St. Petersburg Foodservice Sector Overview

January 31, 2007

Author: Julia Vlasova, Bisnis Representative in Saint Petersburg

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES

Saint Petersburg’s recent rapid economic development is mirrored in the increase in new restaurant construction. This growth spans the wide diversity of dining establishments in Russia’s second largest city, pop. 5 million. According to specialists in St. Petersburg’s Committee on Economic Development, Industrial Policy and Trade, the number of food-catering enterprises grew by 140 establishments during the first half of 2006, while this same sector has had a more than six-fold increase since 1990. According to Svetlana Shalaeva, Director of Analytic Center of Colliers International, the annual total revenues for St Petersburg’s café and restaurant market totaled $265 mil in 2004.

The dynamic growth in new dining establishments during the first six months of 2006 is broken down in the following table:

Type of restaurant	As of January 1, 2006	As of July 1, 2006
Restaurants	423	450
Cafes/fast food restaurants/coffee shops	2477	2572
Bars	608	625
Snack bars	1038	1029
Canteens	181	179
Buffets	253	265
Cooking canteens (Kulinaria)	25	25
TOTAL	5005	5145

Source: St. Petersburg Committee for Economic Development, Industrial Policy and Trade

During the summer months more than 700 seasonal restaurants and cafes are also opened mainly near tourist destinations.

One of the strategic priorities of the St. Petersburg Committee for Economic Development, Industrial Policy and Trade over the last year was the promotion of restaurants, cafes and food chains specializing in Russian national cuisine. There are over 41 different cuisines represented in St. Petersburg, nonetheless, Russian cuisine continues to be the most popular. At present there are 630 restaurants and cafes serving the national fare in the city; every fifth restaurant opened in 2005 was serving Russian cuisine. However, according to the owners of Ginza Project companies Russian cuisine is mainly represented within the fast-food and café sectors while being poorly represented by fine dining restaurants. Ginza Project sees significant growth potential here and is investing about US$ 4 million in the construction of a Russian themed restaurant named “Tzar” in the city.

The famous Russian national dish, bliny (pancakes), can be found in almost any restaurant of the city, food retail outlet, or Blinny Dom, (pancake house), of which there are more than 100 today. The sector leader is Chaynaya Lozhka with its 30 restaurants spread throughout the city. The second biggest chain is “Teremok – Russian Bliny”, a sidewalk stand operator with 28 venues in different city districts. Teremok, with its 13 restaurants, “Maslennitsa” and “Rubli” are other major players.

Russian customers expect to find the following dishes in a typical Russian restaurant/café:

Several choices of fried or baked meat or fish served with potato (boiled/fried/baked) or rice; several choices of mayonnaise based salads, tea and coffee, pancakes (can be stuffed with berries, meat or cottage cheese) and for dessert pastry mainly represented by pirozhki (pastry stuffed with meat, jam, berries, cottage cheese, etc). Russian cuisine is decidedly not spicy with the main flavorings being onion, parsley, dill, pepper, bay leaf, mayonnaise and sour cream.

Observing new restaurant openings reveals significant inroads that different cuisines have recently made. The top three new genres for 2005 are as follows.

Russian cuisine– 34 new restaurants in 2005;

Italian cuisine – 27 new restaurants in 2005;

Japanese – 21 new restaurants in 2005

Other popular cuisines are Georgian and Chinese. The latter, however, has a higher proportional representation in the fast-food sector. There are almost no French restaurants in St. Petersburg.

A significant new trend in restaurant development during 2005 was the opening of restaurants in the northern part of the Finnish gulf region, an important recreational area for the citizenry of St. Petersburg. Another new trend is the opening of sports bars in the hotel districts of the city. Baltisky Express Company recently announced its plans to build 24 sports bars over the next few years, averaging 3-5 bars annually. The first three bars will be located in the Vasileostrovsky, Primorsky and Vyborgsky districts. It is assumed that these bars will comfortably seat approximately 100 people and generate an average tab of US$ 6.00 (140 rubles).

A key driver of restaurant openings in the suburbs is the rising disposable income of the population combined with the growth in retailing. Average monthly income per capita in 2006 was around USD 400. Therefore, local residents can afford to eat out more frequently, up to 2-3 times per month as opposed to once per month just a few years ago. Urban and suburban areas recently devoid of places to eat, other than cafes and sidewalk stands, now increasingly have quick service, casual dining, and fine dining restaurants. Outdoor cafes and coffee houses have also sprung up due to the popularity of tea and coffee. An increasing demand for affordable small meals, and the growing disposable income of young people has fueled this expansion. The opening of supermarkets and hypermarkets in the suburbs has become associated with eating out while the introduction of takeaway services in restaurants and cafes has spurred a small boom in non-home produced meals.

A brief overview of the most popular food sectors such as Restaurants, Cafes, Fast-food Chains and Coffee Shops follows.

RESTAURANTS

At present there are 450 upper end restaurants in Saint Petersburg. This constitutes nearly 1/5 of all cafes/fast-food restaurants registered in the city. As in any large city, the diners of St. Petersburg and their guests have a wide variety of cuisines to choose from. Most top end restaurants, however, serve European and Russian food. Here customers expect table service, a fully stocked bar, and an average bill of $15-20 or greater for an evening meal.

The Rostik Group, a fast-food and restaurant chain with 160 restaurants in 30 cities across Russia and CIS countries, also plans to increase the number of its restaurants in St. Petersburg. They concluded a contract with the Pulkovo airport wherein Rostik is contracted to open about 20 restaurants. Rostik has already opened a Sushi-bar, “Planeta Sushu,” and three coffee shops with an investment totaling US$ 2.3 million (60 million rubles). The group will invest a similar amount to open the restaurants “IL Patio” and “Sibirskaya Korona” in Pulkovo-1. Also, a T.G.I. Friday's will be opened in Pulkovo-2. Moreover, according to Valeria Silina, Rostik’s PR Director, Rostik is going to open another 10 canteens and restaurants for Pulkovo airport personnel. Thus, Rostik becomes the biggest restaurant operator in the airport. The average bill in Rostik restaurants is expected to be about US$ 13.70 in “IL Patio” and US$ 4.30 in the coffee shops.

Chefs and restaurateurs in St. Petersburg have the same general interests and needs as in other major cities: new products and exciting dishes, cost management, marketing and promotion, and access to the most current gastronomic information. St. Petersburg’s restaurants and chefs have strong connections to Europe where many of the top chefs in the city are European and most of the top Russian chefs have long experience in Europe or with European cuisine. Naturally, European food and ingredients have made enormous in-roads into St. Petersburg kitchens. However, American cuisine and food products have an advantage as being viewed as a new and exciting alternative to old favorites.

Hotel Restaurants

St. Petersburg has been referred to as the cultural capital of Russia, which has increased tourism every year. The number of visitors to the city has grown approximately ten percent annually and reached three million in 2005.  Local tourism officials and business analysts believe that even faster growth is possible but is currently limited only by the underdeveloped tourism infrastructure, especially the inadequate number of quality, moderately priced, hotel rooms.   Occupancy at both high-end and economy hotels is booming.  According to the-end-of-2006 official statistics, there are:

Hotel category	Number of Hotels	Number of Rooms
Five-star	9	1,494
Four-star	20	3,412
Three-star	91	8,609
Economy-class	204	4,277
TOTAL	324	17,792

Source: St Petersburg Committee of Economic Development, Industrial Policy and Trade

Currently, there are 7 hotel rooms per 1,000 St. Petersburg residents while the European standard is 14-15 rooms per 1,000 citizens. To meet the growing demand in hotel rooms the St. Petersburg administration plans to add an additional 16,200 rooms over the course of the next 5 years.

Hotels represent strong potential for growth in the food-catering sector. The five-star and four-star hotels generally maintain one or more high quality restaurants on their premises. These restaurants mostly serve the local moneyed diners and the tourists. Generally, these restaurants have chefs and purchasing managers that put a premium on high quality ingredients while usually working exclusively with a limited set of suppliers, or in some cases, import their provisions directly. According to the USDA FAS survey, these restaurants feature new foods and promote individual food items on their menus. This positions them to be competing with each other and with top end restaurants in other countries for both customers and suppliers. European suppliers in areas such as wine are already very well established and active. Alternatively, American products have special appeal because they are less well known and generate interest from chefs trying to keep menus new and exciting for returning customers.

Selected 5 Star Hotels in St. Petersburg

Name	Restaurants - Capacity
Grand Hotel Europe (400 rooms)	7 restaurants and cafes
Astoria (200 rooms)	4 restaurants and cafes
Corinthia Nevskiy Palace (300 rooms)	5 restaurants and cafes
Radisson SAS Royal Hotel (160 rooms)	2 restaurants
Grand Hotel Emerald (90 rooms)	3 restaurants and cafes
Renaissance St. Petersburg Baltic (100+ rooms)	2 restaurants and cafes
Kempinski Hotel Moika 22 (190 rooms)	3 restaurants and cafes
Elivseev Palace Hotel (29 rooms)	4 restaurants and cafes

Source: USDA FAS

Three-star hotels, which are still in short supply in St. Petersburg, can be an interesting prospect for American companies wishing to open restaurants or cafes for middle-income diners of St. Petersburg.

Economy-class hotels usually do not have restaurants or cafes on premise. Therefore, these hotels need to be viewed as an indicator of where to search for surrounding prospective restaurants as customers.

CAFES / FAST FOOD

The increase in the number of fast-food restaurants/cafes from 2005 to July 2006 of 95 brings the total to 2,572 in St. Petersburg. The best-known fast food chains are KFC, Subway, BlinDonald’s, McDonalds, Pizza Hut, Chainaya Lozhka and Szbarro. Other local franchises in Saint Petersburg are THE BUS, Nyamburg, Samovar, Koshkin Dom, Kartago, La Kukaracha, Teremok, and “U Teschi Na Blinah”. According to the head of St. Petersburg Committee of Economic Development, Industrial Policy and Trade about 20 fast food chains are successfully competing in St. Petersburg. The city can support both more single restaurants and a greater diversity of chains. The government has high hopes for opening new chains in the near future.

Concord Company, the owner of the BlinDonald’s chain of restaurants, plans to build another 30 or more restaurants in St. Petersburg and its suburbs. BlinDonald’s offers a selection of Russian fast food together with Russian traditional pancakes. A meal there costs about $3 or 78 rubles, which is suitable for a family with average to lower average income. BlinDonald’s initiated an innovative approach to the development of its chain by promoting free children’s play rooms with toys and a merry-go-around for restaurant guests.

According to the research firm KOMKON-St. Petersburg, the following fast-food restaurants are the most popular among Russian diners.

Fast-Food Restaurant	% of Visitors
McDonald's	36.7
Chainaya Lozhka (The Teaspoon)	21.0
Ideal’naya Chashka (The Ideal Cup)	20.9
Pizza Hut	17.2
Coffee House	11.3
Teremok	10.7
KFC	10.5
Kroshka – Kartoshka (The Small Potato)	6.2
Yolki – Palki	6.1
Subway	5.9

KOMKON-St. Petersburg has also observed the average frequency of visits to fast-food restaurants/cafes by diners in Moscow and in St. Petersburg.

	St. Petersburg	Moscow
Several times a day	1.0	0.2
Once a day	1.0	1.5
2-3 times a week	4.3	6.2
Once a week	2.9	7.7
2-3 times a month	14.5	12.9
Once a month	7.3	10.3
Less than once a month	10.0	13.2

COFFEE SHOPS

Russian’s have always consumed tea with pastries, a truly Russian tradition. Thus, it is not surprising that they have fallen in love with cafes and coffee houses. In recent years, this has been the most dynamic sector in terms of the number of new establishments opened. At present, there are more than 200 coffee shops in Saint Petersburg. These cafes, on many corners in the city center, are competing for position as caterers to the suburban mass transit commuters. With a European average of 1 coffee shop is for each 1,000 citizens St. Petersburg can viably support an additional 5,000 coffee shops.

Chainaya Loshka (The Teaspoon) is the largest St. Petersburg chain of café/coffee houses with 30 outlets. This franchise offers coffee, tea, salads, deserts, and some warm dishes. Other chains in St. Petersburg are Coffee House, Ideal’naya Chashka (The Ideal Cup) and Republic of Coffee. The coffee house plus fast food format is a very popular today in St. Petersburg.

Compared with restaurants, coffee houses offer advantages such as affordability that cut across all social layers bringing in customers from all social strata. What is important is location. Most Russian individual entrepreneurs feel that it is relatively easy to open a coffee house in St. Petersburg due to comparatively low start-up expenses. Industry-specialized websites such as http://www.coffeebar.ru/S/res/?article=4561 provide some guidance on how to open a coffee shop. According to the site, the payback period can be as short as 3 to 12 months.

Opportunities and Challenges for American Companies

The favorable economic situation and rapid growth of restaurant business in St. Petersburg is a good indicator to foreign companies of the growth potential in this sector.

Due to its far northern climate the conditions for agriculture are not conducive to production. Moreover, the port of St. Petersburg makes transportation easier and cheaper for imported products than for those shipped from other parts of Russia. St. Petersburg is developing into the major transportation hub for reaching Moscow and other Russian cities.

With both population as well as tourism growth rates of 10% annually St. Petersburg provides an expanding clientele base for restaurants and cafes. The café/restaurant business sector opens the doors on a number of opportunities for American companies from product supplies to establishing restaurants/cafés/coffee houses in the city. American companies have several advantages when they enter the Russian market, they are as follows.

Advantages

1. Advanced knowledge within US firms in the management practices necessary to establish and maintain the restaurant business.

2. U.S. dollar is competitive against euro.

3. Russian consumers are western oriented and familiar with Western brands. Franchising offers can be very attractive for Russian companies.

4. American companies can supply high-quality and exotic products to local hotels and restaurants, which are demanding such products to satisfy the increasingly sophisticated tastes of their local clientele.

5. Roughly 90 percent of all food prepared in restaurants and cafes is imported, mainly by sea. The routes between the US ports and St. Petersburg are well established, thus it is comparatively easy to take delivery of products. According to the U.S. Foreign Agricultural Service research, this segment is full of opportunities for U.S. exporters due to the wide variety of imported foods used and the wide range of qualities (from premium to economy) demanded from different customers. It is especially appealing for U.S. exporters of food ingredients, bakery products, nuts, dried fruit, fresh fruit, meat, seafood, and wine.

6. The Russian meat industry has primarily developed pig farming, whereas U.S. exporters of beef can develop their niche in the Russian market.

7. American companies have advanced food technology solutions that can be offered to the Russian market.

8. Russian companies are interested in joint marketing activities and also in services that enhance products or reduce costs.

Challenges

1. The intrusion of local authorities trying to improve food quality and safety conditions, introduce a lot of inspections to cafes and restaurants. Opening a restaurant/café entails a significant time investment to overcome the lengthy bureaucratic procedures.

2. In order to insure food quality and safety, it is imperative that restaurant operators choose a competent supplier. Knowing who to trust is problematic.

3. Existing competition among Russian and European suppliers is fierce.

4. While having the knowledge of best western practices is important, knowing the local peculiarities is necessary to avoid misunderstanding between local partners and suppliers.

5. Supply chains exist in St. Petersburg, but they are still somewhat limited in the Northwest regions.

6. Apart from McDonald’s, American cuisine is not that well known to Russian consumers.

7. For the U.S. food exporters, it is very important to find a distributor with integrity. Established restaurants usually work through one or more food service distributors, both wide-spectrum and specialized distribution companies. The distribution scheme is as follows.

Distribution Channel for St. Petersburg HRI Sector

(HRI – Hotel, Restaurant & Institutional Food)

Source: USDA FAS

The near absence of Russian competition in supplying the St. Petersburg restaurant sector is the most striking feature of the above scheme. This illustrates the enormous opportunities available to American businesses while at the same time, due to the fierce competition between suppliers, the importance of choosing right distributor.

More information on distribution channels and strategies for entry into the Russian Northwest food market can be found at www.fas.usda.gov.

AMERICAN RESTAURANTS AND CAFES IN SAINT PETERSBURG

7 fast-food chains such as MacDonald’s, Pizza Hut, Carl’s Junior, Subway, Sbarro, Papa John’s and KFC and a number of upscale eateries, represent American cuisine in St. Petersburg. Most fast-food restaurants are franchises of American companies. These and other restaurants in the city where American cuisine can be found are listed below.

AMERICAN FAST-FOOD CHAINS

CARL’S JR (3 restaurants in Saint Petersburg)

The restaurants are operated by OOO “Yarkaya Zvezda”, franchisee of CKE Restaurants

13, Belinskogo Street
Tel: 448-56-43
Fax: 448-56-42

MCDONALD’S (25 restaurants in Saint Petersburg)

Central office:

31, Krasnaya Presnya, Moscow, 123022

Tel: 7(495) 755-6600
Fax:: 7(495) 755-6622

PIZZA HUT (12 restaurants in Saint Petersburg)

The restaurants are operated by Pizza-Nord, OOO, franchisee of Yum! Brands Inc.

96, Nevsky Prospect, Saint Petersburg

Tel: 7(812) 327-26-42

KFC (15 restaurants in Saint Petersburg)

The restaurants are operated by Pizza-Nord, OOO, franchisee of Yum! Brands Inc.

18, Nevsky Prospect, Saint Petersburg

Tel: 7(812) 312-85-43

PAPA JOHN’S (3 pizza restaurants, Italian quisine)

Average bill: US$ 18

3, Furshtatskaya Street

Tel: (812) 335-40-40; 334-40-00

SBARRO (14 restaurants in Saint Petersburg)

Central office:
12, stroenie 12, Novodmitrovskaya Street, Moscow
Tel: 7 (495) 785-3875; 7 (812) 3368502

Fax: 7 (495) 785-3874

SUBWAY (5 restaurants in Saint Petersburg)

Central office:

20, Nevsky Prospect, Saint Petersburg

Tel: 7 (812) 571-97-82
Fax: 7 (812) 571-97-82

RESTAURANTS WITH AMERICAN CUISINE

Baraboo restaurant/bar

Cuisine: American, European

Opened: February 2004

Average bill: US$ 32

27, Zakharjevskaya Street

Tel: 7 (812) 230-94-39

Dikiy Coyote (Wild Coyote)

Cuisine: American, European

Opened: April 2006

Average bill: US$ 27

127, Savushkina Street

Tel: 7 (812) 941-01-75

Dos Gardenias

Cuisine: American, Latin-American

Opened: September 2005

Average bill: US$ 20

61-B, Ligovsky Prospect

Tel: 7 (812) 315-82-45

La Cucaracha

Cuisine: American, Latin-American, Mexican

Opened: January 1996

Average bill: US$ 25

39, Naberezhnaya reki Fontanki

Tel: 7 (812) 710-40-06

Mob Joint

Cuisine: American, European, Italian

Opened: September 2004

Average bill: US$ 41

16, bld 1, Nepokorennykh Street

Tel: 7 (812) 337-67-27

Монтана (2 restaurants)

Cuisine: American

Opened: August 2005

Average bill: US$ 36

20, Kirochnaya Street

Tel: 7 (812) 272-7035

Cuisine: American

Opened: February 2006

Average bill: US$ 36

19, Ismailovsky Prospect

Tel: 7 (812) 251-3906

City Bar

Cuisine: American

Opened: August 2006

Average bill: US$ 22

20, Naberezhnaya Reki Moiki

Tel: 7 (812) 3141037

Fax: 7 (812)2349826

Tres Amigos

Cuisine: Latin-American, Mexican, American

Opened: January 2003

Average bill: US$ 21

25, Rubinshteina Street

Tel: 7 (812) 572-26-85
Fax: 7 (812) 571-55-20

California Grill

Cuisine: American

Average bill: US$ 20

176, Nevsky Prospect

Tel: 7 (812) 274-24-22

Montreal Canadians (restaurant/sport bar)

Cuisine: American

Average bill: US$ 30

22, Apraksin pereulok

Tel: 7 (812) 310-92-56

Rodeo
Cuisine: American

Average bill: US$ 25

2, Konyushennaya Ploshad

Tel: 7 (812) 314-49-73

OTHER USEFUL LINKS AND CONTACTS

The St Petersburg Committee for Economic Development, Industrial Policy and Trade

Address: 16, Voznesensky Prospect, St Petersburg, 190000

Tel: 7 (812) 315-5152

Fax: 7 (812) 570-3554

e-mail: kerppt@gov.spb.ru
info@cedipt.spb.ru

www.ceip.spb.ru

Rospotrebnadzor in Saint Petersburg

16, k.2, Dvinskaya Street

Tel: 7 (812) 7149948

Center of Control and Quality of Products and Goods

St Petersburg Administration

Contact: Nadezhda Kryzanovskaya

65-B, Suvorovsky Prospect

Saint Petersburg, 191124, Russia

Tel: (812) 274-7042

Fax: (812) 27401432

Cell: (812) 8-901-300-80-96

USEFUL WEBSITES

(Guides on St Petersburg, the city restaurants, cafes and fast food in Russian and English)

St Petersburg Official City Guide

www.city-guide.spb.ru

Where magazine

www.wherespb.spn.ru

www.where-russia.com

In Your Pocket

www.inyourpocket.com

www.hotelinvest.ru - Investment in St Petersburg Hospitality Infrastructure Program

U.S. GOVERNMENT CONTACT

For more information on this report, please contact:

Julia Vlasova, BISNIS Representative in Northwest Russia

U.S. Department of Commerce

U.S. Consulate General in St. Petersburg, Russia

Ph.: 7 (812) 326-2585

Fax: 7 (812) 326-2561

E-mail: julia.vlasova@mail.doc.gov

For more information on Northwest Russia, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/nw.cfm

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).