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RIA Novosti

Features & Opinion

America's Starbucks coffee chain preparing to enter Russian market

16:32 15/08/2005

MOSCOW. (RIA Novosti political commentator Alexander Yurov.) The international chain Starbucks has only opened one coffee house in Russia so far, but the company has started negotiations with potential partners on the creation of a joint venture in Russia.

The company currently has 8,500 retail outlets in more than 30 countries. In 2004, Starbucks' sales exceeded $5 billion and its profits were $391 million. The brand is one of the world's hundred most expensive ($2.4 billion). It is said that the company opens one or two coffee houses somewhere in the world every day. Admittedly, despite Starbucks' international popularity, the brand is practically unknown in Russia.

The Russian coffee house market is still in its infancy. There are only 1,000 coffee houses in Russia, with a combined turnover of about $500 million. Although the majority of Russian coffee houses are operated by a number of fairly large local chains, there is less than one coffee house per 100,000 people. For the sake of comparison: There are 27 coffee houses per 100,000 residents in New York, 62 in Seattle and 135 in Milan.

With demand for coffee houses in Russia increasing, the market is set to take off in the near future. The market research company KOMKON says that in the first half of 2005, 17.4% of the Russian urban population visited coffee houses, which was 2.2% more than in the previous year. The clientele were mainly aged between 16 and 29, and coffee houses were especially popular with Muscovites and residents of St. Petersburg: 27% and 34%, respectively. In Moscow alone the market has a capacity for 2,000 coffee houses, while 1,000 could comfortably operate in St. Petersburg. In other words, at present there is room for everyone in Russia.

Foreign businessmen spotted this practically vacant niche some time ago. Starbucks has been eyeing up the Russian market since 1997. However, its attempts to establish a presence have invariably ended in failure. Its efforts to promote the Starbucks brand in Russia have been thwarted by the existence of a Russian company of the same name. It was only when the American Starbucks upheld its right to use its brand name in a court of law a month ago that it became realistic for the company to establish a foothold in the Russian market.

Starbucks is very different from any other brand in Russia: Smoking is banned and there is no alcohol on sale in Starbucks coffee houses. Furthermore, 75% of American Starbucks coffee is sold to take away and is served in plastic cups. A special feature of the American chain is that its stores have media-bars where customers can record CDs from a digital library of 150,000 songs. Clearly, if the company moves into Russia, Starbucks coffee shops could become the new place for teenagers to hang out.

Anton Derlyatka, an analyst for the research company A. T. Kearney, says that the Starbucks model has an enormous market advantage over its rivals, and that it would be easy to open cafes under this brand name anywhere.

Russian businessmen could be expected to view the appearance of such a strong player on the Russian market as a threat, but this is not the case. Alexander Malchik, president of the chain Montana Coffee, thinks that the presence of such a strong brand will give a real boost to the Russian coffee house market as a whole.

Admittedly, there are skeptics in Russia who think that the American chain will be unable to develop a lasting presence. Vlad Lozitsky, general manager of the Russian coffee chain Shokoladnitsa, says: "It's hard to imagine someone carrying a cup of coffee when it is minus 30 degrees outside. Take-away coffee is a questionable service, especially as Starbucks offers a very limited range of food and a fairly average selection of drinks."

At the same time, Lozitsky believes that if Starbucks enters the Russian market it will not threaten other chains: "The situation in Russia is pretty much the same as in London. Coffee houses can operate side by side. There are almost always lots of people here in the evening."

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