Feature Articles: International Franchising
Pop Art Pizza Empire (Building a Franchise Network in Ukraine)
Funky Lviv-based dining out franchise continues to thrive nationwide despite market downturn
by Paul Johnson, Business Ukraine
The harsh economic recession provoked by the impact of the global credit crunch on Ukraine took a particularly heavy toll on the country's once burgeoning dining out scene as the Ukrainian middle classes saw their consumer spending power curtailed. However, while many of the country's more up-market venues have struggled to stay afloat throughout the past eighteen months of financial belt-tightening, one of Ukraine's most well-established dining out brands has not only managed to hold its own throughout the credit crunch but has actually expanded its franchising operations considerably. The story of the growth of the Pizza Celentano empire is one which suggests that market forces are alive and well in Ukraine, illustrating the possibilities if a good business model is well executed and targeted at a vacant niche in the existing market. It is also a home grown success that sharply contradicts the stereotypes of cronyism and corruption which continue to put some international investors off entering this vast and under-developed East European market.
Kitsch & convenient cuisine in the heart of West Ukraine
The Pizza Celentano chain first began life back in 1998 when the brand's initial outlet opened for business in Lviv. The brainchild of Lviv native and noted restaurateur Mark Zarkhin, this first Pizza Celentano venue proved an immediate smash hit with discerning Lviv diners tired of the overpriced faux glamour and poor quality of much that was on offer in the immediate post-Soviet years. Word of mouth proved enough to provide a stead stream of customers including everyone from office workers and trophy wives to the more fashionable among the city's large student population. Although few realized it at the time, one of post-independent Ukraine's most popular brands had been born.
The chain's venues remain immediately recognizable for what could be described as a pop art pastiche of interior design influences including everything from Quentin Tarantino movie posters to kitsch 1950s Americana, all of which is topped off by bright primary colours and a cheery approach to customer relations that was positively revolutionary for late 1990s Ukraine and which remains an industry benchmark that others have sought to follow.
Ukraine's leading eating out empire
Today Zarkhin oversees an ever-expanding restaurant empire which crisscrosses the nation and includes 140 Pizza Celentano venues, 41 Potato House outlets and 7 Yapi Japanese restaurants, all of which come under Zar khin's Fast Food Systems (FFS) umbrella. 90% of these venues are run on a franchising basis but all share the same unmistakable characteristics of the Zarkhin brand. He credits the democratic atmosphere and affordable prices of Pizza Celentano venues as a key factor in their initial success, allowing him to establish over 50 outlets by 2004. Zarkhin recalls that the initial popularity of the first few Lviv Pizza Celentano venues outstripped all expectations and made further expansion beyond West Ukraine inevitable. The franchising model appealed to Zarkhin and his colleagues, he explains, because at the time the venues themselves would only have generated enough in profit to finance the opening of a single new restaurant per year, while securing outside financing in the form of bank loans would have meant accepting potentially ruinous rates of interest. Meanwhile, strategic investors did not even consider the mid-range dining out sector as an option at the time. "For these reasons we opted for a franchising system and we were not mistaken to do so," he reflects. The first franchises were opened with partners in Kyiv and Khmelnitskiy, and since then the Pizza Celentano brand has become one of Ukraine's few genuinely nationally successful trademarks, with successful flagship venues in most Ukrainian cities leading to yet more demand for fresh franchising agreements. "Many of our franchise partners were also initially clients who were attracted by the quality of the product and the democratic structure of the restaurant," he offers.
Democratic dining departure from the dated 1990s scene
This national expansion has often meant adapting to local conditions. Ukraine remains in many ways a patchwork nation of great regional diversity, but while this has proved the undoing of many brands attempting to develop a national reach, it has been transformed into a strength by the FFS group. "In a country the size of Ukraine with so many linguistic and cultural nuances we have always placed particular importance on paying attention to local tastes. What's good for Luhansk is not necessarily good for Lutsk," Zarkhin comments.
The word 'democratic' litters Zarkhin's descriptions of his various FFS brands and he takes considerable pride in having broken the stranglehold enjoyed in 1990s Ukraine by overtly ostentatious venues and Soviet throwbacks. "My friends and I wanted to create something that would be an entirely new concept (for the time) offering original combinations of dishes in a bright and selfconsciously kitsch environment complete with bar stools, fashionable music and young, energetic staff," he outlines, adding that the open plan style of his pizza venues also proved popular and novel as it allowed clients a previously unknown opportunity to observe the various stages of the food preparation process. The designers of the initial Pizza Celentano outlets were instructed by Zarkhin to do whatever they liked with only a single proviso - that clients should not be left indifferent to their surroundings. The success of the chain's initial design concept, which is credited to Lviv artist Serhiy Boyarov, is evident in the visual similarity of all subsequent venues, despite the fact that each restaurant employs its own interpretation of the Pizza Celentano ethos.
International expansion and investment opportunities
The economic recession which first began to bite in Ukraine towards the end of 2008 has not managed to impede the expansion of the Pizza Celentano brand, with 19 new venues opening throughout the past eighteen months at a time when many Ukrainian restaurants have been forced to shut up shop. Zarkhin believes that this growth will continue for some time as the under-resourced middle range of the Ukrainian eating out secure moves ever closer towards market maturity. In all, he envisages a total of a further 150 Pizza Celentano venues within Ukraine and more throughout the region, which he hopes to open in cooperation with international franchising partners. Such grandiose plans would be significantly aided by the support of strategic investors and Zarkhin states that he and his partners are currently exploring different methods for attracting international investment to help finance the further expansion and global reach of the Pizza Celentano brand. As well as these expansion and consolidation efforts Zarkhin is also currently preparing to launch a new brand, "Pasta" which will feature venues offering pasta dishes made from pasta produced on the premises using traditional Italian technologies. The first Pasta outlet is expected to open in Zarkhin's home town and dining out muse, Lviv, later this year.
A market where international brands still often fear to tread
The relative success of the Pizza Celentano brand is arguably all the more noteworthy given the ongoing absence from the Ukrainian market of all but one of the biggest global brand names of the dining out industry. Zarkhin puts this absence down to a number of factors includingthe complexity of Ukrainian legislation and tax laws as well as the relative difficulty of securing reliable, quality controlled produce on a scale sufficient to sustain a major nationwide chain of restaurants. Local know-how has played a big role in allowing FFS to overcome these market difficulties, while Zarkhin argues that a constant process of menu updating and innovation has allowed the group's venues to remain one step ahead of the growing pack of domestic competitors and impersonators. "In the space of ten years we established our restaurant group as the market leader serving Ukraine's growing middle classes," Zarkhin reflects. As those self same middle classes continue to expand, the Pizza Celentano franchise looks set to continue growing with them.
