McDonald’s Expansion To Take Off

KIEV, Ukraine -- McDonald’s is stepping up the expansion of its already significant restaurant network in Ukraine in response to what market players say is a continually increasing demand for fast food.

One of the first Kiev McDonald's located in Independence Square.

And while homegrown chains follow in the fast-food giant’s wake, major international competition has been hesitant to enter the country due to franchising problems.

McDonald’s Ukraine Director Ihor Delov announced during a May 23 press conference to mark the company’s 10th anniversary that the fast-food giant would nearly double the number of its restaurants over the next several years.

“During the next five to seven years, we plan to increase the amount of McDonald’s in Ukraine to 100 restaurants, because the market is emerging in Ukraine,” McDonald’s spokesperson Anastasiya Zrazhevska confirmed to the Post.

McDonald’s currently boasts 57 restaurants in 16 Ukrainian cities.

“We have [recently] opened a new restaurant in Kryvy Rih, and we plan to open new McDonald’s in Odessa, Kyiv and Kharkiv this year, and about five new restaurants next year,” she said.

Of McDonald’s 57 current restaurants, 47 were opened in the first five years, with the rest trickling onto the market thereafter.

“In 2002-2004, McDonald’s corporation started a new strategy, the main tendency of which was not to open a big amount of new restaurants, but to increase the efficiency of existing restaurants. McDonald’s Ukraine was a part of this global strategy. That is why McDonald’s Ukraine didn’t open a lot of new restaurants in this period of time,” Zrazhevska explained.

But now the fast-food giant is making up for lost time. Its appetite for Ukraine’s budding economy, and the country’s double-digit growth in disposable household incomes, is growing.

“We see that the Ukrainian market is emergent and it is growing by 15-20 percent every year. Furthermore, McDonald’s Ukraine has good economic results. Therefore, European management sees great opportunities for McDonald’s Ukraine’s development.”

According to McDonald’s, the opening of a single restaurant costs from $1 million to $1.5 million.

In most of the more than 100 countries in which McDonald’s operates, the restaurants are owned by a franchise.

But “McDonald’s Ukraine doesn’t work with a franchise. From our point of view, Ukrainian legislation doesn’t have enough means of control for the franchise’s standards,” according to Zrazhevska.

As a result, since launching operations in Ukraine, McDonald’s has reported investment totaling $93 million.

“[Around] 70 percent of McDonald’s are owned by a franchise. But Ukraine is not the only country where McDonald’s doesn’t work with a franchise,” the company spokesperson said.

The multinational, which boasts 31,000 outlets in more than 100 countries, doesn’t release information on specific markets.

Worldwide, McDonald’s Corporation reported record-high revenues of $21.6 billion last year.

Ukraine, where 5,000 McDonald’s workers are employed, was the 102nd country to host the fast-food giant.

Since 1997, when McDonald’s opened its first restaurant in Ukraine, other homegrown fast-food chains have followed in its footsteps, such as Dva Husya, Mak Smak and foreign-owned Mister Snak.

McDonald’s Ukraine says it enjoys 11 percent of visitors to fast-food eating establishments in Ukraine’s biggest cities.

Mister Snack co-owner Falk Nebiger told the Post that growth in Ukraine’s fast-food market is “huge. It’s growing in double digits.”

According to him, the main thing keeping out other international fast-food giants is Ukraine’s high rental costs.

One such likely international competitor for McDonald’s in Ukraine is Yum! Brands Inc., the world’s largest restaurant company in terms of system units, with approximately 34,000 restaurants.

Based in Louisville, Kentucky, Yum! brands include Kentucky Fried Chicken, Pizza Hut and Taco Bell.

“We are strongly developing in Central and Eastern Europe. Our growth markets in the region are primarily Russia, Poland, the Czech Republic, Romania and Hungary,” Yum! spokesman Christophe LeCureuil told the Post.

Of Yum!’s 34,000 restaurants, 2,500 are located in Europe.

However, according to LeCureuil, Yum! has no immediate plans to set up shop in Ukraine.

“When opening in new countries, we seek to partner with franchisees that have the expertise, culture and financial means to develop scale. We haven’t yet found this partner in Ukraine,” he said.

Working with franchises puts expenses like rental costs on the local operator.

LeCureuil said that Yum! has a presence in 120 countries with both wholly-owned and franchised restaurants and that 75 percent of its restaurants are franchised.

Last year, Yum!’s international division generated over $400 million in operating profits.

But fast-food operators in Ukraine say franchises are still getting on their feet.

“Franchising is difficult now in Ukraine, but it definitely has a future,” said Nebiger.

Source: Kyiv Post