George Cohon was a young lawyer in 1968 when Ray Croc, the founder of McDonald’s, offered him exclusive perpetual rights to McDonalds in eastern Canada. Just eight years later at the Montreal Olympic Games, Cohon decided to bring McDonald’s to Russia. It took him 14 years to open up the first store in the heart of Moscow’s Pushkin Square. The opening of the store was a grand affair and was covered in the international news. Cohon eventually opened up another 25 stores in Russia before the Ruble crisis. This paper deals with the entry of McDonald’s into the Russian market and the prevailing economic environment in Russia at the time. It will briefly outline the steps taken by the team to ensure a successful establishment in Russia and discuss the problems faced by McDonald’s during the 1998 Ruble crisis. A brief background - Russia:
The restaurant facilities in Russia were not diversified in the 1970’s. It consisted of formal dining room restaurants or informal cafes. The formal dining rooms were incredibly rigid with a strict Russian menu. The service was inferior and waiters were lazy. The atmosphere with the white table cloth and cutlery was gloomy. A two to three hour leisurely lunch, served by lazy waiters was a common scene at these restaurants. The informal cafes on the other hand, were the complete opposite. The menu was again Russian and consisted primarily of soups and coffee. There were no seats for the guests and they ate while standing around small table. The entire set up was very unsanitary. Looking at the restaurant structure and the kind of food the Russians consumed (meat, potatoes and bread) Cohon realized the massive potential for McDonalds to expand into Russia. The bureaucracy during the Cold war era in the Russian was overwhelming. Russia was called the “Evil Empire”. Cohon kept travelling to Russia to meet with and persuade the officials, but little came off it. Later in 1980’s, Russia saw the dawn of the glasnost (openness) and the revolutionary ideas of Perestroika (economic restructuring). This brought a change in the way the businesses functioned in Russia. Finally, in 1987, a new law on joint ventures was passed. This was the opportunity McDonalds needed to enter into the Russian market. A deal was signed and 20 restaurants were set to be open in Moscow. It was decided that a 100,000 sqft. flagship stored will be opened in Pushkin square, just blocks away from the famous Lenin’s tomb. Although, McDonalds doesn’t get into partnership with governments, they had to accept the 49% ownership because the law states the city control all services in the city.
Setting up issues:
The real work for McDonalds began with the approval for entry into the Russian market. It was entering a country where the concept of a burger was not only foreign but also alien. Cohon was warned by several industry analysts, competitors and even friends about the tough road ahead. One of the most threatening problems facing the project was the lack of suppliers. The farming techniques used in Russia were outdated and highly inefficient. McDonalds needed special quality of produce for the food they served but the Russian farmers were unable to understand that. To deal with this problem, Cohon decided to set up training centers where their specialty farmers from around the world would train their Russian counterparts. The Russian farmers were granted loans to purchase modern farming equipment which would help them boost their productivity along with the quality. As a result the farmers were able to increase the output by up to 500%. McDonalds had solved its supply problems by strategic thinking and aligning its interests with local parameters that it could control. The second problem McDonald’s had to deal with was quality control. McDonalds has a famous brand and it is imperative to its success that food all over the world has to taste the same. This led them to opening food production facility where...