Talking to Philip Sullivan, one can sense a degree of awe and fear as he describes the hazards of opening a laundromat in Moscow.
Misunderstandings with landlords, dealing with suspicious Soviet-era engineers, contending with a boiler that oozes steam from cracks in the cement outside and paying $500 for a gas regulator that costs $19 in the United States are among his top worries.
But if Sullivan's ideas pan out, Moscow could see hundreds of Blue Kristal Laundromats throughout the city in the coming years.
"At the end of our business plan, we say we expect to be the McDonald's of laundry here," he said.
It is an idea that puts Sullivan, who owns the distributor license for Maytag in Moscow, among a growing list of firms that plan to put independent franchises to work, both for themselves and for the Russian marketplace.
Firms such as Radio Shack, Baskin Robbins and AlphaGraphics have served their time learning Moscow's market through the operation of company stores. Now they say the time is right to expand into the hinterlands using independent operators.
Businessmen and observers agree that independent franchises may prove a valuable educational tool, a turnkey marketing approach in a land often lacking efficiency and customer service.
For a nation starved for investment, it also represents a good way to get capital moving quickly, said a Western official who asked not to be named. And it may offer a legitimate way for the nouveau riche to invest in their own society.
Franchising's link to economic development is not lost on the U.S. Agency for International Development, which hired Washington, D.C.-based franchising consultant Sibley International to help develop Blue Kristal's franchising plan."Most of the solid economies around the world are based on small- and medium-sized companies," said Michael Amies, a partner with Sibley. "Franchising is a valuable way to spread successful small companies."
Sullivan, whose first store opened last month near Kolomenskaya metro, has located 89 formerly state-owned laundromats. Most of them have closed down since perestroika, and may serve as future sites.
"We've already had people talk to us, potential franchisees," he said. "We'd like to do as many as we can. A city like Moscow should have 900 to 1,000 of these stores.
"It just doesn't make any sense to have these buildings in the middle of residential complexes and not have them serving the community's needs," he said.
Other well-known names are also getting into the franchise act.
U.S.-based Subway Sandwiches and Salads, a relative newcomer to the Russian market, opened its first store in St. Petersburg last month and is seeking franchise partners to expand.
After a year of operating in Moscow, Radio Shack has plans for independent franchises in four other cities by early next year. Corporate stores will remain in the nation's capital, according to vice president Steve Williams.
AlphaGraphics also could see 20 to 25 outlets throughout the Commonwealth of Independent States during the next four years. The first true franchise is expected in 1995 in one of the Baltic capitals, said Mary Pat Sloan, managing director for franchising at Phargo Group Companies, which holds the CIS license for AlphaGraphics and MicroAge computers. A potential deal in Vladivostok could materialize in 1996, she said.
Likewise, Baskin Robbins is planning franchises in four other cities by next fall to compliment the company's 13 stores and 70 kiosks in Moscow, St. Petersburg and Nizhny Novgorod.
The ice cream maker, owned by Allied Domeque of London, currently does much of its business through joint ventures. But franchising is the firm's normal method of operation, and managing director Michael Kadenacy said it is now suitable for Russia.
From an operations viewpoint, franchisers argue that their methods are ideal for surmounting distribution problems such as sourcing materials, finding secure sales outlets in underdeveloped provinces and running stores across eight time zones.
Russia's neighboring republics offer another hurdle. These regions and their evolving economies would prove unmanageable for a Moscow-based retailer, according to AlphaGraphics' Sloan.
Franchising also offers investors the opportunity to tap large, developing markets, whereas in America or Europe such opportunities are more limited.
"Here, if someone wants to open a store in a town the size of Kiev, we're willing to speak with them," said Williams of Radio Shack. "They can tap into a market that's hungry."
As for foreign investment, everyone agrees it is vital, according to Sibley's Amies.
"For these businesses to expand, there needs to be an understanding in the franchising world that funds need to be available for these companies," he said. "The next phase is to find sources, either from the master franchiser or through cross-border investment."
Other possibilities could include the use of a franchising equity fund similar to one established in South Africa through the World Bank's International Finance Corp., Amies said.
But franchisers, some of whom have financing mechanisms in place, are looking for more than just funds; they want to see a personal commitment to and experience with the local market.
"We've had approaches, but to date most of them have been middlemen," said Baskin Robbin's Kadenacy. "If there's a foreigner who has a Russian partner and can bring more to the table than money, we would talk to them."
And there are Russia's ever-present risks: changes in laws and banking practices, mafia demands and infringement of trademarks and copyrights. A uniform commercial code, one part of which has recently become law, inspires hope. But lawyers, accountants and other experts stressed that enforcing one's rights will remain a problem for years.
Lack of land ownership is another issue, which along with developing local food-supply lines and management has McDonald's wary of franchising for another few years, according to operations manager Glen Steeves.
Misunderstandings with landlords, dealing with suspicious Soviet-era engineers, contending with a boiler that oozes steam from cracks in the cement outside and paying $500 for a gas regulator that costs $19 in the United States are among his top worries.
But if Sullivan's ideas pan out, Moscow could see hundreds of Blue Kristal Laundromats throughout the city in the coming years.
"At the end of our business plan, we say we expect to be the McDonald's of laundry here," he said.
It is an idea that puts Sullivan, who owns the distributor license for Maytag in Moscow, among a growing list of firms that plan to put independent franchises to work, both for themselves and for the Russian marketplace.
Firms such as Radio Shack, Baskin Robbins and AlphaGraphics have served their time learning Moscow's market through the operation of company stores. Now they say the time is right to expand into the hinterlands using independent operators.
Businessmen and observers agree that independent franchises may prove a valuable educational tool, a turnkey marketing approach in a land often lacking efficiency and customer service.
For a nation starved for investment, it also represents a good way to get capital moving quickly, said a Western official who asked not to be named. And it may offer a legitimate way for the nouveau riche to invest in their own society.
Franchising's link to economic development is not lost on the U.S. Agency for International Development, which hired Washington, D.C.-based franchising consultant Sibley International to help develop Blue Kristal's franchising plan."Most of the solid economies around the world are based on small- and medium-sized companies," said Michael Amies, a partner with Sibley. "Franchising is a valuable way to spread successful small companies."
Sullivan, whose first store opened last month near Kolomenskaya metro, has located 89 formerly state-owned laundromats. Most of them have closed down since perestroika, and may serve as future sites.
"We've already had people talk to us, potential franchisees," he said. "We'd like to do as many as we can. A city like Moscow should have 900 to 1,000 of these stores.
"It just doesn't make any sense to have these buildings in the middle of residential complexes and not have them serving the community's needs," he said.
Other well-known names are also getting into the franchise act.
U.S.-based Subway Sandwiches and Salads, a relative newcomer to the Russian market, opened its first store in St. Petersburg last month and is seeking franchise partners to expand.
After a year of operating in Moscow, Radio Shack has plans for independent franchises in four other cities by early next year. Corporate stores will remain in the nation's capital, according to vice president Steve Williams.
AlphaGraphics also could see 20 to 25 outlets throughout the Commonwealth of Independent States during the next four years. The first true franchise is expected in 1995 in one of the Baltic capitals, said Mary Pat Sloan, managing director for franchising at Phargo Group Companies, which holds the CIS license for AlphaGraphics and MicroAge computers. A potential deal in Vladivostok could materialize in 1996, she said.
Likewise, Baskin Robbins is planning franchises in four other cities by next fall to compliment the company's 13 stores and 70 kiosks in Moscow, St. Petersburg and Nizhny Novgorod.
The ice cream maker, owned by Allied Domeque of London, currently does much of its business through joint ventures. But franchising is the firm's normal method of operation, and managing director Michael Kadenacy said it is now suitable for Russia.
From an operations viewpoint, franchisers argue that their methods are ideal for surmounting distribution problems such as sourcing materials, finding secure sales outlets in underdeveloped provinces and running stores across eight time zones.
Russia's neighboring republics offer another hurdle. These regions and their evolving economies would prove unmanageable for a Moscow-based retailer, according to AlphaGraphics' Sloan.
Franchising also offers investors the opportunity to tap large, developing markets, whereas in America or Europe such opportunities are more limited.
"Here, if someone wants to open a store in a town the size of Kiev, we're willing to speak with them," said Williams of Radio Shack. "They can tap into a market that's hungry."
As for foreign investment, everyone agrees it is vital, according to Sibley's Amies.
"For these businesses to expand, there needs to be an understanding in the franchising world that funds need to be available for these companies," he said. "The next phase is to find sources, either from the master franchiser or through cross-border investment."
Other possibilities could include the use of a franchising equity fund similar to one established in South Africa through the World Bank's International Finance Corp., Amies said.
But franchisers, some of whom have financing mechanisms in place, are looking for more than just funds; they want to see a personal commitment to and experience with the local market.
"We've had approaches, but to date most of them have been middlemen," said Baskin Robbin's Kadenacy. "If there's a foreigner who has a Russian partner and can bring more to the table than money, we would talk to them."
And there are Russia's ever-present risks: changes in laws and banking practices, mafia demands and infringement of trademarks and copyrights. A uniform commercial code, one part of which has recently become law, inspires hope. But lawyers, accountants and other experts stressed that enforcing one's rights will remain a problem for years.
Lack of land ownership is another issue, which along with developing local food-supply lines and management has McDonald's wary of franchising for another few years, according to operations manager Glen Steeves.
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