Kyiv is promised to be flooded with fast food restaurants.
The 40% growth projected for the Moscow fast-food restaurant market at the beginning of 2005 failed to materialize: by the end of the year, its volume had increased by only 20%. Experts attribute this to a shortage of space for new establishments, the unstable political situation, and changes in taxation. Nevertheless, this year, both established and new market players intend to make up for lost time, announcing plans to expand their chains.
The predictions did not come true.
Back in early 2005, most fast-food chains predicted a 40% market growth, with a monetary value of $650 million. However, according to Mikhail Temper, Marketing Director of Omex Corporation (TM Dva Gusya, City, etc.), the market grew by only 50-60% of the projected figures. This is confirmed by Ruslan Krasyuk, CEO of Rosinter Ukraine (TM Rostik's, Il Patio, etc.), who noted that mid-priced establishments experienced the most dynamic growth, while the higher-end restaurant segment remained virtually frozen last year.
Experts cite several reasons for the current situation. According to Olga Nasonova, CEO of Restaurant Consulting, the most important is the lack of suitable sites and premises for new establishments. "In most cases, fast food restaurants are located in rented spaces, the rent for which has increased by approximately 1.5 times in Kyiv in the last year alone. But even at these prices, finding suitable premises with an hourly traffic volume of 1,000 people is very difficult," she says. "This also applies to shopping centers: not many are being built, and the most popular and conveniently located ones lack space for everyone. For example, more than five operators work in the food court at the Karavan shopping center, which opened last year."
Other obstacles to market development last year included the unstable political situation in the country and changes in taxation. For example, while in 2004, restaurants with annual turnover of up to UAH 1 million operated under a single tax, contributing only 6-10% of their turnover to the budget, in 2005 this rule was extended only to establishments with turnover of up to UAH 300,000; exceeding this amount increases budget contributions to 20%. "Although these tax changes were only in effect until August, they led to the freezing of a number of new projects, as operating a restaurant business under these conditions became unprofitable," explained Ms. Nasonova.
Another factor driving down fast-food chain revenue was the steadily rising cost of raw materials. According to Mr. Temper, in 2005, most chains were forced to raise wholesale prices for prepared meals three times, which naturally impacted the traffic of many establishments. "After the rise in pork and beef prices, most companies expanded their range of chicken-based meat dishes. But the emerging threat of a bird flu epidemic sparked public panic, forcing restaurateurs to once again focus on other types of meat," he noted.
There will be more networks.
However, fast food chains aren't planning to give up their positions, planning to recoup losses this year. Olga Nasonova believes that the capital's market will grow by at least 40% during 2006, citing announced plans to expand existing companies and launch new chains. For example, the management of the Kyiv-based company Kontakt, which opened its first Puzata Khata restaurant on Basseynaya Street two years ago, along with its own production facility, has announced its intention to create a full-fledged chain this year. According to the company's CEO, Vladislav Guliy, a second Puzata Khata restaurant with 60 seats was opened at the end of last year at the Metro station. A third location is planned for March of this year in the Passage on Khreshchatyk, and a restaurant in the Podolsky Department Store will open this summer. "The investment in launching each location will amount to approximately 10 million hryvnias," she said. “At the same time, development is planned in the regions of Dnepropetrovsk and Kharkiv,” he said.
Plans to create a chain were also announced by the management of Mandri za Smakom LLC, whose sole location under the Zdorovenki Buli brand opened last year on Khreshchatyk. According to Deputy Director Vitaly Klyatsky, a second fast food restaurant under this brand will open on the left bank in March or April. Although he did not specify the total number of planned locations, citing the fact that a strategy for further chain development is currently being developed, he noted that the company is not solely focused on the capital. Mr. Klyatsky also added that a production facility is planned specifically for the new locations, where rough processing of products will be carried out.
Omex Corporation intends to take a different approach, developing a new format of restaurants under the "Tri Peskarya" trademark, opening them on the premises of office centers and large companies. "Pilot projects at Roshen and Avon locations have proven successful," says Mr. Temper. Ms. Nasonova also confirms this new trend, stating that small fast-food restaurants with an area of 50-150 square meters, or those offering takeout , will see the most rapid growth this year. "The emergence of the Wokie Dokie chain is a prime example," she believes. Experts have already calculated that opening such a restaurant would cost $200,000, with a payback period of approximately two years.
The arrival of several foreign companies in Ukraine will also boost the development of the capital's market: American Sbarro, Lithuanian Chilly Pizza, and the multinational Yum (Pizza Hut, KFC, Taco Bell, and John Long Silver brands) have announced similar plans. Sbarro plans to enter Kyiv through a Russian franchise partner and open at least three locations in 2006, investing $1.5–2.5 million in each. Meanwhile, Yum, according to Ruslan Krasyuk, signed an agreement with Rosinter last year to jointly develop a chain of restaurants under the Rostik's-KFC brand. "We are already developing a plan for Ukraine. However, it is difficult to say how many locations will open this year, as the concept for this market is currently being developed."
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