WHAT A COUNTRY! NOT OURS. THEIRS.

Bob Krummert

This past May, Rosinter became the first restaurant company from a former Soviet country to go public, doing so via an initial public offering that raised $100 million. The stock now trades on the RTS index under the ticker symbol ROST.

Its growth prospects look sensational. Rosinter operated 192 restaurants on the date of its IPO, up from the 79 it ran in 2003. Its portfolio of brands includes some it has developed internally and franchises itself—Il Patio, an Italian concept; Planet Sushi, offering Japanese cuisine; Sibiskaya Corona, co-developed with a beer company—and some in which it acts as franchisee: e. g., T.G.I. Friday’s and Benihana. A separate fast-food venture includes a complicated deal with KFC that has Rosinter “representing KFC” in Russia via its proprietary Rostik’s brand, itself the second-largest chicken chain in the country. The first unit of this alliance, located in Moscow, has 364 seats. Three hundred total stores are planned.

Rosinter’s QSR business was not part of the stock offering, which was structured to be a pure casual dining play. And why not? Russia today is wide-open territory for casual dining operators, and consumers there have plenty of money to spend.

Consider. Russia is second only to Saudi Arabia in oil production, and the flow of petrodollars into its 143-million-citizen economy is strong. Multiply the country’s oil output (9.3 million barrels per day) times the market price ($68 per barrel) times 365 days a year and you get a sense of how fast the money pours in. Factor in the multiplier effect this revenue stream creates in the many allied industries that support oil drilling and production and you can begin to see where the dollars for casual dining are coming from.

There’s more. Russia is also a huge exporter of gold, diamonds, and industrial minerals like copper, nickel and iron ore, most of whose prices are near or at historical highs. As a result, many Russian workers now have money to spend on things like casual dining which, during the Soviet Union’s planned economy era and the turbulent adjustment to a market economy that followed, just weren’t available. For most of that period, merely having food to eat, let alone choosing it from a menu and consuming it in an upbeat casual restaurant, was a big deal.

That era of scarcity is over. Now, with per capita income having grown by roughly one-third over the past five years, the market for away-from-home dining has blossomed. Analysts estimate that the typical Russian household spends roughly three percent of its annual income on dining out. In Moscow, it’s twice that. The Moscow restaurant market alone is worth $4.5 billion per year, with about one-third of that money spent on casual dining. The annual growth rate: 20 percent. Rosinter’s share of the Moscow market: 20 percent.

The company is also expanding rapidly in the hinterlands. Moscow, the nation’s capital, has a decent number and choice of restaurants. But nearly all of Russia’s natural resource-rich industries are located in far-flung locations strung across Eastern Europe and Asia. Rosinter is moving aggressively into these newly rich areas that are, as one Russian stock market analyst puts it, “marked by lax competition and strong growth potential.” Imagine if you could have gotten into the casual dining game in the U. S. in the late 1970s, when 95 percent of the country was virgin territory. That’s where the Russian market stands today.

So what kind of operator is Rosinter Restaurants? All we can say so far is that the numbers shown in the IPO paperwork look good, meaning Rosinter must be doing something right. It’s worth noting that the company has piled up a number of awards from T. G. I. Friday’s franchisor Carlson Restaurants Worldwide. The list includes Best Restaurant in Europe and Scandinavia for Rosinter’s Friday’s Sheremetyevo; Best Operator for overall development of the Friday’s chain; and the Golden Star in Marketing for the company’s successful expansion of Friday’s in Russia, the Commonwealth of Independent States (eleven former Soviet republics including the five “stan” countries), and Eastern Europe. Global consulting and accounting giant Ernst & Young chose Rosinter board chairman Rostislav Ordovsky-Tanaevsky Blanco as its national entrepreneur for Russia just last year.

With a track record like this, it looks like Rosinter can hold up its end of any deal, whether as a stock you invest in or as a company you’d partner with to represent your brand in this now-thriving corner of the world.

But before you commit, you’d better keep an eye on geopolitical developments in the area. Earlier this month Russian President Vladimir Putin vigorously objected to a United States proposal to create a “missile shield” in Eastern Europe. The shield would include a sophisticated radar assembly located in the Czech Republic and a new battery of interceptor rockets sited in Poland. Putin’s objection included a threat to install “offensive complexes,” —i. e., batteries of nuclear-tipped missiles—at European borders if the United States goes ahead with its plans.

The situation sounds eerily familiar to those who lived through the Cold War era. Operating a U.S.-connected restaurant brand in an environment like that would be an challenge.

Putin is scheduled to discuss the missile shield issue with U.S. President George Bush in July when he visits the Bush compound in Kennebunkport, ME this July. Juicy as the Russian casual dining market appears to be, you may wish to hold off your investment in it until you see if the nuclear shield issue gets defused.