This will have Ronald quaking in his boots!

Michael Jennings alerts me to a new business idea in Russia:

Russia has a grand plan to launch its own, patriotic fast-food chain to rival Western burger joints like McDonald’s and rescue its struggling farmers.

The $18-million initiative stems from brothers Nikita Mikhalkov and Andrei Konchalovsky, two of the country’s most famous film directors.

Both have poured scorn on Western influence in the past and are known for their close ties to the Kremlin.

The brothers have already picked a name for their brainchild: “Let’s Eat At Home!” (Edim Doma!)

Andrei Vorobyov, the governor of the Moscow region, has welcomed the project.

“It’s a good idea,” he said. “Small businesses and chains create jobs, and the food produced on our territory is perfectly suitable for these cafes.”

The deputy chairman of the regional government, Denis Butsayev, has already hailed the proposed chain as a “McDonald’s killer.”

“The goal of this project is to promote import substitution and create alternatives to Western fast-food chains,” the brothers wrote in their proposal, quoted by the Kommersant daily.

The brothers want to open 41 cafes in the Moscow and Kaluga regions, all supplied by local kitchens and factories. Up to 40 percent of the menu will be made from regional produce.

This is dumbassed on so many levels.  Firstly, as I mentioned here:

The primary beneficiary of McDonald’s in Russia are those Russians wishing to purchase its products, who number in the millions.

The secondary beneficiary of McDonald’s in Russia are the Russian owners (it is a franchise), managers, employees, and suppliers whose income derives from its operations.

Pinching customers from McDonald’s is unlikely to result in a boost for Russia at the expense of the west.

Secondly, Russians eat at McDonald’s because they like McDonald’s.  They don’t eat at McDonald’s because they cannot find cafes selling pel’meni and borsch to sate their hunger.  As has been proven in any country you care to mention – but let’s take France as a good example – you can easily find an alternative burger which is almost always better.  But something about the whole McDonald’s setup, i.e. not just the food, attracts people.  I suspect eating in McDonald’s for young Russians is, like in France, seen as a cool thing to be doing.  Good luck getting the kidz to buy into the idea that ordering buckweat washed down with kompot is now cool.  As the article points out:

McDonald’s remains hugely popular among Russians, despite a number of recent setbacks amid deepening tensions between Russia and the United States.

Thirdly, given the low probability of being able to compete with McDonald’s, if this scheme gets lanched it will likely take business away from the dozens and dozens of small, independent stolovayas and cafes that already sell Russian food using locally-sourced produce.  The knock-on effect will therefore be felt by their existing suppliers and probably result in some of the current alternatives to McDonald’s going out of business.

Fourthly, if prominent Russians wants to “rescue its struggling farmers”, “create alternatives to Western fast-food chains”, and “create jobs” then they might want to start by getting rid of the brazen gangsterism, thuggery, and corruption that infest the entire country and prevent these things happening of their own accord.  But no, this is Russia so:

The $18-million initiative stems from brothers Nikita Mikhalkov and Andrei Konchalovsky, two of the country’s most famous film directors.

Mikhalkov and Konchalovsky had reportedly called on Russian President Vladimir Putin to help secure government backing for the project in light of its “sociopolitical character.”

According to Kommersant, Putin had personally ordered Deputy Prime Minister Arkady Dvorkovich to “examine and support” the proposal.

Under the program, 70 percent of the sum is provided by banks under a state-guaranteed loan, with the remaining 30 percent coming from private investors.

State-controlled Sberbank has been touted as a potential lender.

[The government] rejected the brothers’ request for direct funding at a government meeting late on April 9, suggesting that the would-be entrepreneurs should instead seek funding through Russia’s existing scheme to support small businesses.

Instead we have two politically-connected multi-millionnaires looking for state-financing of their pet project whose major selling point is that it represents the type of crude patriotism that is currently in vogue with the President.  And although they appear to have had their appeal for direct funding rejected our multi-millionnaires, who were able to meet with Putin in person, have been advised to raid the state fund set up to assist small businesses.

I’m wondering how this project represents anything different in Russia, let alone an improvement.

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8 thoughts on “This will have Ronald quaking in his boots!

  1. What’s truly amazing about this story is the Mikhalkov clan’s adroitness at getting what they want from the Kremlin. This time it’s cheap financing, probably subsidized loans from state banks. Just last week, the CFO of a major state-controlled company complained he could not raise ruble debt for less than 17% pa. Are the Mikhalkovs getting a 70% interest rate subsidy like Russian farmers? It’s not a big deal for the Kremlin but a nice perk for the clan.

    Another perk is the “most favored” status the regional governors will grant the project if the Kremlin orders them to. It could mean low rents, local tax exemptions, and protection from endless pestering by sanitary and fire inspectors.

    What’s dumb about it is Putin’s willingness to support the project. As you say, it will come at the expense of Russian businesses that will be facing a privileged rival. The Mikhalkov brothers are shrewd operators: they know they are going to compete not with McDonald’s but with chains like Mu-Mu, Grabli, and Yolki-Palki, and a multitude of non-chain eateries. (Russkoe Bistro was an attempt at a Russian-style fast food chain; it failed.) They are going to build on the TV image of Andrei Mikhalkov-Konchalovsky’s wife, the actress Yulia Vysotskaya. She has hosted a popular cooking show on NTV since 2003 so she’s practically a household name (or face). But so far she hasn’t been able to convert that into anything but recipe books.

    Now all the pieces of the puzzle are falling into place: financing, protection, advertising. Of course it took access to Putin and patriotic chest-stumping to secure the former two – not fair game but the Mikhalkovs probably think of themselves as aristocrats of the flesh and the spirit, who are entitled to privileged treatment, those peasants be damned. “Both have poured scorn on Western influence in the past,” perhaps, yet the Mikhalkov shtick has always been playing the Slavophile (Nikita) and the Westernizer (Andrei). Mikhalkov-Konchalovsky is skeptical of Russia’s ability to get anywhere at all, and I hear that his movies are more pessimistic in their view of Russia than any work by Andrei Zvyagintsev. But what does it matter when a great money-making opportunity presents itself and the clan closes ranks to grasp it?

    It goes back to the grand old man. The family patriarch, Sergei Mikhalkov, carved out a comfortable niche for himself and his extended family under Stalin, Khruschev, and Brezhnev. His two sons – both talented filmmakers – did rather well under the late-Soviet regime. In 1980, Andrei managed to leave to work in Hollywood (where he made Tango and Cash) without being denounced as a traitor. What set them apart from their colleagues was their ability to leverage their artistic success to get the most out of the Soviet system for themselves and their numerous relatives.

    It was well known as early as in the 1980s, when Valentin Gaft (a very popular screen actor at that time) wrote the famous two-liner: “Russia, can you feel this strange itching? It’s the three Mikhalkovs crawling on your skin.”

  2. Pingback: Family business | The Dilettante's Winterings Family business | On summer time

  3. All else aside, when did McDonald’s cease their pretty-much-set-in-stone-policy of using local ingredients in their tucker?

    With very few exceptions their stores in a country have always used food grown in that country.
    The exceptions are (as far as I know) only when a particular ingredient simply cannot be obtained commercially inside a country’s borders.

    Thus Russian farmers SHOULD be responsible for growing/producing just about everything on the menu of Russia’s McDonalds’ family restaurants.

  4. “Thus Russian farmers SHOULD be responsible for growing/producing just about everything on the menu of Russia’s McDonalds’ family restaurants.”

    Yes, they are. McDonald’s started their Russian adventure by setting up local supply chains. That was no mean feat in 1990, when the economy was still Communist.

  5. McDonald’s started their Russian adventure by setting up local supply chains. That was no mean feat in 1990, when the economy was still Communist.

    According to the author of I Was a Potato Oligarch, he approached McDonald’s in Russia around the mid-late ’90s with a view to supplying them with potatoes. They replied that they had been utterly unable to source decent potatoes in Russia (something the author struggled with too) and instead imported surplus potatoes from the EU quota system. Although I am sure that changed at some point and now it is all supplied locally.

  6. Not at all, Tim. As for decent Russian potatoes, they are hard to find in Moscow. But I’m sure that people are still growing perfectly nice potatoes on their little plots as close as 40-60 miles from Moscow. As a child, I especially liked the red-skinned homegrown type while grown-ups praised sineglazka, the “blue-eyed” sort.

    In villages near Moscow, locals (most had daytime jobs at state-owned farms) were often allotted extra personal-use land for potatoes in the 1970s-80s. You could often see people – mostly women and children – stooping over the plants, collecting Colorado beetles.

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