NOVOSIBIRSK, Russia (Reuters) - After building a chain of restaurants selling pizza to the Siberians, Eric Shogren has a few tips for foreigners wanting to break into the booming Russian market.
Good contacts and respect for the Russian way of doing things are essential. And don’t assume Western business practices and ideas are always relevant, says the U.S. citizen.
“I’m out here selling Russians pizza left and right. I’ve got people packed in my bar every night dancing to Chuck Berry music, and there’s people going ‘Do you think this’ll work?’,” said Shogren, grinning.
“Some people see things that work in reality and wonder if they would work in theory.”
In Novosibirsk, a thriving IT industry has helped create a leisure class with disposable income and an appetite for Shogren’s New York Pizza. The 41-year-old Minneapolis native now has 30 restaurants, where he serves pizza, French fries and salted cookies to a hungry public.
Shogren says you should never underestimate Russian’s dislike of spicy foods and their love of potatoes.
Since arriving in 1996, Shogren has also opened a live music bar, a fine dining restaurant, a diner and a bakery, and he now employs 1,500 people in Russia’s third largest city, 3,200 kilometers (2,000 miles) east of Moscow.
“We should have known that people here are the same as they are anywhere else. They just want good, normal stuff,” he said.
Moscow and its surrounding 200 km (125 miles) is economically vibrant and awash in investment from Ikea, McDonalds and now Starbucks. In regional cities economic growth is even faster and stronger than in Moscow, even if the figures are in millions rather than billions.
The first Ikea in Novosibirsk, spread across the left and right banks of the Ob river, is due to open this month.
At night, people crowd Lenin Square on the right bank and can choose from coffee shops, an Irish Pub, a fried chicken joint and at least two places serving sushi.
Despite this increasing taste for foreign goods, the image of Russia’s business environment that prevails in the West is grim — huge profits but huge risks, with investors battling corruption, organized crime and anti-Western sentiment while powerful state corporations squeeze them out of markets.
Shogren, who has five children with his Russian wife Olga, says the dynamic changes he has witnessed are no surprise considering the political upheavals that followed the end of communism.
Organized crime and corrupt legal institutions meant easy millions for some, and shallow graves for others, in the 1990s when Shogren said he joined high-profile charities.
“Let’s just call it the inefficiencies of the transitional system,” Shogren said in his office, surrounded by pictures of him shaking hands with Siberian politicians, Siberian Olympic athletes and Siberian businessmen.
His board of directors includes a former U.S. ambassador to Russia and local dignitaries.
His challenges now include competition from former employees and finding Russian suppliers capable of meeting his demand for large volumes — like 20 metric tons of cheese a month.
“When I first started in ‘96, I had to bring almost all the ingredients I used from the West,” he said. “Now almost everything I use is from Novosibirsk or from Russia.
“My cheese supplier just called me and said ‘My God, we’re not going to have any cheese for the next six months, Moscow’s got all the cheese.’”
To provide an adequate supply of pizza cheese he now plans the most ambitious of his commercial ventures by building a 3,200-head dairy operation on the outskirts of Novosibirsk.
“At the very moment when the Russian economy is so hot, and the consumer class — the middle class as everyone calls it — is so vibrant, the internal industries are still kind of crumbling, and some of them haven’t been reformed yet,” he said.
For the cheese, Shogren will grow his own feed, import Dutch cattle, install equipment from Wisconsin and count on continued Russian economic growth.
“It’s happening, the processes are working. What I always tell people here is that it’s working maybe faster than we expected it to.”