INVESTFIN

Opening and development of a confectionery shop: the experience of Eric Shogren, Kuzina confectionery chain

Erik Shogren, the founder of the Kuzina confectionery chain, shares his experience of the development of a special business - a confectionery chain in Russia and his personal professional discoveries, and advises budding entrepreneurs, and it is important to pay attention to this in the first place when choosing a business direction.

About the trip to Russia and the first restaurant experience

I did not immediately come to the idea of opening a confectionery shop. For the first time, I came to Novosibirsk in 1992 to visit my brother Brad, who was studying Russian at the local University. At that time, my brother introduced me to local businessmen, and with one of them I was involved in the sale of various Ford models in Russia. This business has been around for about a year, but during that time I have been able to make good money. In return for these funds, I decided to open the first supermarket of American goods in Novosibirsk, but as a result of complicated logistics, the project had to be closed soon.

Soon I returned to America, but even then the ideas about business development in Russia did not leave me - I saw unexpected opportunities for development. When I returned to Novosibirsk, I thought about opening an American pizzeria in the city. At that time, there was no special choice in the city, mainly the market was full of dubious projects without a concept. I called my new project New York Pizza, and the first pizzeria opened in Novosibirsk in 1996 and was a great success among the guests and residents of the city. The company began to grow gradually – and within a few years it became a restaurant chain.

Launching the "Kuzina" confectionery store and finding its place in the system

In the early 2000s, opening the next pizzeria in the shopping center, I came to the conclusion that the interest of Russians in American cuisine is gradually cooling. At that time I was already married. Although my wife, Olga, is from Novosibirsk, we met her in Minneapolis, where she trained on an exchange program. Olga introduced me to Russian cuisine, and at some point I practically discovered a gap – that gap was restaurants. Soviet canteens have been closed for a long time, and new establishments have not had time to appear. We took a risk. The first "Kuzina" confectionery shop was opened in Novosibirsk in 2004 in free-flow format.

We planned that in this establishment, people should mainly take food with them or have a quick snack right there, but since we built an interesting design, the guests started to lag behind. They liked the place and we quickly launched five cafes. In 2008, it was necessary to close the enterprise due to various reasons, including the fact that the area of the enterprise was more than 200-300 square meters, because it functioned as a large kitchen for food preparation. In the end, we realized that this kind of format was not suitable for further development. So we took a break for a few years.

Vector substitution

At one of the local bakeries, I would always buy a Strawberry Cream Cake, and it was often out of stock. I've always wondered about this, because the absence of any product for American standards is not appropriate. We were already producing cakes in the canteens, we had opened a confectionery shop and prepared the baked goods there.

"We brought in the chef who prepared confectionery products - at that time she was a woman with experience in the Soviet confectionery business. We still remember these endless tastings – we tried to adapt European recipes to local ingredients. At that time, "Prague" cake or "Potato" pie was standard history, and we already wanted to introduce a new product to the city. Our product gradually became in demand at retail, and at one point we started thinking about the creation of a private confectionery store. Thus, Kuzina appeared in a new format," recalls Yevgeniya Golovkova, managing partner of the network.

We were the first pastry shop in Novosibirsk and offered fresh cakes, pastries and coffee made according to home recipes at the most affordable prices. It turned out that the market needed this kind of format — a place where people could come in and have dessert and coffee. Overall, looking at the market, we see that people don't need rush coffees and elaborate meals all the time, people mostly want a decent product, reasonable prices, clear portions and quality ingredients. This is the position I have chosen for confectionery - everyone can come here, this is a cafe in the district, and everyone can feel quite free in this place. We choose both the city center and remote regions, where quality enterprises are not needed, as locations for oversizing.

Network companies offer a good price and quality offer on the Novosibirsk market, practically non-existent. Of course, new players emerge and even create small networks. However, everyone is trying to do something new. We are committed to the mass segment and do not claim any exclusivity.

About expansion to Moscow

In 2015, we introduced the network to the capital market. The situation in Moscow is definitely different. Several large network players, who have been operating in the market for many years, immediately participate here. Accordingly, the competition is high. However, when entering the market, we assumed that Moscow is a hot market and there will be a place for everyone, because all companies operating in the price category above ours are mainly located within the boundaries of the Sadovoye kolso district, and remote regions were not paid much attention.

Before opening our business in Moscow, we studied the market for about a year. After all, we had to open not only confectionery shops, but also to establish our own production that would supply our stores with our products. Our production in Moscow is not so big — it is about 400 square meters and is designed for 15-20 trading points. 100 people work in the production area in Novosibirsk, and about 30 people in Moscow. Investments in opening production amount to at least 20 million rubles.

To create a professional team when entering the Moscow market, which is new for us, we sent a team from Novosibirsk to the capital, which includes professionals who have worked with us for many years - they taught their colleagues in Moscow our standards during training.

Private production allows you to control the volume and quality of the product, but at the same time requires proper preparation for its creation. We searched for a long time for a site in order to easily deliver products to our confectioneries, bypassing Moscow traffic jams and congested transport networks; it should be located near the metro so that the personnel can reach their destination easily. On top of all that, we work with the NASSR standard, so the pitch has to meet them.

"The most important lesson we have learned is that if the launch of confectionery shops involves the creation of a special production - a voluminous process in terms of both investments and operational and team resources, then it is not necessary to enter the Moscow market without investing in its mastery. We did not estimate the operational costs of starting our own production, and it is assumed that we were supposed to arrange the supply of ingredients, for example, Altai honey, but this very raw material was not available in the required volume from Moscow suppliers. Now I can say this: before launching any enterprise, it is better to find a strategic investor who will ensure the development of the company and the planned opening of new trading points", says Yevgeniy Golovkov.

About the choice of guests

The hit of our sales in Novosibirsk was the signature bun with cinnamon "Sinnamen", we sell about 5 thousand products a day. In Moscow, eclairs with natural cream and European desserts have become more popular, for example, "Carrot" - a traditional carrot cake. It is interesting that the most popular cake in Novosibirsk is "Koketka" honey cake. Such features of the regional selection are due to the fact that Altai is nearby and everyone loves honey. He is not so popular in Moscow. Even when we opened the establishment in Moscow, we were told that people here are already used to the new original taste, and they will no longer buy Soviet-era "Kartoshka" pies or simple baskets with whipped cream and fruit. But as it turns out, we didn't apply them in vain — Muscovites love them.

About investments

Our very first object in Moscow was opened in the territory of the "Airport" metro station, and it was quite informal - here we built a landing strip and went beyond the atmosphere of the store as much as we did. Now, when we look at locations in Moscow, we do so with great caution, because sometimes the rental rates are too high and do not measure up to the income portion. You always have to make a choice - do you prefer to stand on the corner or move along the main street.

On average, the amount spent on opening a store is about 5 million rubles. This model pays off over three years. In Novosibirsk, where we are the leader, the market is not developed, and we usually return investments faster - within a year and a half - two years. Investments in Moscow amount to a higher amount - 5.5-6 million during the three-year period of return of funds.

Access to the US market

Last year, I opened the first Kuzina facility in Minneapolis, USA. This idea has always been on my mind, but a few years ago I started to study the market in detail. Of course, the domestic market is structured in a completely different way. In America, cities are built on a different principle: all the commercial, restaurant infrastructure is built outside the human settlement, but the positive side of this is that people visit those restaurants for breakfast and lunch, and these places attract a lot of human traffic. In the end, I found a project that has existed for more than 40 years - Baker'sWife confectionery - the owner of the bakery decided to retire. I bought the bakery, and by looking at the statistics of this enterprise, I saw how the business was doing here. As a result, I bought another facility and opened the Kuzina enterprise there. Opening this facility cost 5.5 million rubles. A large amount of money was spent on repair work and the purchase of equipment.

I am confident that the Kuzina concept will work in any country, and therefore we have a long-term goal of opening a pastry shop in the United States. Competition is fierce, and location is the deciding factor. A successful business strategy was to open a pastry shop in this area, where people have been going for several years - they are coming, and this way Starbucks and other players in the coffee market are going.

Franchise launch and future plans

During the 15 years of existence of this brand, we have gathered a good pace and opened confectionery shops exclusively under our own management. However, this year we made a decision to enter the franchise market. In our opinion, franchising is a faster way of expansion for a federal company.

Deciding to buy a franchise means trusting the franchisor and believing in its standards. There are entrepreneurs who value the realization of their personal creative ideas, and they will find it difficult to follow the rules, and franchisors will find it difficult to motivate them to follow these rules. The standard — the only one in the entire network — is a controllable and shareable value. It seems to us that this is the most complicated issue.

As potential partners - franchisees, we consider experienced entrepreneurs who are engaged in the field of hospitality and public catering, as well as who have sufficient investments to open at least three stores - confectionery shops in a year. When you buy a franchise, you should choose a business that you love. If a pizzeria franchisee, a vegetarian, has never tasted pepperoni pizza, then he will never be a good partner. He cannot control the quality of the product and care about it as much as you do. The franchise should be managed on a regular basis.

Now we have 29 confectionery shops in Novosibirsk, one in Minneapolis and seven in Moscow. In the near future, we plan to continue dynamic development and focus on opening new shopping centers in Moscow and the Moscow Region. During 2017, the company's income amounted to 634,137,515 rubles, and we are not trying to dwell on the achievements.

Recommendations for new entrepreneurs

There are always pitfalls when it comes to renting, so be sure to carefully study all the risks. "For example, we found a suitable object with excellent pedestrian and car traffic near the Sokol metro station, but after two weeks it became clear that this building will be demolished, although the tenant preferred to remain silent about it. We read this information on the website of the Complex of Moscow construction and urban planning policy. In addition, we sent a written request to the district local self-government and authorities to make sure. We think that the lessee had such a plan — to sign a contract sooner, buy quinces, and then return this money for a long time. When our lawyer found out that this building will be demolished, we started to check all the objects", said Yevgeniya Golovkova.

I would also like to give advice to new entrepreneurs about buying a franchise. It is a big risk that you make a mistake and buy a franchise of a business that does not work. A large number of companies that sell franchises do not have regulated processes in the market. Therefore, before making a decision, it is necessary to study everything in detail, visit the location of the business, monitor the operation of the business, understand how work is organized at the company's special trading points. You need to make sure that the model really works. It is important to pay attention to how the support will be implemented, how the company helps its partner, how to standardize the processes, how to train the personnel, how to launch the business.

  I think that before starting the sale of the franchise in the company, it is necessary to take a look at the statistics and you should request this information to learn. As a rule, the economic model is drawn up for a period of three years, during which it is possible to review the real dynamics of sales, costs, operating income and other data. Different locations produce different results and therefore a minimum of 5 businesses will provide little or no objective indication of the result.