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Franchising Back on the Agenda as Russia's Economy Slowly Recovers

Country's top franchises include business software, specialist medical laboratory services, car-sharing and fast-food.

Photo: Invitro: The medical services franchise that is now one of Russia’s best-known brands.
Invitro: The medical services franchise that is now one of Russia's best-known brands.
Photo: Invitro: The medical services franchise that is now one of Russia’s best-known brands.
Invitro: The medical services franchise that is now one of Russia's best-known brands.

Franchising is slowly creeping back into popularity in Russia, having suffered something of a decline when the country's economic crisis was at its height. Two years ago, when RBC, Russia's leading business news provider, published its first list of Top Business Franchises, only 30 companies were rated. By contrast, the 2017 list featured 50 franchises, with many more launching on the Russian market every month.

With some analysts still warning that the Russian economy remains in danger of stagnating, franchising is seen as the ideal way for companies to scale their businesses at a relatively low cost. It is also seen as a viable option for any unemployed individuals who lack the entrepreneurial skills to start their own businesses from scratch.

Typically, the more popular franchises sell for between US$100,000-120,000 and provide step-by-step guidance and a degree of oversight for novice franchisees. Many of those keen to go down the franchisee route tend to be former retailers or distributors whose own businesses either faltered during the financial crisis of failed to compete with the growing dominance of e-commerce in most non-food sectors.

Overall, the greatest proportion of franchises in Russia tend to be in the catering sector. These embrace a wide variety of cuisines, ranging from Sushi Shop's menu of sushi and traditional Japanese rolls to the traditional Russia borsch and pancakes offered by Teremok. Added into the mix there is Chicken House, a Russian KFC wannabe, Israel's Cofix coffee shop chain and a growing number of Il Patio Italian family-style restaurants. The multinationals, of course, are well-represented, with Starbucks, Costa Coffee, TGI Fridays, McDonalds and Burger King pretty much ubiquitous on Russia's high streets, while Finland's Hesburger and the China-style WokShops are not far behind.

The country's oldest and largest franchise – and still number one in the RBC ratings – is 1C. Launched in 1994, it now provides its brand of business automating software and virtual accounting services across the whole of Russia, as well to all of the former Soviet nations except for the Baltic States.

This year, the number two and three slots were taken by Invitro and Gemotest respectively, two medical laboratory testing groups. At present, Invitro is one of the most well-known brands in Russia, largely on account of its high-profile fleet of branded vehicles.

In terms of innovation, it was Delimobil that won top marks off RBC. Launching on to the Russian market only last year, the company promotes a car sharing service with a per minute charge. This particular franchise attracted the support of both the Moscow and St Petersburg city governments, with parking charges consequently waived for all vehicles operating under the system.

Despite its acclaim by RBC, the service has yet to truly take off with consumers, primarily because its fares are no lower than those of existing taxi operators. There are also a number of other franchise options in the same sector, most notably Maxim Taxi, Taxi Formula, City Mobil and Taksovichkov.

In the case of any overseas franchisers interested in opportunities in Russia, there are a number of sectors that merit particular attention. Among the best options are fitness centres, Oriental-style massage and spa salons, couriers and delivery services, collection points and pretty much anything related to e-commerce. In the still lucrative second tier of franchises would be foreign language teaching, professional education, care for children and the elderly and any healthier fast food options.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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