Public and private support outlined for Mikhalkov-Konchalovsky’s “culinary project”
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May 2015, Vol. 3, No. 5
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Unlike most ordinary Russians that are highly skeptical about “Eat at Home,” the so-called people's culinary project of the famous brothers, movie directors Nikita Mikhalkov and Andrei Konchalovsky, the representatives of the Russian government and private businesses are not only serious about this initiative, but have actually approved it, with plans to help execute the project.
Even the former Moscow mayor, Yuri Luzhkov, is ready to get involved in this project of creating a nationwide eatery network.
The essence of the brothers’ eatery network
Konchalovsky has recently given a detailed interview about the “Eat at Home” initiative, noting that the idea of creating a traditional Russian eatery network was born long ago.
“My main idea is to create an eatery network, preferably, on a federal scale, offering cheap and healthy food,” he said. "The idea is simple, and that is to offer honest food. I'm generally a fan of healthy foods. This does not mean vegetarian foods, just healthy food without additives.”
In this regard, the brothers plan to open some networks in pilot regions, offering about 132 outlets, split at 41 cafes and 91 points of sale of finished products, as well as two food production kitchens.
The business will be established in a format of small shops with complementary cafes. According to the brothers’ plans, the average bill in the cafe will be comparable to the average sizes of bills offered in the existing networks of other public catering, such as, for example, the American eatery network, McDonald's.
Indeed, it was initially reported that the “Eat at Home” brand would compete with the foreign eatery networks that are currently operating in Russia, notably, McDonald's.
However, the brothers have argued that is not the case as they don’t intend to compete with anyone, both local and foreign players in this space. “We don't want to drown anyone or competing with McDonald’s, as that will be akin to competing with Hollywood in the movie industry,” said Konchalovsky.
The eatery rollout plan also envisages the production kitchens supplying meals to social institutions, such as orphanages. It is planned that about 30%-40% of the network’s menu will come from goods produced locally, and therefore, will vary from region to region.
Equally important is the requirement that all products in the network must be Russia-made, meet all ecological standards and are produced without using any chemicals. The project will require about RUB972m of investments, while the projected period of recouping the capital invested in the project is expected to take about 4.8 years.
The brothers and a group of unnamed investors are ready to inject RUB300m of the required initial investment into the business. This means the brothers need only external investments of about RUB700m, either from the state, private investors and/or both, to successfully rollout the project.
Forms and formats of state support and funding
The forms of state support and funding formats of the brothers’ project were unfolded in mid-April. Such conclusion can be drawn from statements made by representatives of the political authorities, represented by the Kremlin, government and regional governors, as well as representatives of businesses, such as Sberbank and other financial institutions and industrial groups.
Russian President Vladimir Putin ordered the relevant ministries and other state agencies to comprehensively study the Mikhalkov-Konchalovsky’s initiative at the end of March. Specifically, the Kremlin and the government are ready to support the brothers’ project in the form of provision of guaranteed loans, grants and subsidies on loan interests. The Agriculture Ministry and Rosselkhoznadzor will help supply the network with food products and control the quality of raw food materials.
The project’s implementation details were the subject of discussion at the 9 April meeting of Deputy Prime Minister Arkady Dvorkovich, where a decision was taken to support the project via the existing mechanisms of providing financial support to small and medium enterprises (SMEs).
Besides, the Economic Development Ministry, Trade and Industry Ministry and Agriculture Ministry have been ordered to submit proposals "on the complex mechanisms for supporting the implementation of the project", according to the meeting’s minutes.
For the sake of information, the limits of subsidies for supporting SMEs in the regions selected as trial platforms for the pilot project – Moscow and Kaluga regions – whose leadership has already expressed readiness to actively support the implementation of the project, are RUB818m and RUB120m, respectively, in 2015.
The Trade and Industry Ministry, in its official memo justifying the need for supporting the project to the Economic Development Ministry, specifically noted the “importance of the idea of organizing and developing a catering company specializing in Russian cuisine in terms of provision of support for domestic food producers.”
The Agriculture Ministry, promising to assist the project with procurement of Russia-made grocery supplies and their control, also noted that the establishment of such a nationwide eatery network should facilitate the implementation of a system of provision of quality products in the country.
Private funding sources
If the government is ready to provide only administrative and technical assistance, including all the tools provided by the program to support SMEs, the actual “funding cash” will be provided by some of the leading banks in the country.
Notably, Sberbank has already expressed its readiness to finance the project, subject to the brothers receiving “a guarantee note” from the Russian Loans Guaranty Agency and regional guaranty funds. This scheme could grant funding up to 50%-70% of the amount of the initial investment necessary to launch the project, according to the Economic Development Ministry’s proposals.
Other forms of funding the project could include using grants, loan subsidization, lease payments and reimbursement of expenses for procuring production equipment needed to rollout the business in the pilot regions of Moscow and Kaluga.
Notably, Kaluga Region Governor Anatoly Artamonov has expressed his readiness to help fund the project within the framework of the region’s SME support programs. Similarly, the Moscow Region Government also intends to support the project, offering to locate some of its chains of cafes in the municipalities with the lowest catering services in the region. These include the Voskreshenshky, Zaraisky, Kashirskaya, Lyubertsy, Kolomna, Shatura, Chekhovskaya, Pushkinskaya regions, amongst others, etc.
Luzhkov’s support and advice
Luzhkov is also ready to actively contribute to the successful realization of the project by supplying it with some food products, according to the Izvestia newspaper. The former Moscow mayor also noted that the project can be competitive only if the foods’ product quality will be at least at the same level as those offered by the foreign players on this market.
"The biggest problem at the beginning of executing this project is to accurately calculate the true investment cost of rolling out the project and finding reliable suppliers of food products, whose quality should be no worse than those offered by McDonald's,” the ex-mayor noted. McDonald's, whilst opening its first cafe in Russia, closely and judiciously monitored the food used in its network.”
To achieve such quality level, McDonald's spent a lot of time looking for food companies, whose products fully suit its requirements, Luzhkov explained. It is necessary that all the raw food materials that will be used in the Russian fastfood network must be domestically produced, the ex-mayor continued.
Luzhkov also noted that the restaurant chain must try to be popular among Russians and also constantly try to expand services and open new outlets both in its cities of presence and new regions.
"The cost of meals in the brothers’ eateries should be affordable, and the menus should contain useful food nutrients, and above all, be made from products that Russians are familiar with in their traditional and regular homemade dishes.
The high number of outlets planned by the brothers at the initial stage of the project rollout may seem exorbitant, but this is actually not the case, Luzhkov noted. Besides, the network will have to expand because a network of restaurants that does not envisage permanent increase in the number of its outlets will not be profitable, he added.
These brothers, who are novices in restaurant business, need to listen attentively to the words and advice of the former Moscow mayor because he had gone down this path before, albeit, unsuccessfully when he created the Bistro eatery network in the Russian capital several years ago.
The Bistro project, as it is now very well known, failed woefully, failing both to meet clients’ expectations and rising up to the competition in the sector. Luzhkov, as the “brain behind the project,” fully knew the exact reasons for the business’ failure and how to avoid such pitfalls when undertaking similar projects in Russia in the future.
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