Money-Growing: Restaurant Deficiency

Restaurateurs say that the dire shortage of properties in the Russian capital forces them to moderate their requirements regarding the location of outlets. But even in the most bustling districts of Moscow the concentration of catering establishments is three times lower than elsewhere in Europe.

Going Their Own Way

In most European capitals, restaurant streets are concentrated in relatively small districts. Many restaurants serve at the same time as tourist attractions. In London, there is Soho with nightclubs and China town with grilled duck and other Chinese specialties on display in the restaurant windows.

In Brussels several restaurant streets run right from the central square, with some properties housing up to three catering establishments. Those streets are divided into theme areas, offering seafood, meat, Oriental cuisine, etc., respectively. Restaurants put their specialties – enormous plates filled with seafood and fruit – on display on tables set up in the midst of the pedestrian areas and loudly praise their establishments to attract visitors.

Street food plays an important part in the lives of Parisians and Romans where for many centuries people have enjoyed sitting in outdoor cafes watching the world go by.

In Moscow, restaurant oases are scattered chaotically all across the city center. There are two reasons for that, according to market analysts. The city has few pedestrian zones and a variety of office centers in different parts of the city.

“Unlike other world capitals, Moscow still has not developed the culture of entertainment. The city center has no pedestrian areas, no places where people can take a stroll and eat,” says Alexander Osipov, analyst with Leeds Property Group. “And although today most restaurant streets in the capital are situated within an hour’s walk from one another, few would venture on a leisurely walk from Chistye Prudy to Arbat, let alone, to Pyatnitskaya Street.”

“In fact, there is only one pedestrian street in Moscow – Stary Arbat,” agrees Anna Lyudkovskaya, chief editor of the restaurant business magazine Moye Delo – Restoran. “While the narrow sidewalks of the central streets crammed with cars are hardly a place to enjoy a stroll.”

It is not surprising that Moscow’s street food lacks diversity, with just a handful of brands of mobile fast food cafes, such as Stardogs (hotdogs), Kroshka-Kartoshka (baked potatoes with salad fillings) or Bliny iz Pechi (hot pancakes with fillings).

“The range of snacks for those wanting to eat something outdoors could be widened. For example, many would gladly have a glass of hot mulled wine in the street; they could sell baranki, too,” Lyudkovskaya adds.

Restaurants could take a more active part in the life of the city. In many countries, restaurants are sort of “incorporated” into the streets. Some establishments are equipped with removable windows, and in fine weather the glass is removed to transform the restaurant into an open parlor.

Or restaurateurs hire musicians and actors to perform outdoors, entertaining guests and attracting new visitors. In Moscow, on the contrary, even the majority of restaurants with open-air patios offer outsiders no glimpse inside.

Ironically, Moscow’s only pedestrian zone – the Stary Arbat – is not really popular with restaurant owners who for some reason tend to run small quality restaurants here while the throngs of tourists filling the street are more interested in inexpensive eateries.

Another serious disadvantage of Stary Arbat is the lack of sufficient parking areas for restaurant visitors. Nevertheless, the street leads the way in terms of the number of catering outlets operating there.

According to Moscow’s research institute for the general plan of the city’s development (NIiPI Genplana Moskvy), Stary Arbat has 207.7 seats in cafes and restaurants per 1,000 residents, while the city average is nearly 10 times lower, with 21.5 seats per 1,000.

Moscow’s restaurants are reluctant to move outdoors as they derive most of their income from office employees, not from tourists or holiday-makers. Coffee houses, bars and restaurants of every hue take more interest in locations close to business centers. Restaurant zones in the capital are being formed in the vicinity of top class offices.

There are a lot of catering outlets around the Pushkinskaya metro station, in the side-streets off Tverskaya Street, says Osipov.

They include Kamergersky Lane (Akademia caf?-pizzeria, Caf? des Artistes of the Rostik Group chain, Gusto coffee houses, the Oriental cuisine restaurant Kebab-City, Moroccan cuisine in Ketama, the European sandwich-bar Prime, the Russian fast-casual outlet Seno), the section of Bolshaya Dmitrovka between Kamergersky and Stoleshnikov Lanes, Petrovskiye Vorota Square, Pokrovka, Triumfalnaya Square, Myasnitskaya – between Lubyanka and the Garden Ring (Aristorkat caf?, the restaurants Villa, Shanti, etc.).

Pyatnitskaya Street and Klementovsky Lane is an example of an area where a variety of restaurants with different concepts co-exist next to one another within the city’s historic center, including outlets of international chains such as McDonald’s and Pizza Hut, a Shesh-Besh outlet of an Oriental cuisine chain, the Irish pub Molly Gwynn’s, the Russian caf? chain outlet Moka Loka and other eateries.

Analysts note that restaurants tend to move away from central thoroughfares into the quieter lanes and back streets largely because Moscow’s high street – Tverskaya – has become too expensive. Oleg Vinogradov, general director of the Sushi Vyosla Japanese cuisine chain, says Tverskaya is a priori a loss-making venue for the restaurant business.

“With rentals rates of $6,000 to $8,000 per square meter no establishment can make a profit, regardless of the concept. The only exception is where the restaurateur has the freehold of the property. Some, however, open their outlets on Tverskaya for a purpose, so as to show off their central location – that is a matter of prestige. Usually, that is practiced by large chains or diversified business groups who can afford to run one loss-making outlet,” he says.

Nevertheless, undeterred by high rental rates fast food outlets and moderately-priced restaurants where an average bill is below $30, pizzerias and family-oriented cafes make up quite a large share of tenants operating on Tverskaya and its vicinity, says Yulia Drovyannikova, retail real estate consultant at Jones Lang LaSalle.

Restaurant owners are ready to pay up to $2,000 per square meter annually for a property in Moscow’s high street, although, those businesses feel more comfortable paying $1,000-2,000 per square meter within the Garden Ring and $600-800 in more remote areas. The only exception is the areas adjacent to metro stations, where rental rates run up to $1,000 per square meter.

“The entire city center is very appealing to restaurateurs nowadays,” believes Yulia Drovyannikova. But owners of expensive restaurants still take a particular interest in properties on Myasnitskaya, Pyatnitskaya, Pokrovka and Bolshaya Nikitskaya Streets.

Those districts abound in office centers and administrative buildings providing restaurants with a well-off public during business lunch and dinner hours. Besides, expensive restaurants do not necessarily have to be facing a busy street, with heavy pedestrian and traffic flows. Such locations are more of a disadvantage for upmarket establishments, Andrei Petrakov, head of the Restcon consulting agency, is convinced.

The main requirement when it comes to the location of such restaurants is that it should be “as central and quiet as possible,” he says. That is why the owners of such establishment are keen on areas adjacent to the main thoroughfare, for example, lanes and boulevards situated within walking distance from Tverskaya – Bolshaya and Malaya Bronnaya Streets (Donna Klara), Spirodonyevsky Lane (Shafran, Borgo, Kot Begemot, Don Pedro, Dzhingi), Gnezdnikovsky Lane (Azeri restaurant Versai, seafood restaurant Drugoye Mesto), Strastnoi Boulevard (restaurants I…Talia, Marrakech, Venice).

“And, of course, the neighborhood itself should be fashionable. No matter how exquisite the cuisine is at an expensive restaurant, people will not drive to Kapotnya (a remote industrial district in south Moscow),” Petrakov concludes.

He notes that although the city center is generally attractive to restaurant owners, there are still areas inside the Third Ring Road that are undesirable. Baumanskaya metro station is such a district, dominated by somber Soviet-built research institutes and industrial facilities – all in all, quite a depressing landscape, says the expert.

The Moscow government is set to expand pedestrian zones in the city center, says Alexander Osipov. Lavrushinsky Lane has recently become a pedestrian area. However, tourism industry specialists believe that it has failed to match international standards. The quality and choice of services – first and foremost, this pertains to catering and retail outlets – vary at different parts along the street, the analyst says.

Restaurant streets are also to be found outside the Garden Ring. The most obvious example is the area around the Ulitsa 1905 Goda metro station. One of the most expensive restaurants – Mario by Tatiana Kurbatskaya – is situated here, on Klimashkin Street.

The redeveloped facilities of the Tryokhgornaya Textile Factory, on the embankment near the World Trade Center house several restaurants owned by Andrei Dellos (Le Duc, Shinok and Bochka) and Anton Tabakov (Kafka, Oblomov, Architect, Antonio, Cleopatra, Kamasutra).

Rostik Group has launched several outlets near the Oktyabrskoye Pole metro station while Pizza Sole Mio runs an outlet near Rechnoi Vokzal metro.

Osipov expects the restaurant business to flourish in the near future around Kutuzovsky Prospekt and Park Pobeda, on Leninsky Prospekt and Profsoyuznaya Street, while Novy Arbat, on the contrary, is nearing saturation point. It may so happen, he says, that new outlets will no longer pay off here, given the high concentration of restaurants in the area.

Maxim Petukhov, general director of the fashionable Biscuit and Vogue caf?, believes that while there are only two possible venues for premium class restaurants in Moscow – within the Garden Ring or on Rublyovskoye Shosse (Rublyovka) – moderately-priced establishments with an average bill of below $30 have good prospects in what he calls “the middle belt” of the capital – the districts of Sokol, Leninsky Prospekt, etc.

“Today, districts where prospects are quite good are Sokol, Shchukinskaya, Oktyabrskoye Pole, etc,” Oleg Vinogradov agrees. “There are still no restaurants there but those areas are undergoing rapid development, with numerous top class residential estates, quality retail centers…”

Mikhail Zelman, general operating director at the ARPIKOM restaurant group, notes that today, with demand exceeding supply, a restaurant can find patrons in any part of the city. But commuter areas are in the greatest need of quality caterers, he says.

Fast food outlets and moderately-priced restaurants are ready to expand into the capital’s commuter areas, their main requirement being a crowded location, says Drovyannikova. Besides, she adds, such companies have taken to opening cafes next to schools and universities, to cater for the youth – their most loyal clientele.

“Nowadays, restaurateurs are moving away, into commuter areas where the key criteria are good views, a convenient approach road and the restaurant should be visible from the street,” says Vinogradov.

Leeds Property Group forecasts the rapid development of fast-food joints and cafes, whose number is 3-3.5 times lower in Moscow than abroad.

For example, New York with a population of 8 million has 150 seats in cafes and restaurants per 1,000 residents. In Moscow that figure stands at only 50 seats per 1,000. Some Moscow districts have no permanent catering outlets at all. They are Akademichesky, Teply Stan, Yasenevo, Babushkinsky, Losiny Ostrov, Rostokino, Sviblovo, South Medvedkovo, Pechatniki, Dmitrovsky, and Khovrino, says Osipov.

The More the Merrier

The Moscow restaurant market is growing against the backdrop of a dire shortage of vacant properties, says Igor Veretennikov, head of Franchising Consulting at the Finam investment group. Market majors snap up all the properties that suit them. As a result, the city has still not developed any general principles governing the placement of restaurant facilities.

Restaurant owners are faced with a strong rival in the shape of retailers, as all of them vie for the same properties, Drovyannikova says.

“We try to place our restaurants where pedestrian and traffic flows are most intensive, in first-floor properties facing the street, with a separate entrance and, if possible, with large windows. People are drawn, first and foremost, by the sight of people inside and that is why we try to be in full view and to offer a good view of the street for our guests inside,” says Anna Tuzova of Rostik Restaurants.

Retail companies are guided in their choice by roughly the same criteria. The only difference is that public catering operators require higher power capacity, of at least 50-60 kW per hour, says Drovyannikova. Fast food outlets need over 100 kW per hour. That restricts their freedom of choice as today many properties available on the market have an energy supply maximum of 15-30 kW per hour, while the Moscow government is reluctant to raise the capacity in the wake of a recent power outage.

According to Jones Lang LaSalle, restaurant owners show special interest in properties directly accessible from the street, because only there is it possible to run round-the-clock outlets (unlike properties within shopping centers that usually close up for the night). They are ready to accept such properties even in the most remote areas.

Restcon’s Petrakov believes that the situation would improve considerably if the Moscow government evicted the innumerable gaming arcades from the capital. “It is impossible to compete with them in terms of profitability. They are able to afford any rental rates, which is why they get the best properties,” Petrakov says.

Given the shortage of properties and weak competition, restaurants agree to set up near rivals. Finam’s Veretennikov says that the most favorable type of location for a classic restaurant is an area with a high concentration of catering outlets, while moderately-priced restaurants benefit most if situated near a McDonald’s, whose presence speaks for the quality of a venue and attracts a relatively high flow of would-be customers.

But restaurant owners say there are still no alliances set up for the joint placement of cafes and restaurants in the city. Major operators only negotiate the placement of their outlets within large shopping centers where restaurants are situated in immediate proximity to each other, says Alexei Kalashnikov, head of the Unikum restaurant, which is part of the Extra-M holding.

“There are no agreements on the rules of placement of restaurants or zoning between restaurant groups in Moscow,” Boris Gorlov, general director of the Yolki Palki chain agrees. “On the contrary, there is a notion of a lucrative site. By planning an outlet in the immediate proximity to a successful rival restaurant we are sure that we will get the same returns on our project. I think, others think the same.”

“Even if there are such agreements, they are kept confidential,” Drovyannikova says. “But it is possible to say for sure that restaurateurs do not shun each other and they like to take properties on streets already full of cafes.”

The accumulation of several establishments in the same location does not even ward off the operators of expensive restaurants. “Fashionable neighbors create a special style, which is pleasing for the guests,” maintains the consultant. She has never heard of outlets that have failed to withstand the competition and close down. “A restaurant or a caf? may go broke in two cases – because of poor location or poor management,” Drovyannikova is convinced.

“In the city center, the more restaurants are concentrated in one location the better, while in commuter areas, where outlets are frequented mostly by the same people, it is easier to work without rivals around,” says Kalashnikov.

Veretennikov believes that restaurant alliances will sooner or later emerge in Russia. But that will not happen before the concentration of public catering reaches at least that of other Eastern Europe countries, that is, at least triples. Then it will become necessary not just to open as many outlets as possible in bustling areas, but also to choose locations rationally.