Subway Restaurants looking to expand further in Russia, with one franchisee currently looking for locations in 23 cities surrounding Moscow and another franchisee agreeing to open new Subways across Moscow region

Nevin Barich

RUSSIA , November 30, 2012 (RBC News) – U.S. fast food franchise Subway is taking steps to further expand its footprint in Russia. Having already become the largest single-brand restaurant chain in Russia with more outlets than its key rival McDonald's, the chain famous for its subs and salads is now about to move into the Moscow Region. According to RBC Daily, one of Subway's franchisees is currently looking for locations in 23 cities surrounding the capital, which could further strengthen Subway's leadership in terms of outlets, although it remains far behind McDonald's in terms of revenue.

A local franchisee Fast Food has signed an agreement with Subway to open new restaurants across the Moscow region, Sergey Vlasekno, CEO of Megapolis-Service real estate company, told RBC Daily. A source in Fast Food confirmed these development goals, saying that the number of new Subway-branded outlets has yet to be determined. "We are exploring the market to determine whether to focus on satellite towns or to tap outlying cities as well," the source pointed out.

Subway already operates in 15 cities of the Moscow Region, with usually one or two restaurants in each location. Focusing the development agenda on the Moscow Region could be seen as a controversial move, Gennady Kochetkov, vice president of Subway Russia Franchising Company, told RBC Daily. While the region counts some 7m people, "most residents of the Moscow Region work in Moscow and eat at fast-food chains only during their work schedule," he pointed out, arguing that during their free time people prefer full-service restaurants and cafes.

However, a franchisee's representative downplayed these concerns, arguing that consumer behavior is shifting and the region is growing, attracting new companies and major infrastructure projects.

According to experts, cities with a population of 100,000 or more, such as Korolyov, Pushkino, and Ramenskoye, provide retail and fast food chains the greatest growth opportunities. For instance, in Korolyov there is not a single modern mall due to red tape and lack of suitable construction sites, an analyst with Welhome real estate consulting company pointed out.

Subway currently operates 480 restaurants in Russia and about a hundred new outlets are expected to be launched within the next two months, Kochetkov said, while McDonald's has just 337 stores. By tapping into the Moscow Region, Subway would strengthen its lead even further. However, Subway is unlikely to catch up with its rival in terms of revenue. According to Euromonitor International, McDonald's turnover in Russia amounted to RUB 42.6bn (approx. USD 1.37bn) in 2011, while Subway's revenue stood at just RUB 4.1bn (approx. USD 132m). Overall, Russia's fast food industry is valued at RUB 250bn (approx. USD 8.05m).

(c) 2012 RosBusinessConsulting

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