McDonald’s to Expand into Siberia

Mar. 29 – U.S. fast food giant McDonald’s Corporation reportedly has begun to search for franchisees to expand into Siberia.

The fast-food giant intends to open new outlets using the franchise business model that is the basis for 80 percent of its restaurants worldwide, but has not been used in Russia yet, according to RBC Daily. All of the company’s 314 restaurants across 85 Russian cities are operated independently.

Last week, McDonald’s announced plans to open restaurants in the West Siberian cities of Novosibirsk, Tomsk, and Barnaul. According to a city official from Tomsk, the company intends to open on its own, and also by granting franchises.

In 2012, the first restaurant is to start operations in the Mega shopping mall in Novosibirsk, while within the next two years the company is to grow to 15-20 outlets in the region.

According to estimations by market participants, each restaurant in West Siberia could cost around US$5 million, with an additional US$1.2 million necessary for equipment and information systems, according to RBK.

Earlier this year, the company said its hopes to open an additional 40 to 50 outlets per year within Russia in the immediate future.

After 20 years of continuous expansion mostly in the western part of Russia, McDonald’s is facing stiff competition from the newly arrived Burger King and Wendy’s. Venrus restaurant group, a franchisee for Wendy’s in Russia, plans to spend more than US$130 million to open up around 180 new restaurants across Russia within the coming decade.

The idea of bolstering growth through franchising was raised for the first time a year ago, when Khamsat Khasbulatov, the head of McDonald’s local office, said that the company was weighing this option for Russia’s outlying regions.

Earlier last month, First Deputy Prime Minister Igor Shuvalov was quoted by Vedomosti as saying that he wants McDonald’s to open its new outlet in the Far Eastern city of Vladivostok ahead of an upcoming Asia-Pacific Economic Cooperation summit there.

“I am ready to use every means at my disposal to convince McDonald’s to open a store in Vladivostok,” he was quoted as telling the U.S. giant’s Russia Vice President Viktor Eidemiller at a forum in the city of Kazan.

Vedomosti said he suggested that McDonald’s expand into Vladivostok from its existing base in South Korea. It was not clear what Eidemiller said in response.

Meanwhile, Shuvalov warned that if the fast-food giant moved forward too slowly, other players could enter and dominate the market.

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