Posted on 03/17/2005 3:52:29 PM PST by srm913
McDonald's Commands a Real Estate Empire in Russia By ERIN E. ARVEDLUND
MOSCOW, March 16 - The busiest McDonald's restaurant in the world is not in America but thousands of miles away in Pushkin Square. The store serves 30,000 customers a day, as busy as on opening day, Jan. 31, 1990. The menu is essentially the same as in the United States, with the addition of cabbage pie among other traditional Russian food items.
The Pushkin Square restaurant is important as well because it is the jewel in a growing real estate empire that ranks McDonald's among the largest corporate landowners in Russia.
Other big companies have begun to follow its lead and are getting their foot in the door by becoming real estate developers. Still, the practice is not without its pitfalls: three of McDonald's office buildings in downtown Moscow have been for sale for well over a year.
McDonald's real estate venture began in the early 1990's, when it had no way to convert the rubles that customers paid for its hamburgers and milkshakes into another currency. The company spent the rubles to buy farmland and put up office towers, a distribution center and a factory in the Moscow suburbs - which became known as McComplex. In 1993, the company built its first office building, just two blocks from the Kremlin. Tenants like Coca-Cola and Upjohn moved in.
More property was added as McDonald's opened new restaurants, buying many of the restaurant properties because loans are not easily available in Russia to run small businesses, including the franchises that McDonald's sells in other countries.
The chain now employs 17,000 Russians in 37 cities and plans to open 25 restaurants this year, mostly in Moscow and St. Petersburg, and 75 more by 2007.
Today, buying land in central Moscow is nearly impossible, and McDonald's prevailed by getting in early and working closely with the city. "We had a great relationship with the city of Moscow," and the mayor at the time agreed to sell McDonald's the central property, recalled George Cohon, head of McDonald's Canada, who persuaded Soviet officials to open the restaurant in Pushkin Square.
Real estate analysts and industry experts here conservatively value McDonald's 127 Russian restaurants, plus its land, storage warehouses and distribution centers at $115 million, although that figure could be much higher if the company succeeds in selling the office towers and leasing back the space for its own use. Revenue in Russia last year totaled $310 million.
In central Paris and London, "we do long-term leases, but we were able to buy more here," Russ Smyth, McDonald's president for Europe, said in an interview on the Pushkin Square store's 15th anniversary. He declined to put a value on the Russian real estate portfolio, but added, "It's definitely a hidden asset."
McDonald's early lock on top locations is helping it stand up against other corporations seeking a toehold in Russia, including coffee giants like Starbucks, which has yet to enter the country. And in some stores, like the one at the Old Arbat pedestrian tourist mall, it has added side cafes with soft lights and a dessert menu. Perhaps as a pre-emptive strike, McDonald's is also starting to serve stronger coffee.
Other multinationals have mimicked its developer tactics. In 2002, Ikea opened a 2.1 million-square-foot mall between Moscow's main airport, Sheremetyevo, and downtown, and a second giant mall began operations recently. Last year, Ikea opened its first store in Kazan, in the Tatar region, and plans stores in 10 other cities with populations of more than a million.
The French supermarket chain Auchan operates at least three stores, and Wal-Mart is expected as well. It is said to have looked at locations in St. Petersburg.
"All the multinationals have had to develop their own real estate," an agent representing these clients said. "It shows that a lot of the foreign direct investment in Russia is going into property ownership."
Russia is now one of McDonald's fastest-growing markets, along with Western Europe and China.
"They're contending with desperate times in America since there's no room to build new restaurants," said Richard Adams of the Franchise Equity Group, an advocate for McDonald's franchise owners. "Their growth is the beast they must contend with. So they are looking to foreign markets to satisfy Wall Street and keep investors happy."
Real estate agents say the three office buildings in central Moscow that McDonald's is having trouble selling have appreciated 40 percent in the last decade and could fetch $45 million. That is in part because high-quality office space in Moscow is in short supply. In 2004, office rents were up 30 percent on average from those in 2003, according to the real estate firm Noble Gibbons.
But the three properties were "built very early and the quality may not have been so good," said Ekaterina Konstantinova, an analyst with the Troika Dialog commercial real estate fund. "After five years, a building loses its shine."
One of the three is next to a building damaged by fire late last year, and an early buyer backed out. Worse, at an office tower two blocks from the Kremlin, "there's no parking," a necessity in a traffic-clogged city with millions of people, said Oleg Myshkin of Colliers International. "The systems in the building are worn out, and there's a lot of deferred maintenance at the location."
But McDonald's here has been able to avoid some problems that have troubled it in the West.
The "Super Size Me" controversy, and accusations that fast-food chains like McDonald's promote obesity, are not issues for Russians, some of whom demand mayonnaise with 40 percent fat content. Nor does McDonald's low pay seem to bother many here - Russian wages average $250 a month.
Some even argue that McDonald's is identified in the public mind with glasnost and perestroika, the policies of openness and restructuring under Mikhail S. Gorbachev in the final years of the Soviet Union.
"There was no food in the stores," recalled Vladimir Malyshkov, deputy mayor of Moscow who helped broker the original deal for the Pushkin Square restaurant. "I was under investigation for allocating meat to McDonald's."
Now, looking back, he said, "It was the first precursor of a free life."
I never tried it, but if you ever find yourself in Hong Kong and feel like a meal of illegal dog, just go to any hole-in-the-wall restaurant. The Cantonese words for "dog" and "nine" are the same; you can thus find "dog" on the menu by means of the euphemism "three-six." (3 + 6 = 9 = Dog! Voila!!!)
Lassie ain't comin' home...
As luck would have it, I once visited this place while touring Moscow in the early 1990's. I really don't care for McDonald's fare but I was curious as to how such a large operation worked. I found out that it was incredibly efficient. It has to be experienced to believe.
I can help you with the filet-o-fish. If you look close, you may see a couple white worms wigglin around. Plus, you can use the tartar sauce to seal postage. Also, the fat and calories aren't worth it. Acutally, the most nutritional thing might be the worms. Thank me. :)
Oh, that's bad. I've heard of foreign visitors to the states in the dog food isle, believing that the picture of the dog on the can was what they were buying.
Don't get me started! I was in Hong Kong as a missionary for two years, and I could go on for hours about some of the nauseating food. (I must be fair and say that a lot of Cantonese food is indeed tasty.)
There's an old saying in China:
The Cantonese will eat anything that flies but an airplane and anything with legs but a table.
(It's true.)
LA-LA-LA!! *Fingers Firmly Inserted in Ears* Can't hear you! LA-LA-LA!!
Actually, it IS the tar-tar sauce, I think. We went out for fish last night (Lent; Wednesdays & Fridays...but it's almost over!) and I actually brought home the leftover tar-tar sauce to make a tuna sammich for lunch, LOL!
Who's got that Kopy-Kat recipe for McDonald's Tar-Tar Sauce? Throw this girl a rope, LOL!
Sure...like Jerry Lewis movies in France and David Hasselhoff songs in Germany.
The few times I have eaten that filet of fish they call fish, I have scraped off the tartar sauce.
I never thought about that , maybe I could drop one in my lap and sue.
"The few times I have eaten that filet of fish they call fish, I have scraped off the tartar sauce."
Now don't corn-fuse me! Are the worms in the fish, or in the sauce? That makes a world of difference.
From the two eye-witness accounts I had, they were in the fish.
I haven't been in a McDonalds in years. Now I know how the Chinese feel about American Chinese restaurants.
Market Basket has some pretty good foods. They sell the yogurt with the cream layer on top and the pork rinds and the fresh turkeys. Good stuff cheap, all the time. They always have plenty of "Mediterranean Style" King Oscar sardines and fresh blackberries at reasonable prices.
Much better than those overpriced "yuppie" supermarkets like Whole Foods and Wild Oats.
You know what else they do?
At least where I live and shop, they hire the handicapped.
For real. And they work there for years.
I presume it's some corporate commitment sort of thing.
Yeah, and you go in there around Orthodox Easter and they've got the skinned sheeps heads staring up at you.
Jeez, a little too Hannibal Lecter sometimes.
But the best prices on, uh, Sam Adams, et al...
LOL!
It's true.
DeMoulas is a Greek family and they cater to that market.
Even in my town, which is largely Finnish, they market these Greek seasonal specialties like sheep and goat heads.
I purposely avoid the meat case at those times so as not to traumatize my 5 y.o. daughter.
Then I cook her a nice dinner of tripe.
Damn! I don't normally patronize Micky D's, but if they'd server Heine's on tap over here, I would reconsider.
Better than a Diet Coke any day!
Plus, I travel with children. Lunch at McDonald's is the perfect reward for good behavior when we've dragged them through a half day of sight seeing, etc.
It's not lava, it's stellar-fusion-plasma-filled. And yes, they still sell them.
The reason they haven't been sued is that when they're seen to burn a hole in the bag or the tray on the way to and through the floor and the inevitable trip through the Earth's core on the way to China, nobody is stupid enough to eat them until they cool off. And they've always had the eternal McD's understatement in labelling champion on them: "CAUTION: HOT."
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