Fast-Food Sector

The concept of "fast food" is relatively new in Ukraine. Fast food restaurants did not exist in Ukraine before McDonald's came to the market in May 1997.After that, the market for fast food establishments has developed dynamically. However, McDonalds is still the only multinational brand in the fast food category in the marketplace. The absence of legal franchising instruments is a key factor frustrating other international fast food chains from entering Ukraine (BISNIS Report, 2002).

Ukrainian fast food brands started to mushroom in Kiev in 2000. The most notable local brands are Mr. Snack, McSmack, Shvydko, Domashnya Kuhnya (Home Cuisine), Shelter, Roasticks, Pan Pizza (based in Odessa), Amigo (based in Crimea), Pizza Celentano and Potato House (Lvov). Local companies operate three to fifteen restaurants in average and tend to show rapid growth. Experts and operators report that Ukrainian fast food facilities currently operate with up to 25 % profitability (BISNIS Report, 2002).

Two home-grown entries in Kiev’s burgeoning fast-food market, Mr. Snack and McSmack, have been successfully serving sandwiches, pizza and desserts, and both have aggressive expansion plans. McSmack’s founder Yury Tkach said that he invested 50000 USD in his first six-table restaurant (Shchur, 2002).

Despite absence of legislation regulating franchising, a Lvov-based company that owns the trademarks "Pizza Celentano" and "The Potato House" is an example of a successful local franchiser. The company has created a nationwide chain of pizza and potato restaurants, having penetrated even small Ukrainian towns. The number of the company’s franchisees in Ukraine, Russia and Poland has grown to 42. The company also currently promotes a new brand for coffeehouses, "Lavazza Point," and plans to open 100 outlets. Baskin Robbins (USA) ice cream restaurants opened in Kharkov and Odessa (two in each city) in 1999, operated by local franchisees (BISNIS Report, 2002).

The trade mark Shvydko is constructed and positioned as a restaurant of fast cooking offering the original Ukrainian kitchen to the clients. In the first year of existence, the fast

food chain Shvydko has achieved the second position in the market of Ukraine occupying more than 15 % of the market.

The first restaurants of this company were opened in May, 2000. Presently, six restaurants located in different parts of Kiev work successfully. Shvydko plans to have a network covering all Ukraine by franchise scheme. The company plans to open 50 restaurants, of which 20 will be located in Kiev. Strategically important direction of development is the introduction of new format of restaurants Shvydko, one of which will be Shvydko–express. A concept of the thematic restaurants shaped according to the chosen national topics is being developed.

Mister Snack Restaurants

Mr. Snack unveiled its flagship restaurant in downtown Kiev on Dec 1 (2000) as part of an ambitious plan to become Ukraine's second-largest fast food operation after McDonald's. The first Mr. Snack outlet opened in Ukraine in 1996. Today, the chain comprises seven restaurants, including its most recent restaurant opened in February, 2002. Mr. Snack was founded with a 2 million USD investment from Commercial Capital, a Greek firm (Shchur, 2002). The overseas partner is Greece-based Commercial Capital, a company that has already pumped more than 10 million USD into various ventures in Ukraine. The company has projects in chemical production and distribution, real estate and consumer goods in Ukraine.

Kiev's restaurant veterans Robert Koenig and Falk Nebiger, co-owners of the Arizona Group (USA), are driving the chain's expansion. The Arizona Group also runs Arizona BBQ, San Tori, Edelweiss and Kozak Mamai restaurants. They bought Mr. Snack's first restaurant from its pervious owners.

Mr. Snack restaurant specializes in providing inexpensive sandwiches offering customers about 20 ingredients, with a full meal going for about 9 UAH. It also serves Pepsi, beer and desserts. All of Mr. Snack's ingredients are locally processed.

McDonald’s

McDonald’s is the world largest fast food network operating in 103 countries and annual turnover of 32 billion USD. Ukraine has become the 102nd country, where McDonald’s opened a restaurant. The local company “McDonald’s Ukraine” was registered in December, 1995 and the first restaurant was opened in May, 1997.

EU’s New Neighbours: The Case of Ukraine

McDonald’s has invested more than 82 million USD into new fast food restaurants in Ukraine. Nowadays, McDonald’s buys 35 % of products for its restaurants locally, in Ukraine: beverages, milk products, vegetables, mayonnaise, etc. Specifically, McDonald’s sells beverages produced by Coca-Cola (Ukraine), milk products from milk factory Galakton (Kiev), salads from Slavjanka company (Kiev region), cucumbers from Chumak company (owned by Swiss company South Foods) and ice cream cups from CBC company (Kiev).

Opening of a new restaurant in Ukraine costs approximately 1 million USD. By the year 2004, McDonald’s plans to expand its network to 85 restaurants, with total investment in Ukrainian economy amounting to 100 million USD.

With McDonald’s entry, Ukrainians have learned to demand to be treated efficiently and politely in inexpensive public eateries. Restaurant owners are learning that their business' survival may well hinge on how well they serve customers (Sych, 2000). According to McDonald's data, some 60 million people have visited the company's restaurants in Ukraine.

After the arrival of McDonald’s, local firms have been quick to compete for consumer attention. Now Rostik's, Shvydko and other restaurants provide clean stores that quickly serve good quality, economic fare to customers. This trend, initiated by McDonald's, has made it possible to get a lunch for two in downtown Kiev for less than 50 UAH (9 USD).

McDonald’s employs about 2,000 young Ukrainians, who earn starting salaries of 100 USD a month for full-time work. Doesn't sound like much? Consider the staggering low average Ukrainian wage of 40 USD per month (Sych, 2000). McDonald's employees who show promise may earn the opportunity to attend company training at "Hamburger University" in Chicago. The work ethic and managerial skills taught to McDonald's employees can help them build careers that extend far beyond the company's burger grills and deep fryers.

McDonald's received no tax breaks as a foreign investor. The company regularly makes payments to various budgets and is frequently raided by tax police officers, as are many other businesses. McDonald's doesn't offer Ukrainian officials 'financial incentives,' but the restaurant chain does tout its community involvement, sponsoring numerous events and allocating means for charity.

In 2003, McDonald’s invested about 5.5 million USD in Ukraine. In 2003, one new restaurant was opened in Donetsk. Nowadays, the company is collaborating with 40 Ukrainian suppliers.

In 2001, with East Balt Ukraine Company, McDonald’s has opened a bakery plant in Dnepropetrovsk. In 2003, together with German partner L&O Company, a meat processing

plant was opened in Kiev. According to company’s information, McDonald’s has invested more than 82 million USD in its restaurant network comprising 52 restaurants in 16 cities.

Currently, McDonald’s market share is about 15 %.

In September, 2003, McDonald’s announced about its investment strategy restructuring, which aims to increase effectiveness of investment. The company plans to restructure investments from new restaurant opening to the increasing service quality, expansion of the existing restaurants, developing suppliers cooperation networks and attracting partners’

investment. According to the McDonald’s, this new policy doesn’t mean decreasing investment in Ukraine.