please visit
[http://eng.usda.ru](http://eng.usda.ru/).

## 

## Other Useful Contacts

The Agricultural Trade Office works with a large number of U.S. industry
organizations, some of which have local offices to assist U.S. exporters
of these food and agricultural products. You may also find these
contacts listed at [http://eng.usda.ru](http://eng.usda.ru/).

U.S.A. Poultry and Egg Export Council (USAPEEC)

E-mail: <usapeec@usapeec.ru>

U.S. Meat Export Federation (USMEF)

E-mail: <Moscow@usmef.org>

U.S. Wheat Associates

E-mail: <uswmow@dol.ru>

U.S. Grains Council (USGC)

E-mail: <fgcmow@online.ru>

Pear Bureau Northwest

E-mail: <katerina@newmark.ru>

Washington Apple Commission

*Moscow office:*

E-mail:
[[office@bestapples.ru]{.underline}](mailto:office@bestapples.ru)

*Vladivostok office:*

E-mail: [[katerina@newmark.ru]{.underline}](mailto:katerina@newmark.ru)

Almond Board of California

E-mail: <Office@almondsarein.ru>

Wine Institute of California

E-mail: <olgatuz@mail.ru>

Pet Food Institute

E-mail: <agerman@globalworks.ru>

National Renderers Association

E-mail: <lischenko@ane.ru>

The American Chamber of Commerce is another good source for information
on doing business in Russia. The Chamber has offices in Moscow and St.
Petersburg.

American Chamber of Commerce in Russia (AmCham)

Ul. Dolgorukovskaya, Building 7, 14th floor

127006 Moscow, Russia

Tel: 7 (495) 961‑2141; Fax: 7 (495) 961‑2142

<http://amcham.ru/>

Email: <amchamru@amcham.ru>

American Chamber of Commerce in St. Petersburg

25 Nevsky Prospect, 3^rd^ Floor

191186 St. Petersburg, Russia

Tel: 7 (812) 326-2590; Fax: 7 (812) 326-2591 or 326-2561

<http://amcham.ru/spb/>

Email: <st.pete@amcham.ru>

For questions regarding agricultural machinery, food processing and
packaging equipment or materials, refrigeration equipment, and other
industrial products, please contact:

U.S. and Foreign Commercial Service

Bolshaya Molchanovka, 23/38, Bldg. 2

121069 Moscow, Russia

Tel: +7 (495) 737-5030; Fax: +7 (495) 737-5033

E-mail: <moscow.office.box@mail.doc.gov>

# Other Relevant Reports

Attaché reports on the Russian food and agricultural market are
available on the FAS

Website; the search engine can be found at

<http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp>

RS8055 FAIRS Country Annual Report

Not yet posted

RS8045 Organic Products / New SanPIN for Organic Products

<http://www.fas.usda.gov/gainfiles/200806/146294938.pdf>

RS8030 Fish Trade Update

<http://www.fas.usda.gov/gainfiles/200804/146294325.pdf>

RS8029 Russia Lifts Ban on U.S. Rice Imports

<http://www.fas.usda.gov/gainfiles/200804/146294319.pdf>

RS8020 Exporter Guide / Agriculture and Agribusiness Consultants

<http://www.fas.usda.gov/gainfiles/200803/146294084.pdf>

RS8005 2008 Meat and Poultry Duties Change

<http://www.fas.usda.gov/gainfiles/200801/146293553.pdf>

RS7336 Retail Food Service Annual

<http://www.fas.usda.gov/GainFiles/200712/146293276.pdf>

RS7335 Fresh Deciduous Fruit

<http://www.fas.usda.gov/gainfiles/200712/146293158.pdf>

RS7334 Exporter Guide / Annual

<http://www.fas.usda.gov/gainfiles/200711/146293117.pdf>

RS7081 Products Subject to Border Veterinary Inspection

<http://www.fas.usda.gov/gainfiles/200711/146292933.pdf>

RS7073 Poultry and Products / Annual

<http://www.fas.usda.gov/gainfiles/200710/146292768.pdf>

RS7071 Dairy and Products / Certain Dairy Import Tariffs Reduced

<http://www.fas.usda.gov/gainfiles/200710/146292751.pdf>

RS7069 Export Certificates / Annual

<http://www.fas.usda.gov/gainfiles/200710/146292717.pdf>

RS7061 Food and Agricultural Import Regulations and Standards / Annual

<http://www.fas.usda.gov/gainfiles/200709/146292471.pdf>

RS7051 Government Program for Agriculture and for Market Regulation
2008-2012

<http://www.fas.usda.gov/gainfiles/200707/146291764.pdf>

RS7020 Progress of the National Priority Project in Agriculture

<http://www.fas.usda.gov/gainfiles/200702/146280251.pdf>

RS7011 List of Products that Require Quarantine and Phytosanitary
Certificates

<http://www.fas.usda.gov/gainfiles/200707/146291722.pdf>

RS7008 Russia Lowers Out-of-Quota Import Duties on Beef

<http://www.fas.usda.gov/gainfiles/200701/146280054.pdf>

RS6321 Growing Russian consumerism propels retail increases

<http://www.fas.usda.gov/gainfiles/200612/146269877.pdf>

**Wine and Spirits**

RS7323 FAIRS Product Specific / Wine

<http://www.fas.usda.gov/gainfiles/200707/146291722.pdf>

RS7310 Wine and spirits: New bank guarantee requirement limits import
growth

<http://www.fas.usda.gov/gainfiles/200704/146280895.pdf>

RS7304 Russian wine and spirits regulations updated

<http://www.fas.usda.gov/gainfiles/200703/146280405.pdf>

RS7301 New health label required for wine and spirits

<http://www.fas.usda.gov/gainfiles/200702/146280194.pdf>

[^1]: "Democratic" in this peculiarly Russian sense means affordable,
    and refers to the casual-dining market segment.

[^2]: It is estimated that Moscow's population approaches 15 million
    when unregistered and illegal residents are included.