Market Selection

As the new market for Wok to Walk restaurant expansion we choose Saint Petersburg, Russia. The product is high-touch: tasty, fresh and served with good service, unique, because there are no similar restaurants in Saint Petersburg and has overall perceived image described as ‘simple, fresh, young’. Moreover, Russian people are fond of orient food and traditions, and Wok to Walk emphasize Asia as ‘area of origin’.

In order to substantiate the choice of market, we made PEST analysis and identified the main tendencies in Russian market:

Political factors:

1. Political stability

Political power in Russia is highly centralized in the President and the Presidential Administration within the Kremlin which exert their influence over all aspects of domestic and foreign policy. Following the election of former President Vladimir Putin in early 2000, political stability and policy predictability gradually increased. Under Putin's leadership the Russian economy had boasted an annual growth rate of almost 7%. Overall, the reforms undertaken by Putin elicited little opposition, and his approval rating rarely fell below 70%. These policies have also been embraced by the new president; since his election in 2008, Medvedev has followed a similar policy line to that of the previous administration.³ Foreign investors/exporters are unlikely to see any significant impact to the business climate as a result of the president elections next year.

2. High level of bureaucracy and corruption

According to Transparency International, Russia scored 2.1 out of 10 in the 2010 Corruption Perception Index.⁴ Out of the 176 countries surveyed for the index, Russia was in 154th place in 2010. Furthermore, according to a survey carried out by the World Bank, nearly 80% of businesses in Russia are paying some form of bribes, often to state-run agencies.

3. Development legal framework for franchising

Even though term “franchising” doesn’t exist in legislation yet, considerable changes in law are undertaken in order to foster development of this business model. Moreover there’s strong institutional support for franchising, for instance, Russian Franchise Association is a non-profitable organization that exists since 1997 and aims at development of franchising in Russia.

Economic factors

1. Real income growth and recovery of consumer confidence and spending

The average Russian consumer is largely debt-free and has a larger discretionary income as a percentage of pay than his or her counterparts in the West.

2. Low labor costs

Russia is a favoured destination for immigrants from Central Asia, who continue to arrive in large numbers.⁵ Large amount of low-qualified immigrants from former soviet republics – Kazakhstan, Kirgizia, Tajikistan, Turkmenistan, Uzbekistan result in lowering of labor costs in certain industries.

Social factors

1. Urbanization

Around 73% of Russians live in cities and towns, while the remaining 27% live in rural areas. The biggest part of population is concentrated in Moscow (11,5 million) and Saint-Petersburg (4,8 million), however, there’re 10 more cities with population over 1 million people.

2. Emerging middle class

There is a growing emerging middle class in Russia with a substantial disposable income. Russia's middle class reportedly grew from just 8 million people in 2000 to 55 million in 2006.⁶

3. Changing lifestyles

Eating habits in Russia are changing, as the speeding up of lifestyles has led to a desire to reduce the time spent on cooking. This has resulted in rise in snacking and eating out.⁷ Rising consumer incomes and busier lifestyles, especially in the larger Russian cities, have generated demand for home delivery and takeaway meals. An increasing number of consumers use 100% home delivery/takeaway services for ordering lunch in their offices. Most sales of 100% home delivery/takeaway are concentrated in the wealthiest cities – Moscow and St Petersburg.⁸ Eating out is also becoming increasingly common. A burgeoning middle class is creating a solid customer base and is increasing demand for international foods, with the result that numerous restaurants and cafés are opening or expanding⁹.