Voluntary Report - public distribution

**Date:** 3/10/2004

**GAIN Report Number:** AJ4003

A

**Azerbaijan, Republic of**

**HRI Food Service Sector**

**Sector Update**

**2004**

**Approved by:**

![](media/image1.wmf)James Higgiston, Ag Counselor

AgAnkara

**Prepared by:**

Robert Hanson, Ag Attache and Rauf Mekhtiyev, Khatt Research

**Report Highlights:**

The Azeri HRI sector has experienced some growth due to the beginning of
construction of the Baku-Ceyhan pipeline, and new opportunities are
emerging for a range of high-value food products as a result.
Nonetheless, per-capita income remains low throughout the country,
limiting the overall potential of growth in this sector.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Ankara \[TU1\]

\[AJ\]

**HRI I. EXECUTIVE SUMMARY**

The past decade has brought considerable changes to the lifestyles of
Azeri people; the emergence of a local business class and the increase
of the number of expatriates residing in and visiting Azerbaijan over
the past decade has led to rapid development of the HRI food service
sector. These changes caused new HRI sub-sectors to appear in the form
of foreign cuisine restaurants, fast food outlets, celebration houses
and catering companies.

The HRI Food Service sector turnover for 2002 is estimated at about USD
25 million. The total Number of HRI Food Service outlets is 3,875, out
of which 1,450 are located in Baku. About 80 percent of these outlets in
the HRI Sector are privately held, while the remainder is in the
government sector.

Since the majority of Azeri population cannot afford to eat outside
home, the major target for the HRI sector are executives and managers
working in foreign companies and organizations, expatriates and local
businessmen. The number of local executives and managers working in
foreign organizations is about 31,000 people. Local businessmen also
exhibit a tendency to have dinner in restaurants. Thus, the development
of HRI food service sector is driven largely by the development of the
oil & gas sector.

###### Oil & gas sector

The major driver of the HRI sector is the oil and gas sector and its
related industries. This sector has attracted about USD 8 billion in
foreign investments and is supposed to draw even more. Oil and gas
companies (oil companies and sub-contractors) are attracted to enormous
prospects in Azerbaijan. The recent launch of the Baku-Tbilisi-Ceyhan
pipeline increased the expectations from the oil & gas fields.
Nevertheless, the oil boom has not fully materialized. The total
revenues expected from the flagship oil project (Azeri Chirag Guneshly)
alone, are between USD 22 and USD 40 billion. All the catering companies
operating in Azerbaijan keep an eye on that sector, while serving their
established clientele, consisting mostly of expatriates.

The major trend in HRI food service is that the growth has shifted from
traditional type of restaurants to foreign cuisine, fast food
restaurants and catering.

  -----------------------------------------------------------------------
  **ADVANTAGES**                      **CHALLENGES**
  ----------------------------------- -----------------------------------
  Azerbaijan has firm potential for   The tourism sector is still in
  tourism, which will lead to         infancy, limiting the opportunities
  increased opportunities for US      for US Exporters.
  Exporters to Azerbaijan.            

  The development of the oil sector   Current penetration of US products
  provides considerable opportunities in HRI Food Service Sector is
  for the HRI Food service sector.    limited.

  The number of foreign-cuisine       The demand for preprocessed
  restaurants is increasing and there foodstuffs in the HRI Food Service
  are two international hotel chains  Sector is low due to their
  (Hyatt-Residence and Radisson).     perceived inferior quality.

  Hotels restaurants and catering     US wines have yet to establish
  companies are interested in         themselves in Azerbaijan.
  California wines.                   

  Azeris readily adopt western tastes Import regulations are sometimes
  and foreign cuisines have already   ambiguous and inconsistently
  become quite popular.               interpreted by Customs Officials.

  Profits of Catering Companies       Transportation costs are less for
  serving Oil & Gas companies,        products from neighboring
  operating under Production Sharing  countries.
  Agreements (PSA) with GOAJ are      
  tax-exempt.                         
  -----------------------------------------------------------------------

**II. MARKET STRUCTURE AND SUB-SECTOR PROFILES**

A.  **Distribution Channels and New to Market Exporter information**

The HRI sector works mostly with importers and local producers in order
to procure the needed food items. The HRI sector in most cases contacts
importers directly while bypassing wholesalers and retailers. However,
in some cases wholesalers/retailer are the importers and HRI purchases
food items from them. Some foodstuffs are even purchased from
individuals, which import them from abroad. Usually food items such as
high-quality wines, liquors, vodkas, coffee and exotic products are
purchased this way because high prices do not allow them to be imported
in wholesale quantities. In some cases, direct imports are made, but
they are quite limited.

HRI Food Service Sector also purchases many products from local
producers. The locally produced foodstuffs include sturgeon, caviar,
poultry, sausages and other meat products, milk and milk products
including mozzarella cheese, beverages and bottled waters, fruits, fruit
juices and vegetables.

Some hotels that provide mostly Azeri cuisine also purchase foodstuffs
from the local bazaars. The purchased food items at bazaars are various
meats, fruits and vegetables.

The import procedures are of some concern, because at the customs the
goods are often held for a considerable length of time. This has become
a source of significant risk for fast moving consumer goods, which has
an adverse effect on cheap imports of goods. In most cases the delays
occur because about 80% of the food market is regulated by hidden
monopolies. This fact creates significant challenges for the HRI Food
Service Sector participants.

In order to import foodstuffs U.S. exporters and consolidators are
advised to contact top importers and hotels directly. In order to find
such information U.S. exporters should contact the Azerbaijan Chamber of
Commerce and Industry (ACCI). ACCI works with foreign companies in
assisting to enter local markets.

Contact Information for Chamber of Commerce and Industry:

President: Suleyman Tatliyev

Vice-President: Rauf Vezirov

31 Istiglaliyyat Str., Baku, Azerbaijan, 370001

Tel: (994 12) 92 89 12, 92 74 38

Fax: (994 12) 97 19 97

E-mail: <expo@chamber.baku.az>

![](media/image2.wmf){width="4.235433070866142in"
height="0.8118110236220473in"}

**B. Sub-sector profiles, Hotels & Resorts:**

###### Hotels

There are approximately 100 hotels in Azerbaijan, of which 6 have
foreign investments. The total number of rooms in the hotels is over
5,000, out of which about 500 are luxury suites, 3,500 are 1^st^ class
rooms, and about 1,000 are tourist class rooms.

Major hotels are located in the city of Baku and major opportunities for
U.S. exporters are in the capital, which accounts for almost half of the
population of Azerbaijan. There are 20 hotels in Baku, however only 5
have more than 100 rooms. The total number of rooms in the hotels in
Baku city is about 3,000, out of which 350 are luxury suites, 2,000 are
1^st^ class rooms, and the remainder are tourist class rooms.

Hotels contact importers and distributors for their imported food and
beverage needs. Hotels usually do not conclude exclusive contracts with
food suppliers. Hotels also purchase goods from traditional bazaars and
individual import agents. In this case, payments are made in cash and no
delivery is provided. Some hotels have in-house catering companies that
provide services for business meetings and conferences, as well as
special occasions.

The nature and quality of food items purchased by hotels varies from one
hotel to another. Four and Five star hotels purchase top-quality food
items regardless of the price. For example, they purchase high quality
coffee, the highest quality meat products and exotic foods like ocean
fish, shrimp and squid.

Hotels do not purchase much preprocessed food items because of their
perceived inferior quality. While hotels with local-cuisine restaurants
purchase foodstuffs from bazaars and local producers, products like
rice, and flour products are imported. An increase in the number of
local producers of high quality products compliant with international
standards also creates obstacles for US exporters.

Though it is rare for hotels, they do sometimes make direct imports from
abroad.

**The list of the largest Hotels and Hotel chains in Azerbaijan**

  ---------------------------- ------------------ -----------------------
  **Hotel**                    **Number of        **Type of purchasing
                               Rooms**            Agent**

  Hyatt Regency Baku           160                I, DI, LP

  Grand Hotel Europe           94                 B, C, I.

  The Crescent Beach Hotel     262                C

  Ascot Lodge                  16                 C

  Azerbaijan                   500                LP, I

  Baki                         270                LP, I

  Apsheron                     437                LP, I

  Old Inturist                 50                 LP, B

  Radisson Plaza Hotel         40                 C
  ---------------------------- ------------------ -----------------------

Importer I

Direct imports DI

Caterer C

Local Producer LP

Bazaar B

**Resorts**

The number of resorts in Azerbaijan meeting western standards is quite
small, and the food items they purchase are mostly locally produced.
While opportunities do exist in upscale resort areas, especially in
alcoholic beverages, meats and poultry, these resorts import foods and
beverages indirectly.

**Restaurants**

The development of the restaurant sector in the last decade was marked
by the appearance of three niche sectors, which are foreign cuisine
restaurants, fast food outlets and celebration houses.

Major opportunities for U.S. Exporters exist in the luxury restaurants
sector, serving the local elite and foreign expatriates. These
restaurants offer high-quality and diverse cuisine at a price.
Restaurants with local cuisine buy most of the food items directly from
local producers and from bazaars. Foreign cuisine restaurants, however,
buy ingredients from importers and make imports themselves from Dubai,
and other countries of origin. Examples of ethnic restaurants available
include Japanese (sushi), Continental, Mexican, Chinese, Indian, Thai,
Italian, French and Russian. All of these restaurants rely on imports
for their special ingredients. There are more than 100 luxury
restaurants operating in Baku city. The luxury restaurant segment is
concentrated mainly in Baku city, and some 5 star resort areas.

Since the target market for restaurants is wide, it is common in some
Azeri restaurants to offer several types of cuisine at once for wide
range of tastes. A limited number of restaurants offer Azeri cuisine
only. Nevertheless, specialized restaurants do have stable positions in
the market. The rest of the restaurants offer wide variety of cuisine.

Most of the high-end restaurants prefer to work with foreign corporate
clients and try to establish long-term relations with them. However,
despite the trend, some restaurants direct their marketing efforts to
attract local businessmen.

Other restaurants comprise the largest market share of HRI food service
sector. The menu offered by them is about the same. The food items they
purchase mostly come from local producers, and nearby countries such as
Russia, Iran, Georgia and Turkey.

**Below is a list of major luxury restaurants in Baku**

+--------------------------------+-------------------------------------+
| **Restaurants**                | **Type of cuisine**                 |
+--------------------------------+-------------------------------------+
| 1.  **865 Gourmet house**      | Continental cuisine                 |
+--------------------------------+-------------------------------------+
| 2.  **Adam\'s Diner**          | American/Indian cuisine             |
+--------------------------------+-------------------------------------+
| 3.  **Afrodita**               | European & Oriental cuisine         |
+--------------------------------+-------------------------------------+
| 4.  **Amburan**                | Azeri cuisine                       |
+--------------------------------+-------------------------------------+
| 5.  **Antep Sofrasi**          | Turkish cuisine                     |
+--------------------------------+-------------------------------------+
| 6.  **Asya Turk Restaurant**   | Turkish cuisine                     |
+--------------------------------+-------------------------------------+
| 7.  **Azerbaijan**             | Azeri Cuisine                       |
+--------------------------------+-------------------------------------+
| 8.  **Avilla**                 | Azeri and European Cuisine          |
+--------------------------------+-------------------------------------+
| 9.  **Aqua Park**              | Mixed Cuisine                       |
+--------------------------------+-------------------------------------+
| 10. **Bay of Bengal**          | Indian and Chinese Cuisine          |
+--------------------------------+-------------------------------------+
| 11. **Bah Bah Club**           | Azeri Cuisine                       |
+--------------------------------+-------------------------------------+
| 12. **Beluga Bar**             | Sturgeon                            |
+--------------------------------+-------------------------------------+
| 13. **Baku Entertainment       | Azeri and European Cuisine          |
|     Center**                   |                                     |
+--------------------------------+-------------------------------------+
| 14. **Baku Gourmet Shop**      | Snack foods                         |
+--------------------------------+-------------------------------------+
| 15. **Black Jack**             | European Cuisine                    |
+--------------------------------+-------------------------------------+
| 16. **Buena Vista**            | Spanish Cuisine                     |
+--------------------------------+-------------------------------------+
| 17. **Britannia Bar (Hyatt     | British Pub                         |
|     Park)**                    |                                     |
+--------------------------------+-------------------------------------+
| 18. **Blues**                  | European and Azeri Cuisine          |
+--------------------------------+-------------------------------------+
| 19. **Cafe de Paris**          | French Cuisine                      |
+--------------------------------+-------------------------------------+
| 20. **Chanag gala**            | Azeri Cuisine                       |
+--------------------------------+-------------------------------------+
| 21. **China Town**             | Chinese Cuisine                     |
+--------------------------------+-------------------------------------+
| 22. **Chaplin\'s**             | English Pub                         |
+--------------------------------+-------------------------------------+
| 23. **Churasco**               | Steak House                         |
+--------------------------------+-------------------------------------+
| 24. **Delhi**                  | Indian Cuisine                      |
+--------------------------------+-------------------------------------+
| 25. **Dolce Vita**             | Italian Cuisine                     |
+--------------------------------+-------------------------------------+
| 26. **Elite Complex**          | Turkish Cuisine                     |
+--------------------------------+-------------------------------------+
| 27. **Finnegan\'s**            | Irish Pub                           |
+--------------------------------+-------------------------------------+
| 28. **Fisherman\'s Wharf**     | Seafood and Louisiana Cooking       |
+--------------------------------+-------------------------------------+
| 29. **Georgian Home**          | Georgian Cuisine                    |
+--------------------------------+-------------------------------------+
| 30. **Cleopatra**              | Lebanese, Azeri and European        |
|                                | Cuisine                             |
+--------------------------------+-------------------------------------+
| 31. **Lemon Grass Restaurant** | Euro-Asian Cuisine                  |
+--------------------------------+-------------------------------------+
| 32. **Maharaja**               | Indian Cuisine                      |
+--------------------------------+-------------------------------------+
| 33. **Man Fu Lou**             | Chinese Cuisine                     |
+--------------------------------+-------------------------------------+
| 34. **Melting Pot**            | Japanese Cuisine                    |
+--------------------------------+-------------------------------------+
| 35. **Robatabar**              | Japanese Cuisine                    |
+--------------------------------+-------------------------------------+
| 36. **Pancho\'s Mexicana**     | Mexican Cuisine                     |
+--------------------------------+-------------------------------------+
| 37. **Patio**                  | European Cuisine                    |
+--------------------------------+-------------------------------------+
| 38. **Pizza Gusto**            | Italian Cuisine                     |
+--------------------------------+-------------------------------------+
| 39. **Radisson Plaza**         | Italian and Turkish                 |
+--------------------------------+-------------------------------------+
| 40. **Scallini**               | Italian                             |
+--------------------------------+-------------------------------------+
| 41. **Shafa Stadium**          | European and Eastern Cuisine        |
+--------------------------------+-------------------------------------+
| 42. **Shusha**                 | Azeri Cuisine                       |
+--------------------------------+-------------------------------------+
| 43. **Taj Mahal**              | Indian Cuisine                      |
+--------------------------------+-------------------------------------+
| 44. **Tandir Garden**          | Trans-Caucasian Cuisine             |
+--------------------------------+-------------------------------------+
| 45. **Terrace Restaurant**     | Oriental and Chinese Cuisine        |
+--------------------------------+-------------------------------------+
| 46. **W Club**                 | Euro Asian Cuisine                  |
+--------------------------------+-------------------------------------+
| 47. **Walkabout**              | European, Asian, and international  |
+--------------------------------+-------------------------------------+
| 48. **White Club**             | European Cuisine                    |
+--------------------------------+-------------------------------------+
| 49. **Wild West Restaurant**   | American steakhouse                 |
+--------------------------------+-------------------------------------+
| 50. **WOK**                    | Chinese Cuisine                     |
+--------------------------------+-------------------------------------+
| 51. **Ying Yang**              | Chinese Cuisine                     |
+--------------------------------+-------------------------------------+
| 52. **Zorbas**                 | Greek Cuisine                       |
+--------------------------------+-------------------------------------+
| 53. **Zumrud**                 | Azeri and European Cuisine          |
+--------------------------------+-------------------------------------+

**Fast Food Restaurants**

Fast food is a new concept in Azerbaijan. Only one international
fast-food chain (McDonalds) is operating in Azerbaijan. McDonald\'s has
only two outlets one of which is a drive-through outlet. Most of the
foodstuffs are imported from other countries. For example, meat is
imported from Austria. Another international chain (Baskin Robbins)
closed because the demand was low due to high prices. The fast food
sector is represented mostly by individually owned outlets with mostly
Azeri, Turkish and Georgian cuisine. Consumers are most familiar with
this cuisine and it is relatively inexpensive. The most popular fast
food meals are kebabs, doner kebabs, pide etc. Fast food outlets use
mostly locally produced food products. The price for a fast food meal
ranges between USD 1.0-3.0 for a meal and a soft drink. Fast food
outlets offer meals "to go" as well, which is new in Azerbaijan.

A recent development in the fast food sector is the appearance of new
cafeteria-style bakeries, which offer cakes, pizzas, rolls and drinks.
These outlets are gaining popularity due to efficiency (service is
faster than in traditional fast food outlets) and low cost. These
outlets open under brand names that have gained awareness positive
attitudes in very short period of time.

  ---------------------------- --------------- ----------------- --------------
  **Top fast food restaurant                                     
  companies profile**                                            

  **Company Restaurant/ Name** **Current       **Nationality**   **Purchasing
                               Number of                         Agent**
                               Restaurants**                     

  McDonald's                   2               American          Catering
                                                                 company

  American Fast Food           1               American          Direct imports

  Anadolu                      2               Turkish           Wholesaler

  Istanbul                     4               Turkish           Wholesaler

  Portofino                    1               Italian           Local
                                                                 importers

  Pizza Gusto                  1               Azeri             Importers and
                                                                 local
                                                                 producers
  ---------------------------- --------------- ----------------- --------------

**Celebration Houses**

This new HRI sub-sector has emerged after the collapse of the Soviet
Union. Celebration houses are the places where Azeris have wedding and
birthday parties, reunions & official gatherings. Usually, the
celebration houses have several halls of different sizes to meet the
requirements of each customer. This business has taken large market
share from hotels and restaurants, which used to provide the same
services for higher price. The cuisine is mostly Azeri, and the menu is
about the same in all celebration houses. The most commonly consumed
purchased foodstuffs are meats, sausages, sturgeon, caviar, mayonnaise,
cheeses, alcoholic beverages (vodkas and champagnes) and non-alcoholic
beverages (all locally produced). While this sub-sector is quite large,
it provides little opportunities for U.S. exporters since most of the
food items are purchased from local producers.

**Institutional Food Service Sector**

In the former, the institutional food service sector provided food for
most companies that had cafeterias for their employees, schools,
hospitals etc. After the collapse of the Soviet Union, the majority of
enterprises closed down and few new enterprises were launched.
Individuals renting the area run cafeterias in schools. Most of the
foodstuffs are purchased from local producers.

The military food service sector does not provide any opportunities for
U.S. exporters. The military uses mostly local foodstuffs. Nevertheless
there is a possibility that the military will contract out catering
services.

In early and mid 1990s a new catering sub-sector emerged. Great
expectations about Azeri oil reserves have brought many companies to
Azerbaijan stimulating the catering business. Along with large
international catering companies like Aramark and Catermar, new local
companies occupy a large market share of the catering market
constituting intense competition to international companies. However,
international catering companies serving the needs of the oil and gas
sector are operating under Production Sharing Agreements (PSAs) with the
Government of Azerbaijan, according to which the companies become exempt
of all taxes. Thus, PSAs give foreign catering companies a competitive
advantage over local ones.

All catering companies have underutilized production capacities (about
20 percent capacity utilization level in foreign caterers and 40 to 60
percent in locally owned companies) because they are awaiting the oil
boom, which will boost their sales volumes. Meanwhile, catering
companies serve their established clientele and focus on their
established tastes. Nevertheless, the tastes of consumers do change and
this provides opportunities for new products in the market.

The cost for one meal offered by caterers varies in the range of \$4-14.
Local catering companies usually sell at much lower prices than foreign
caterers do.

Catering companies usually purchase foodstuffs from importers, local
producers, bazaars, and import directly from Dubai.

One of the characteristics of the institutional food service sector is
that some hotels, restaurants (including fast food outlets), food
importers and supermarkets offer not only delivery, but also catering
services to the companies.

**LIST of caterers**

  ----------------------- ----------------------- -----------------------
  **Caterer**             **Nationality**         **Target Audience**

  Caspian Development     British                 Companies and
  Corporation                                     government bodies

  Parkgate Enterprises    N/A                     Companies and shops
  Ltd                                             

  Abela Azal              Azeri                   Airlines

  Strachans and Aramark   American (Scottish      Oil & Gas Sector
  Ltd                     branch)                 

  Tais                    Azeri                   Large local factories

  Universal Sodex Co      British                 Large local factories

  Azerbaijan P. Dussman   German                  Foreign local companies

  Catermar                American                Oil & Gas sector

  Baku Catering Company   Azeri-Turkish           ISR Plaza business
                                                  center, Embassies,
                                                  local businesses etc.

  Anadolu                 Turkish                 Companies and Public

  Citimart (supermarket)  Indian                  Foreign companies

  Canyon Catering         American                Oil & gas sector
  Services                                        

  Caspian Sea Ventures    British                 Oil & Gas sector
  Corporation                                     

  Fortuna Co (importer of Azeri                   Companies
  foodstuffs)                                     

  Gama S.P.A              Azerbaijan Italy        Oil & Gas Sector

  Hyatt Hotels Baku       American                Foreign Companies

  Pizza Gusto (Fast Food) Italian                 Companies

  Rezayat Projects        U.A.E. (Multinational)  Dubai companies

  Universal Ltd.          Azeri                   Local and Foreign
                                                  Companies.

  Oscar (restaurant)      Azeri                   Companies
  ----------------------- ----------------------- -----------------------

**III. COMPETITION**

Meats - HRI Food Service Sector imports meat products from Australia,
New Zealand, China, and the United States. Highest quality meat products
are also imported from Brazil. Local production of meat products also
provides intense competition for U.S. Exporters.

Poultry - High-end HRI Sector participants usually import poultry from
Denmark and Brazil, because locally produced poultry has inappropriate
taste characteristics. The United States has traditionally supplied a
large share of this market.

Sausages are imported mostly from Russia and Poland due to their
perceived high quality and acceptable price.

Eggs, dairy products and nuts are locally produced and imports of these
foodstuffs in the HRI Sector are limited.

For wines, the competition comes from French and Italian wines which are
popular in the HRI Sector. Among imported wines, Georgian wines are
gaining popularity and producers seek ways to penetrate the Azeri
market. Georgian wines were popular in Soviet Union and had good brand
recognition. Local production of wines is also developing and Azerbaijan
has great potential in wine making. Azerbaijan was one of the leading
wine suppliers in the former Soviet Union.

**IV. BEST PRODUCTS PROSPECTS:**

**Products present in the market**

The HRI Food Service Sector is small and the quantities of products with
best prospects are quite small. Products now present in the market:

***Poultry:*** HRI Sector in Azerbaijan remains a promising market for
U.S. poultry products. An increasingly wide range of cuts and other
products (franks) are in demand in Azerbaijan. (Note: Azerbaijan
recently banned imports of US poultry due to the discovery of
low-pathogen avian influenza in Delaware.

***Meat Products:*** There is limited demand for red meat products in
Azerbaijan, such as tenderloins and boneless meat.

***Liquors***: Along with French and Italian wines, wines from the
United States (California) and Chile are quite popular in Azerbaijan.
Also good opportunities exist for hard alcohol such as vodkas and
tequilas.

***Fruit Juices*** The HRI Food Service Sector is exhibiting growing
demand for Natural fruit juices and nectars.

***Seafood:*** Although Azerbaijan is rich with fish products such as
caviar, sturgeon, salmon, etc., Azerbaijani HRI Food Service Sector is a
promising market for ocean fish, shrimp, squid, and other seafood.

***Sauces:*** mustards, ketchup, Asian, Mexican and other ethnic sauces
and flavorings.

***Vegetables***: Broccoli has some market potential in the restaurant
sector.

***Breakfast Cereals***: Breakfast cereals are gaining popularity in
Azerbaijan and are being currently imported from Russia, and other
countries.

***Confectionery:*** candy bars*,* cookies, waffles*,*

**Products Not Present in the Market**

High-value perishable items.

**Products unsuccessful in the market**

The HRI sector focuses on established tastes of consumers occasionally
offering new products. So far, there has not been any food product that
failed in the market.