Hopeful but wary, pizza chain Sbarro plots Russia return

MOSCOW (Reuters) - U.S. pizza brand Sbarro [SBARO.UL] is re-entering the Russian market, encouraged by a nascent economic recovery but wary of taking aggressive steps after its long-time franchisee fell prey to a downturn.

David Karam, U.S. pizza brand Sbarro's chief executive and co-owner, poses during an interview with Reuters in Moscow, Russia February 12, 2018. REUTERS/Maxim Shemetov

Once Russia’s top pizza chain, Sbarro saw most of its outlets shut in the past few years after its local partner got into financial trouble when oil prices collapsed and the West imposed sanctions on Moscow over Ukraine.

Rival brands Papa John's PZZA.O and Domino's DPZ.N have expanded aggressively in Russia in the past several years, and last year announced plans to move beyond the capital.

Sbarro, a fast-food chain known for its thin, hand-tossed pizza, signed up a new franchise deal for Russia last September, partnering with HoReCa Band Group which unveiled plans to open more than 300 restaurants by 2027.

David Karam, Sbarro’s chief executive and co-owner, told Reuters he expected the new franchisee to build a significant presence for the brand but was against a breakneck expansion.

“If they fulfill their goals and their commitments, Sbarro will have a very substantial presence in the Russian market, there is no doubt about that,” Karam said in a recent interview in a Moscow shopping mall where HoReCa Band Group opened its second Sbarro restaurant in late December.

“I want them to be deliberate, find good sites, especially in this early stage to make sure that they are moving at the appropriate pace. If you rush it off ... it creates some vulnerability,” he said.

“It’s not so much about just growing: the business has to be profitable.”

Sbarro entered the Russian market shortly after the collapse of the Soviet Union along with other global brands which rushed to cater to the underserved market.

Slideshow ( 5 images )

Its second foray comes at a challenging time: competition has soared.

“There is no question – it’s a more challenging period to re-establish a dominant position... I believe though that it was not that long ago that customers were visiting Sbarro so it’s still going to be a fresh recall,” Karam said.

HoReCa Band Group plans to open 10 to 12 Sbarro restaurants in Moscow this year and a further 14 to 16 are expected to be added in other regions by subfranchisees, its spokeswoman said.

Russian retail sales rose 2.8 percent in January in year-on-year terms and are expected to grow by 2.7 percent this year, with anticipated interest rate cuts seen boosting consumer demand.

Karam said he was optimistic about Russia’s economy and did not expect Moscow’s tensions with the United States to be an issue.

“Is there a risk that some consumers might apply a kind of political filter in where they choose to eat pizza? Perhaps, but if they do, it will not be good for Domino’s and Papa John’s,” he said.

“I think consumers tend to act in their own self interest ... So if we’re successfully positioning the Sbarro brand locally, we’ll do fine, regardless of the political situation.”

The Russian economy expanded 1.5 percent last year after two years of recession and growth is expected to speed up slightly in 2018, buoyed by firmer oil prices.

Karam said the biggest challenge for Sbarro as it was re-entering the market was “getting the word out”. To boost appeal for sophisticated consumers, Sbarro has tightened focus on the New York-style pizza, shrinking the menu and emphasizing fresh preparation.

Russia’s ban on most Western food imports since August 2014, in retaliation for Western sanctions over Ukraine, had been a “great challenge” and although Sbarro has now fully adapted, it not being able to leverage its global buying power was hurting the business.

“Our hope is the trade restrictions pass away,” Karam said.

Writing by Maria Kiselyova; Editing by Katya Golubkova and Tom Balmforth