McDonald's is the only multinational player to stake a major claim in the country. Entry into the local market isn't even on the horizon for potential competitors like Wendy's and KFC.
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Larger markets, such as Asia and South and Central America, are more lucrative and offer a better business climate for franchise-based restaurant chain development, according to representatives of major chains.
Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, said representatives of restaurant companies looking to enter Ukraine have told him that there are too many hurdles establishing franchise fast-food businesses in Ukraine.
“Many of these players seem unwilling to enter the market at this time,” he said.
Some don’t think they can guarantee consistency in their products.
“Most internationally known fast-food restaurants have strict policies regarding location, design and food products offered that ensure consistency across all restaurants globally,” Zukoski said. “They must be able to ensure consistency and protection of all aspects of their brands before they are willing to enter new markets.”
Robert Koenig, one of the founding partners of Mister Snack, a local company-owned fast-food chain that operates six restaurants and plans to open another two within six months, said there are many barriers to fast-food franchising in Ukraine.
Lack of distribution and supply systems for food products make it difficult to set up franchises. A complex tax system is also keeping out investors, Koenig said.
A lot of investment cash is needed to establish these infrastructures.
“You can’t make big profits in this business with a handful of restaurants,” Koenig said.
“The big international fast-food companies aren’t interested in one guy who wants to open up one restaurant in Ukraine,” Koenig said. “They are waiting until a big investor comes along with a proposal to launch many restaurants.”
While news that large conglomerates are not hurrying to move into the market doesn’t bode well for the nation’s junk-food junkies, it is good news for the one international player that has successfully brought fast food to Ukraine.
McDonald’s got into the market in 1997, ensuring that itwould be the only game in town.
Like Mister Snack, McDonald’s Ukrainian restaurants are all owned, managed and organized by the corporation itself.
McDonald’s, which already has 47 restaurants nationwide, plans to expand to 85 by 2004. The firm claims to have invested more than $72 million into its Ukrainian subsidiary, McDonald’s Ukraine. The company says it spends about $1 million to open each restaurant.
Koenig says McDonald’s – the largest fast-food chain in the world – doesn’t have to wait for franchise development. It opts to invest its own money when needed in order to further expand its international presence. By doing so, it gains market share ahead of its competitors and develops its brands, Koenig said.
The absence of multi-nationals has also left an opening for a handful of small Ukrainian fast-food chains. In addition to Mister Snack, Kyiv has in recent years lured local chains like Mister Snack, Shvydko, Mak Smak and Kytayska Kukhnya. Together, they have opened more than two dozen fast-food restaurants in Kyiv alone.
All are company owned, not franchises, which are owned by someone other than the company.
But Koenig says the absence of other big fast-food companies is a double-edged sword.
“In the short run, [the absence of other major chains] can help us develop and broaden the market in turn,” he said.
“But if other major competitors enter the market, they could help raise standards in the business.”
According to Koenig, many Ukrainian restaurant chains do not follow the same high standards as Mister Snack and McDonald’s.
It remains to be seen if other major fast-food companies will wait for investors or establish company-owned chains in Ukraine. It appears that Ukrainians might have to wait a few more years to find out.
“At this time Burger King has no immediate plans to enter Ukraine,” said Jonathan Patterson, account director at Nexus Communications Group Ltd., a public relations firm that represents Burger King Corp.
The same holds true for Wendy’s, a U.S.-based chain of hamburger restaurants with hundreds of outlets in Asia, Central and South America, Europe and the Middle East.
“In the three years I have worked here [for Wendy’s], I have never received a franchise inquiry for opportunities in Ukraine,” a representative of Wendy’s said.
Tricon Global Restaurants, owner of the Kentucky Fried Chicken, Taco Bell and Pizza Hut chains, refused to reveal expansion plans, but according to the firm’s Web site, Tricon is focusing on South America and the Caribbean.
