Voluntary Report - public distribution

**Date:** 6/1/2007

**GAIN Report Number:** RS7316

RS7316

**Russian Federation**

**HRI Food Service Sector**

**Opportunities for U.S. Foods Sales in the Russian Market**

**2007**

**Approved by:**

![](media/image1.wmf)Eric Wenberg, ATO Director

U.S. Embassy

**Prepared by:**

Chelsea Brown, Natalia Comizzoli and ATO Staff

**Report Highlights:**

With a population of 143 million, increasing consumer income and growing
food expenditures, the picture for HRI-oriented product sales in Russia
is bright indeed. Many restaurants import a vast majority of their
ingredients (up to 90%), and present growing opportunities for
producers, particularly in the meat, seafood, wine and specialty food
categories. U.S. producers face substantial competition in restaurant
produce, and perception of American products continues to be somewhat
negative. Difficulties with customs, port delays and protectionism all
present challenges, but the size and growth of the HRI sector makes
Russia a valuable market for U.S. food products.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Moscow \[RS1\]

\[RS\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Section I: Market Summary and Structure
3](#section-i-market-summary-and-structure)

[HRI Subsectors 5](#hri-subsectors)

[Restaurants 5](#restaurants)

[Hotels 8](#hotels)

[Institutional 9](#institutional)

[Distribution Channel for U.S. products into Russia
10](#distribution-channel-for-u.s.-products-into-russia)

[Section II: Road Map for Market Entry
10](#section-ii-road-map-for-market-entry)

[Figure 8: Advantages and Challenges for US products in Russia
11](#figure-8-advantages-and-challenges-for-us-products-in-russia)

[Entry Strategy 11](#entry-strategy)

[Major Restaurant Operators in Russia
13](#major-restaurant-operators-in-russia)

[Competition 14](#competition)

# Executive Summary

The HRI sector is one of the fastest growing segments of the Russian
economy and is experiencing growth rates of 20-30% per year. There are
significant opportunities for American producers to benefit from this
boom, as many importers, distributors and managers in the HRI segment
have expressed an interest in new product offerings and high-quality
ingredients.

Most of the growth in the HRI sector is occurring in the fast food and
casual dining segments. The majority of HRI customers are price
sensitive, but very interested in new and innovative products. As the
Russian restaurant culture grows in sophistication, the demand for
different products increases.

To succeed, American exporters must be prepared to do extensive
marketing, and educate potential clients about the uses for their
products. Logistics can be a problem, especially as shipping traffic
overloads the port in St. Petersburg, the primary gateway for American
food imports. American products also face substantial competition from
Western Europe, Asia, and South America.

While the main market for American products is still in Moscow and St.
Petersburg, the HRI sector is developing rapidly in the larger cities,
such as Kazan, Nizhny Novgorod, Yekaterinburg, and tourist cities on the
Black Sea such as Sochi. Operating outside of the major regions,
however, adds an additional layer of logistical complication for
American exporters and a strong importer or distributor is needed.

# Section I: Market Summary and Structure

The Russian economy is experiencing rapid economic growth overall
(estimated at 7% in 2006), but the HRI sector is growing even faster at
23-26% annually. 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. Even so, there is still
considerable room for expansion, as the number of restaurants and hotels
in Russia still lags behind other countries. The first wave of
restaurants was generally located in the city centers of Moscow and St.
Petersburg, but new restaurants are opening in suburbs and smaller
cities across Russia as people start to view dining out as a regular
event rather than a special occasion. New shopping centers also play a
role, as market studies indicate that up to one quarter of restaurant
visits in 2006 were associated with a shopping center. Customers like
the convenience and choice of the new centers, and restaurants often
find it easier to set up in a center, as the infrastructure is already
in place. One restaurant chain owner reported that unlike his other
restaurant locations in the city, the purpose-built space in a shopping
center allowed him to properly ventilate his kitchen.

As more women enter the work force, more and more people are eating
their main meals in restaurants, and dining out for lunch. Business
lunches are a standard option in many mid-range restaurants. There is an
increasing trend toward health consciousness and lower calorie options,
especially with younger demographic groups. Fast food is the fastest
growing segment, but also (perhaps counter intuitively) subject to the
same health conscious trends as other foods. McDonalds began including
calorie information on its packaging in Russia in 2006, and other fast
food restaurants and cafes have reported increased sales of healthy menu
offerings.

The Russian consumer is also traveling more as a result of the improved
economy, and is exposed to a wider variety of tastes and foods that they
want to experience at home. As a result, today's Russian diner is
exploring new and international cuisines. Italian, Caucasian, and
Japanese restaurants are particularly popular. Russian menus are also
quite extensive, and consumers tend to order multiple courses, even in
fast-food restaurants.

Alcohol spending is also increasing, but trending away from the
traditional vodka. Beer and wine are becoming increasingly popular, as
are "aspirational" drinks such as brandy, cognac and tequila.

Figure 1: Food and Beverage Spending in the Russian Federation

![](media/image2.wmf)

Source: Euromonitor

Figure 2: Russian Beverage Sales

![](media/image3.wmf)

Source: Euromonitor

## HRI Subsectors

## 

## Restaurants

The Russian restaurant market has grown considerably in the past few
years, but is still small compared to other cities of its size and the
market is nowhere near saturation. While Moscow and St. Pete are still
the largest restaurant cities, there is strong expansion into other
cities such as Yekaterinburg, Vladivostok, and many of the smaller
regions, particularly in the south.

There is disagreement about how many restaurants are in Moscow. The
Moscow city government estimates that there are approximately 10,000
restaurants in the city, and that they had gross earnings of US \$2.5
billion in 2005. This figure, however, does not take into account
closures, and may be high. Industry experts believe the actual number of
restaurants, excluding street vendors and institutional venues such as
office cafeterias, to be closer to 4,500, but that the turnover figures
are reasonable. Customers spent US \$3.52 billion dollars in restaurants
in Moscow in 2006, mostly in casual dining restaurants and quick service
establishments. The most active segments were the coffee shop and casual
dining sectors, with profits of 38 and 32 percent. Profits in the fast
food sector were also growing at a rate of 26% in 2006, and show strong
promise in other regions. Profit growth in fine dining is smaller, but
still substantial at 9%. Total revenue across all segments grew at 16%
in 2006, and the number of customers is increasing at the rate of 3-5%
annually.

Figure 3: Eateries by Sub-Category

![](media/image4.wmf)

Source: Industry data and expert opinion

Figure 4: Sales by Sub-Sector

![](media/image5.wmf)

Source: Industry data and Euromonitor

## Fine Dining/Full Service Restaurants

The haute-cuisine, fine dining restaurants with their accompanying
expensive checks are the stereotypical image of the Russian HRI sector.
In some ways, the stereotype is true; there is no shortage of
extravagant and luxury restaurants in Moscow and St. Petersburg. This
category was the first to develop in the mid 1990's, but most experts
agree that the high-end restaurant sector is saturated. While growth may
be slower than in other segments, there is still an opportunity for U.S.
products, particularly as these restaurants demand higher quality foods
and are less price sensitive than the causal and fast food eateries.

Meats, seafood, wines and spirits, and nuts are all items that sell
well. Many restaurants import their produce, but require very fresh
fruits and vegetables that are usually sourced from Europe. Higher end
restaurants are more loyal to their suppliers, but will not hesitate to
change if the quality deteriorates or is inconsistent.

**Casual, "Democratic" Dining and Cafes**

The mid-range, "democratic" restaurant segment in Russia is developing
quickly. Many notable restaurateurs from the haute cuisine category are
opening up mid-priced options, and having a chain of these is somewhat
trendy. The average price for a meal at one of these restaurants is
between \$12-50, making this segment far more accessible to the growing
middle class than the haute cuisine sector. Growth rates for democratic
restaurants are between 15-20% annually.

## 

Despite the name, many of the chain restaurants act as a chain in name
only. Very few have any system of centralized purchasing, and most
decisions regarding products and purchasing are made at the restaurant
level. Each restaurant may use separate suppliers and ingredients, even
if the menu is somewhat standardized. This acts as both a blessing and a
curse for those wishing to sell to this segment. On one hand, there are
many more opportunities for sales since each restaurant is a separate
account. On the other, individual sales are smaller, and do not allow
for the development of exclusive distribution rights and consistent
volumes.

Casual eateries use a variety of imported ingredients, and according to
industry experts, imports make up 85% of the products used. Meat,
produce, desserts, seasonings, and seafood are the most commonly used
imported products. While bread is usually produced in-house, the flours
used are often imported. While quality is of some concern, prices
dominate purchasing decisions, and U.S. products will need to be
cost-competitive to attract business in this segment.

**Fast Food**

Of all the restaurant sub-sectors, the fast-food category is the fastest
growing. Experts report steady growth of sales, generally in the 20-30%
range, but some report sales increases of over 100%. Fast food
restaurants tend to use a higher percentage of local ingredients (around
50%) compared to other restaurants, but this decision is driven by the
high turnover and need for a consistent supply chain more than a direct
preference. Several of the fast-food chains have created internal supply
chains. McDonald's for example, created McComplex to produce the nearly
56,000 hamburger patties it needs each day in Russia. Produce, dairy and
egg products are usually sourced locally, but opportunities for imports
do exist. Many chains use imported sauces, breads, and occasionally
fruit. Smaller fast-food restaurants that do not have the capital or
scale to justify creating their own production facilities may also
import meat and some produce. Much of the meat is imported, and then
processed in Kaliningrad according to company specifications.
Kaliningrad still enjoys import preferences due to its special, economic
status. Poultry and beef are the leading imported meats in this
category. Most of the larger international chains have an internal
distribution network while some of the independent and smaller chains
rely on traditional and specialty distributors.

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 outlets are increasing. Chains such as Krosha
Kartoshka (baked potatoes), Stardog (hot dogs) and Teremok (blinis) are
ubiquitous in the major cities and are expanding regionally as well.

Figure 5: Fast Food Kiosks in Russia

![](media/image6.wmf)

Source: Euromonitor and Industry Expert Opinion

# Hotels

The hotel industry in Russia is facing a severe room shortage, yet
tourism is booming. Moscow has just 6,000 western- business style hotel
rooms, and St. Petersburg only 2,000. This pales when compared to other
European capitals such as London or Paris, each with 100,000 of such
rooms. Other large cities in Russia often have few lodging options other
than the old Soviet style hotels. Moscow tourists are expected to reach
5 million in a few years, with St. Pete already close to this number.
Vienna has 3 million, and Berlin attracts 3.2 million. St. Petersburg,
due to its proximity to Europe, attracts most of the international
business travel.

The room shortage is also apparent in the occupancy rates and room
tariffs, all of which are high by international standards. Room prices
have risen 20% per year since 2000, and a typical room in a Western
hotel now goes for over \$300 dollar per night. While hotel operators
are pleased with this arrangement, the lack of quality, moderately
priced accommodation is blamed for reducing some of the Russia's tourist
potential, particularly for business travel. Other sectors such as
restaurants and theaters could grow even faster if there were higher
tourist capacity.

Hotels, however, take time to develop, and the bureaucratic requirements
in operating a hotel have slowed the pace of development for large
internationally managed hotels. Most internationally branded hotels are
operated under management or franchise agreements rather than direct
control of their namesake. Business tourism makes up a substantial share
of the market, with almost 2 million international visitors per year, in
addition to domestic business travel. Business travel has steadily
increased, and does not show the same seasonal fluctuations that tourism
travel does. The number of business travelers in Russia is forecast to
grow by 300% in 2015.

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 and
Kazan are other regions where tourism, particularly business travel, is
growing. Major hotel chains are beginning to open facilities in these
regions, and the Radisson has just opened an 81 room hotel in Rostov on
Don. All in all, 390 new hotels are expected to be built by 2010 across
Russia, with many in Moscow, but several in the larger regional
capitals.

**Luxury Hotels**

The luxury hotel market is saturated in Russia, and is concentrated
primarily in Moscow and St. Petersburg. These hotels often feature
restaurants with internationally recognized chefs, as well as cafes and
bars. However, hotel restaurants are rarely profitable, and tourists are
seasonal. They cannot rely exclusively on hotel guests, but the local
population does not regard hotel restaurants as "real" restaurants,
despite a big name chef. Hotel restaurants outside of Moscow and St.
Petersburg (such as the new Radisson in Rostov-on-Don) may perform
better due to a lack of other dining options.

Figure 6: Hotel and Catering Sales in Russia

![](media/image7.wmf)Source: Euromonitor

Despite the relatively flat growth in this sub-category, these hotels
still represent the best opportunity for American products' sales to
hotels, as the other sub-categories usually have very limited food
service offerings. Hotel restaurants operate like other restaurants and
purchase items through distributors. American meats, wines and spirits
are some of the better prospects for this segment.

## Mid-Range Hotels

## Mid-priced hotels do not usually have restaurant facilities, but may feature limited offerings, particularly breakfast. Most of these hotels are small enough that they purchase their food products from a local cash and carry, or the retail market rather than through distributors. Other 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 /Economy

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

# Institutional

In general, institutions are a challenging segment for American
producers. In the past, catering was a miniscule segment of the Russian
hospitality market. Catering has enjoyed a 30-70% annual growth rate in
the past three years, compare with 13% for other western European
nations. Each year, approximately 15 new companies enter the market, and
large well-known restaurateurs are getting in on the act. In addition to
private events and parties, lunch deliveries are a strong component of
the catering business. In Moscow, lunch deliveries accounted for \$64
million dollars in revenue alone. Caterers select products on a variety
of categories, depending on the client, and usually work through the
same distributors as restaurants. Mid-level and high-end catering uses a
variety of imported foods, and catering can present an attractive
opportunity for US products, particularly for specialty items such as
seasonings, nuts, meats, wine and seafood. Like restaurants, caterers
use a variety of distributors and suppliers depending on their needs.

Office cantinas and cafeterias are another segment that is undergoing
change. Until the past few years, most cafeterias were operated in
Soviet fashion, with few offerings and generally low quality. The office
cantina is now revamping itself as income grows, and people have less
time to prepare their own meals. Newer cantinas are offering more and
demanding better quality ingredients, but still prefer to buy whole,
non-processed items. They are also very price sensitive. Like many
restaurants, they monitor prices weekly, and do not hesitate to change
suppliers, or menus, when they encounter a better price.

There is no national school lunch program in Russia at present, but
there is interest in creating one. Institutional packaging may have some
potential in Russia, but the cost and logistics of U.S. products may be
a deterrent to potential customers. One bright spot for this trade
segment may be rice, peas, beans and lentils. Soup bases, institutional
food packs and spices could be interesting to some companies. An annual
conference on food service to schools is held each April in Moscow and
has growing participation in a trade show from foreign firms offering
nutritional foods and food additives, along with the above products.

Railways and airlines are other venues for institutional food service,
but these are also limited by budget, and often by domestic purchasing
requirements. Operators at the major airports in Moscow usually function
as part of a restaurant chain more than an institutional operator. Bulk
items that are extremely cost competitive might have potential but face
stiff competition from domestic suppliers and cheaper imports from Asia.

## Distribution Channel for U.S. products into Russia

Very few HRI businesses operate on exclusive contracts with vendors, and
most change suppliers frequently, particularly if there is a price
difference. Most businesses use a separate supplier for each product
category (i.e. produce, meat, desserts).

Whole foods are preferred and make up 70% of the sales. Smaller
restaurants where space is at a premium are usually the customers for
semi-prepared items. Even fast-food chains tend to buy whole produce and
slice it at the restaurant level (exceptions to this include meat
patties and fries).

Few restaurants rely on fresh produce markets for suppliers. In contrast
to U.S. style produce markets, the offerings in Russian markets are
inconsistent and of questionable quality. Markets also tend to have
higher prices than other supply options.

# Section II: Road Map for Market Entry

Figure 7: Distribution Channels for HRI Products in the Russian Market

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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 with vast
majority of HRI products (over 80%), with domestic suppliers filling the
gaps.

# Figure 8: Advantages and Challenges for US products in Russia

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

  U.S. products have a reputation for Logistics can be difficult
  consistency and high quality        

  Current exchange rate can make U.S. Products need a lot of marketing
  products less expensive than        and educational support to develop
  Euro-zone products                  a sales base

  Brand recognition for some products Strong competition from Europe and
                                      southern hemisphere

  HRI market actively seeking new     Product bans disrupt trade, and can
  products                            be unpredictable

  Regional markets are expanding      Perception of American products as
                                      containing hormones or are not
                                      natural

  HRI sector has a lot of room for    Customers are very price sensitive
  growth                              

  WTO accession may help market       Sanitary and Phyto-sanitary bans
  access                              may allow a continuation of bans
  ----------------------------------- -----------------------------------

## Entry Strategy

Achieving strong sales in the Russian HRI market is not something that
can be accomplished without careful planning. However, several meat,
fish, seafood, wine, and spirits companies are selling to the HRI sector
and their business is growing quickly. Different types of products
require different strategies, and U.S. exporters must carefully tailor
their approach. The following are things to consider:

-   A good relationship with an importer is essential. Negotiating with
    Russian Customs authorities and phytosanitary processes can be
    complicated and requires experience.

-   Once the goods have been imported, you will usually need a
    distributor to sell your product. Most HRI companies work through
    suppliers and distributors and rarely import items directly. The
    exception to this is international chains that have an internal
    distribution network within the country. The larger distributors are
    suited for commodity/ 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.

-   Marketing and product education is essential. Many of the industry
    personnel we spoke with were interested in new products, but want to
    be shown how to use them, and how the products can be made to work
    for them. Carefully consider how your product can benefit your
    target audience. Master classes, and product demonstrations were
    continually mentioned as stimulating demand for new products. It is
    also important to include both the distributor and chefs in your
    promotions. For example, one importer mentioned how a chef had gone
    to a demonstration, and kept calling the distributor asking if he
    had "those prawns things they used." The distributor did not know
    the product, much less the company information, and was unable to
    provide the product. Many other distributors also mentioned that
    they want to be shown new products, but do not have time to seek out
    new products themselves. Exporters would do well to approach
    importers and distributors and show them their product offerings.

-   US producers also need to provide marketing materials appropriate
    for use in Russia. These do not need to be elaborate. One large
    distributor mentioned how effective an informational DVD subtitled
    in Russian was in promoting a product. Translations of printed
    material, and other electronic marketing materials are essential.

-   Participation in trade shows, technical demonstrations, and trade
    missions to the US are all other elements of marketing strategies
    that work well in the Russian market. There are two culinary show
    opportunities of interest in this area, recommended by the ATO: Pir
    Russia, held each August, 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.

-   Logistics must be carefully considered and monitored. Most products
    will enter Russia through St. Petersburg, but if you are targeting
    the Russian Far East, Vladivostok is another option. Consistency in
    the supply chain is frequently mentioned as a primary problem in the
    HRI segment.

-   Marketing will need to be tailored to the targeted sector, just as
    in the US or EU. Packaging is particularly important. Many
    distributors reported that their customers prefer clear,
    vacuum-sealed packaging that allowed them to examine the product. If
    weights or other information is given on the package, it is critical
    to ensure that it is correct, as many customers will use this
    information as a test of a company's reliability.

-   Semi-prepared products are not commonly used in the HRI market,
    however a few restaurateurs are turning to semi-prepared products.
    If you want to sell semi-prepared foods in Russia, you need to be
    prepared to do an education program about the benefits and uses of
    these products. Several distributors believe that this is a growing
    segment, but that it is in its infancy. The phytosanitary
    requirements for semi-prepared products can also be more complex,
    particularly for meat products.

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

-   Direct importation is difficult without a large customer base so
    it's best to find an importer. It is essential to have a physical
    presence here to work with customs.

-   Market access is also dependent somewhat on the region, and the
    desired end customer. If you wish to operate in the Russian Far
    East, it is far easier to work with an importer and distributor out
    of Vladivostok rather than St. Petersburg or Moscow.

# Major Restaurant Operators in Russia

Chained and franchise restaurants are the exception in Russia, but are
quickly becoming the norm. The largest of these, Rosinter, is holding an
IPO in May 2007, while the Novikov Group is said to be considering a
public offering in 2008. Other international chains work through
licensing agreements and franchises. ATO's favorite home grown Russian
restaurant, fast food chain is Kroshka Kartoshka. With its distinctive,
green kiosks and summer patios, the café's are easy to find around
Moscow and a great spot to stop for a baked potato with all the
trimmings and a cold beer.

  --------------- ----------------- --------------- ----------- --------------
  **Restaurant    **Country of      **Year est. in  **\#        **% Growth
  Chain**         Origin**          Russia**        Outlets**   from 2005**

  McDonald\'s     USA (Canada)      1990            168         15%

  KFC\*           USA/Russia        1990            20          n/a

  Kroshka         Russia (Moscow)   1991            199         26%
  Kartoshka                                                     

  Baskin Robbins  USA               1992            134         10%

  Rosik\'s\*      Russia (Moscow)   1993            97          8%

  Sbarro          USA               1997            90          34%

  Teremok         Russia            1998            96          22%

  Chainaya Lozhka Russia (St.       2001            44          32%
                  Petersburg)                                   

  Vostochniy      Russia (Moscow)   2002            25          40%
  Bazaar                                                        

  Grabli          Russia (Moscow)   2003            3           67%

  Edok            Russia (Nizhni    2003            6           n/a
                  Novgorod)                                     

  OlivЬe          Russia            2003            7           n/a
                  (Chelyabinsk)                                 

  Konopizza       Italy             2005            21          33%

  Carl\'s Jr.     USA               2006            4           100%

  Stardog's       Russia (Moscow)   1993 (2003 new  203         4%
                                    brand)                      

  Subway          USA               1994(1998)      20          10%

  Moo-Moo         Russia (Moscow)   2000            16          n/a

                                                                

  \*Joint Venture                                               
  with Rosinter,                                                
  co-branding                                                   
  agreement                                                     
  completed in                                                  
  2006.                                                         
  --------------- ----------------- --------------- ----------- --------------

Rosinter operates 192 restaurants in 24 cities. Its revenues exceeded US
\$219 million dollars in 2006, and they posted a 30% growth rate from
2005-2006. In addition to such Russian brands as Il Patio, Planet Sushi,
and 1-2-3 Café, it also holds the license for and operates the T.G.I.
Fridays and Benihanas brands (also KFC and Rostiks as shown above).

The Novikov Group is slightly less chain oriented, and operates 30
different high-end concept restaurants, primarily in Moscow. In the past
few years, however, it has begun expanding into the democratic and
casual sectors with its Yolki-Polki and Kish Mish. They also operate
Globus Gourmet, an upscale grocery retailer, and are launching a more
mid-priced convenience store with the Yolki-Polki name. It has also
announced plans to develop a catering business. Revenue figures from
2005 and 2006 are unavailable, but the Novikov Group reported US \$82
million in sales in 2004. Given the average growth rates, it is
reasonable to assume that revenues in 2006 exceeded US \$120 million.

  ----------------- ------------------------ ------------------ -------------
  **Holding         **Sales**                **Brands**         **Outlets**
  Company**                                                     

  Rosinter          US \$219 million in 2006 Planet Sushi       192

                    30% growth in 2006       Il Patio           

                                             TGI Fridays        

                                             Benihana           

                                             1-2-3 Café         

                                                                

  Novikov Group     not publicly disclosed   Yolki-Poli         est. 100

                                             Kish-Mish          

                                             30 different       
                                             concept            
                                             restaurants        

                                                                

  RP-Com            over US \$50 million in  Goodman            20 outlets
                    2006                                        

                                             Fish House         

                                             Kolbasoff          

                                                                

  Romashka          not publicly disclosed   Shesh Besh         17 (in 2005)

                                             John Bull Pub      

                                             Molly Gwinns       

                                             Mir Pizza          
  ----------------- ------------------------ ------------------ -------------

Source: Industry Data

## Competition

Major competition for fruits and vegetables comes from the EU. Many of
the eastern European states such as Poland are also significant
exporters of bread and bakery products. European companies do not face
the port problems that U.S. imports often have, and are able to ship
their products over land. Consequently, they can provide perishables in
a much faster manner. The major meat competitors come from Brazil
(poultry) and Australia (beef), while seafood is imported from
Scandinavia and occasionally imported from South American states. While
the vast majority of products used in HRI service are imported, there
are some ingredients that are usually purchased domestically. These
include root vegetables, such as carrots and beets, and other basic
vegetables like cabbage. Domestic potatoes are occasionally used, but
often as a last resort as the size and quality are too inconsistent for
restaurant use.

Wines are often supplied from Italy, France, Spain, and the New World
suppliers of Chile, Australia and New Zealand. California wines have
made a start here, and this spring seems to have caught on as trendy.
Sales of California wines are expanding rapidly. The wine market was up
80 million liters last year in the premium segment, though trade was off
for wines from Georgia and Moldova due to trade problems.

Russia's largest suppliers (by sales) of all commodities to food service
are Brazil, Germany, the United States, the Ukraine, Argentina, the
Netherlands, Poland and China, but no single country dominates the
market.

**Best Prospects**

Several product categories have high potential in the Russian market.
Fresh and frozen seafood, frozen and chilled poultry and pork and tree
nuts are in demand. 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
RS 7301 and RS 7310). Prepared desserts such as cheesecake (usually
frozen) are also in demand, as restaurants often do not have the time or
resources to devote to consistently preparing dessert items.

Sauces and seasonings along with semi-prepared items have potential, but
need market education. Several industry experts discussed the need for
low-fat and reduced calorie dairy items, and bakery preparation items.
Frozen breads may have potential, but face competition from European
suppliers. Dairy items may face difficulty with customs and SPS
requirements.

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.

Some product categories are promising, but current bans prohibit their
trade. American beef is strongly in demand, as are potatoes. At present,
neither is allowed into the Russian Federation, but the ban on beef may
be lifted later this year. Potato preparations, such as semi-prepared
fries, are allowed, but whole, raw potatoes are not. If these bans are
lifted, these products have significant potential.

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

### Post Contact Information

###  

Physical Address:

Agricultural Trade Office

Embassy of the United States

Bolshoy Devyatinskiy Per., 8

121099 Moscow

Russia

Mailing Address:

Agricultural Trade Office

PSC-77 AGR

APO AE 09721

Phone: (011) 7 (495) 728-5560

Fax: (011) 7 (495) 728-5069

Email:

In Moscow: <ATOMoscow@usda.gov>

In St. Petersburg: <AgStpetersburg@usda.gov>

In Vladivostok : <AgVladivostok@usda.gov>

Websites:

In Russia (English)**: www.[eng.usda.ru](http://eng.usda.ru/)**

In Washington, DC: [**www.fas.usda.gov**](http://WWW.FAS.USDA.GOV/)

#