When the delivery chain was sorted out, I was bored
— I was born in Minsk, in one of the former republics of the Soviet Union. My parents emigrated to America, to New Jersey, near New York, when I was 12 years old. In the States, no-one could pronounce my name, Gennady, and I became Jerry. At university, I gained the specialty of programmer. But the settled way of life was not for me. I wanted to travel. My mom worked as a volunteer, helping families who had only just emigrated from Russia to the USA.
About the Coffee Bean chain of coffee houses
The chain was founded by the American entrepreneur Jerry Ruditser in 1996 in the form of “coffee shop plus café”. This was the first chain of coffee houses in Moscow with Western standards of service. Since 2006, the Coffee Bean chain has been developing in the Russian regions too. Coffee houses have been opened in seven oblast centres of Russia: Belgorod, Kazan, Ryazan, Ulyanovsk, Vladimir, Ivanovo and Samara. To raise staff qualifications, the chain has its own barista school, the graduates of which adhere to the high standards of the Specialty Coffee Associations of America and Europe (SCAA, SCAE).
In 1990, I got to know someone from Chişinău. Oleg, a Moldovan Jew, strongly urged me to go to Russia. “The Iron Curtain has fallen, limitless opportunities have opened up, you can earn big money”. The Soviet Union was the last place I wanted to go. But Oleg persisted. “Buy me a ticket, and when we get there I’ll introduce you to some influential people.” I borrowed the money for two tickets from Mom, and in 1990 we flew to Moscow.
— What were your first impressions?
— We stayed at the Sportivnaya Hotel in Luzhniki. We went down to the restaurant for lunch and found closed doors with a sign “Lunch” on them. No-one seemed to be interested in the guests. In the evening, looking through the menu, we tried to place an order, but all we heard from the waiter was “That’s off, that’s off too”. All they had to offer was chicken. In the window of the delicatessen next door there were only three tins of anchovies in tomato. And yet wherever we went as guests, one of the rooms was set aside as a store. Boxes of food products were piled right up to the ceiling.
— And what were you doing at the beginning of the Nineties?
— Russia lacked even the most basic food products. Oleg and I decided to deliver equipment which would make it possible to make sausages and process vegetable directly in the fields. But it turned out that this interested hardly anybody. It was necessary to set up a production line and then think about the source of the raw material for processing. In two years, we only sold one mini-factory. Oleg said he had to feed his family, and went back to America. I had already got to know another entrepreneur. In 1993 we were delivering consumer goods. I organised the production of perfume under contract in the USA, and my partner in Moscow dealt with sales. After a few years, the business was standing on its own two feet. I switched to wholesale delivery of skis. The chain was sorted out, and I…was bored. At the end of each season, we had some unsold goods remaining. I proposed to my partner that we open a shop where we could sell these left-overs. He was against the idea, and I had to leave the business. But apart from skis, I had begun selling coffee.
The emphasis was on relations with customers
— As long ago as 1990, when I first came to Moscow, I had noticed that in every office there was an electric sandbox, where coffee was brewed in Turkish coffee brewing pots. The raw material itself was terrible. And where they didn’t have one of these sand contraptions, they drank disgusting instant coffee. Life itself has refuted the universal opinion that Russia is a tea country. I was always being asked “What else do you propose to sell, apart from coffee?” When I replied “Just coffee”, they shrugged their shoulders in bewilderment. “What about sausages?” In 1996, while still in the sports business, I opened a coffee shop. People came in, saw several dozen varieties of coffee, and were lost, not knowing which to choose. Coffee is like wine. Red wines are all red, but they all taste different. I set up a coffee machine and two tables in the shop, so that customers could try different sorts of coffee.
Natalia Eksakustos, Director of SIEMEN consultancy company:
— In recent years, the number of coffee shops in Russia has been growing rapidly. This is because the market is currently still not saturated – whereas in the major cities of Europe there are over 100 coffee houses for each 100,000 inhabitants, in Russian cities of over a million, there are rarely as many as five or six. The leaders in the coffee house market in Russia are the well-known chain players, such as “Shokoladnitsa” and “Coffee House”. Regional chains of coffee houses are developing. The “coffee to take away” format, well developed in Europe, is growing in popularity. The opening of a coffee house is a business trend with good prospects. A permanent coffee house requires premises of an area from 60 sq.m., but for the “coffee on the run” format, 3-5 sq.m. is enough.
Costs for opening a permanent coffee house start from $80,000. This includes refurbishment of the premises, delivery of furniture and equipment, procurement of products and an advertising campaign. It pays for itself on average in 18-20 months. A coffee house in the “coffee to take away” format will cost the owner $2000-2500, including acquiring a coffee stand and a coffee machine, paying the lease for the trading area and a salesman’s wages until it becomes commercially effective. In a good passing trade area, it pays for itself in 3-4 months. The key to success in a coffee house is good quality coffee, qualified baristas, and professional equipment enabling a wide variety of coffee-based drinks to be produced.
Coffee is like wine. Red wines are all red, but they all taste different.
— How much was the startup capital?
— I borrowed $35,000 from a friend and added $15,000 of my own. The equipment was quite cheap. Most of the money went on repair and on leasing the premises. The coffee was delivered to us from the USA.
— Was the business successful from the start?
— The coffee house was next to Kuznetsky Most metro station, in a passageway leading to Pushkinskaya Street. Unsavoury characters hung around in this passageway, drank vodka and chewed pasties. Brawls occurred there now and again. Most citizens tried to nip through this passageway as quickly as possible. For the first six months, only a few people a day came into us. There was an attractive girl working for us. Long legs, short skirt… One day she went out to sweep the step, and five young people followed her back into the shop. After that we used to joke: “So, when there are no customers, go out and sweep the step.”
We gradually got more and more customers. We were aiming for students and young office workers, who wanted to invite a girl to somewhere decent but didn’t have the money for a restaurant. After a year and a half, we had so many customers in our coffee shop that it was full to bursting point. People were sitting not only at tables, but on the stairs.
After a year and a half, we had so many customers in our coffee shop that it was full to bursting point.
— How did you gain customers?
— The emphasis was on relations with customers. When one came in, he or she was very cordially greeted. People asked in surprise: “Do you know me?” Polite and friendly sales staff were a novelty for Soviet people. Customers were allowed to try one sort of coffee and then another. And the customer would come back next day with a crowd of friends. Young men were flattered when our waitresses asked them: “Will you have the same coffee as yesterday?”
— Surely the fact that you knew Russian made it easier for you than for other foreigners?
— If only! In America, even at home, we very soon went over to English. The first time I went to negotiations here, I took an interpreter with me.
Three golden rules: location, location, location
— When did you open your second coffee house?
— Two years later. It was located inside the glass pavilion at the Pokrovskie Gates, where pelmeni had been sold for a long time. It was much easier to lease premises in those days. Not like it is now. Our second establishment was already more of a café than a shop, although we continued to operate in the form of “coffee house plus coffee shop”. We opened in January, and in August the crisis happened. Russia proclaimed a default. Previously students had come in and ordered two or three slices of cake. But in September, this is what we were hearing from businessmen: “Just a cup of coffee for me, please, nothing more”. The rouble crashed. In those days, we were changing the price of coffee virtually every hour.
— How did you solve the problem of selecting personnel?
— In the first year, when we advertised for staff, the phone was constantly ringing. But when we asked: “Can you smile for eight hours a day?” we often heard the reply: “I’m not going to work in a circus!” It took a long time to educate the personnel. We kept telling them: “Imagine guests are coming into your home. Greet them with animation and joy, as if they were your nearest and dearest.” Now, of course, young people are different: more relaxed, more inclined to smile, more free.
— Have your customers also changed over the years you have been working in Moscow?
— They have become more demanding. Customers in the super-city are very spoiled. Moscow is a city that never sleeps, many shops here, where you can get absolutely everything, are open round the clock.
— How many coffee houses do you have operating now?
— Nine in Moscow and eight in the regions.
Sergei Lapada, head of marketing section of the Dunkin’ Donuts café chain:
— The cost of entering the coffee house market is quite low. Micro coffee sales points are multiplying in mobile pavilions and in the boots of cars. They are even selling coffee from bicycles. But the prospects for entering in such a format are a different matter. More or less prosperous players in this market say the costs are at least three million roubles; that is the minimum for a decent coffee house. Obviously, these costs do not include lease payments or staff wages. In 2013-2014, the development of the public catering market slowed down somewhat, from 7% growth to 4%. This of course affected the coffee house market too, although the share of chain coffee houses in the market increased by 14%. The chain coffee house market is of the order of 1000 coffee houses for the whole country. In the quick service restaurant segment, these figures are three and a half times as high.
In opening a coffee house in Russia, you have to be prepared for difficulties in choosing premises and for a shortage of qualified staff. And you need to know how to deal with the state regulatory authorities. However, it can be stated with confidence that it has become easier to open a business in Russia and if you organise all the business processes properly, including franchising, there will not be any unpleasant surprises.
— In which cities exactly?
— Coffee Bean coffee houses are operating in Ulyanovsk, Samara, Vladimir, Ivanovo, Ryazan and Belgorod.
— Why did you decide to turn your attention to the regions?
— The market in Moscow is saturated, the competition has become stronger and lease rates have crept up. Leasing in the centre now costs from two to three thousand dollars per square metre per annum. Often about 50% of the income from one of our establishments goes on paying for the lease. And whereas in the USA or Europe leasing agreements are concluded mainly for 10-20 years, in Russia they are reviewed virtually every year. Location is important for coffee houses, second-rate ones just don’t work for them. As in retail trade, there are three golden rules here: location, location, location.
Whereas in the USA or Europe, leasing agreements are concluded mainly for 10-20 years, in Russia they are reviewed virtually every year.
— What difficulties did you face in the oblast cities of Russia?
— People there often complained: “Why don’t you allow smoking here?” Our staff have also heard: “Why don’t you have waiters?” In Moscow, people are somehow more democratic. True, there the same customers would admit: “I’ve been into your competitors, and while I was waiting for the waiter, I realised that in your place, I could have drunk a cup of coffee and had a snack in that time.”
— Is there a difference in the price of a cup of coffee between Moscow and the regions?
— Due to lower leasing costs in the regions, a cup of coffee costs a third less.
You have to know what rules to play by
— Who designed the décor of your establishments?
— We have an architect who worked on the design of our coffee houses. He considers that the interior should be quite neat and uncluttered. The black wooden panels are the traditional colonial style, plus they give the effect of ageing, so that the premises should appear to “have a history”. To create a homely atmosphere, we have shelves of books. Our guests can read a book and leave behind one they have already read. So the books are rotated. And when people see a café or restaurant with lustre and gilding, they are often reluctant to enter the place, they think: “This isn’t for me”, and pass by.
— How much does it cost today to open one coffee house?
— It averages about $200,000. It pays for itself in three or four years.
— What advice would you give to foreigners who intend to open their own café in Russia?
— In any city, in any country, if you do everything well, the café will be successful. But in Russia, you have to be prepared for the confusing tangle of bureaucracy. A newcomer will not know where to submit an application, who is responsible for it or what the procedure is for its consideration. Here you have to know what rules to play by. We got through it all, taking quite a few knocks and gaining experience along the way. For example, when I opened my first coffee shop, I went into the Sanitary-Epidemiological Inspection Service, and being so naïve at the time, asked for a print-out of the sanitary requirements. They replied: “Really! What a thing to ask!” The implication was: if you knew everything, how could we then check you, find faults and extort bribes?
We got through it all, taking quite a few knocks and gaining experience along the way.
When I opened my second coffee shop, I got my team together and instructed them. I explained: we have to have complete interchangeability of personnel. If the floor needs washing, you go and wash the floor. If the toilet needs cleaning, you go and clean the toilet. The day before we opened, my employees gave me an ultimatum: “If you don’t take on a cleaner, we won’t come in to work.” I said: “You’re fired.” I took up position behind the counter myself. I advertised for personnel. I remember a woman coming in for an interview, and I was standing in the café with a mop, washing the floor. I said: let’s negotiate while I carry on mopping. She gave one look at all this and walked out. There’s snobbishness for you! But a week later, those who had been sacked came back.
So if someone is not looking for a quiet life and is ready to be patient, and learn the nuances of the market and the local way of thinking from his own experience, why should he not come to Russia?