KFC franchisees don’t fall for Rostic’s

More than 100 establishments in Russia intend to keep their old name at least until 2025.

Hey Kay Russia LLC, which franchises approximately 100 KFC outlets in Russia, will not change its signs to Rostic’s and intends to keep the same name until at least 2035. The American Yum! was counting on rebranding all points of sale. Brands, which owned the rights to develop KFC in Russia and left the country due to the conflict in Ukraine. Experts believe that the franchisee’s decision is justified, since the local brand is less known among consumers than the American one – and this will lead to a decrease in the flow of customers.

One of the largest KFC franchisees in Russia, Hey Kay Russia LLC, has no plans to rebrand its establishments as Rostic’s, and all 100 of the company’s establishments will continue to operate under the KFC guise, a source in the catering market said and confirmed by the company’s CEO Alexey Chizhov. “We are not ready to move to Rostic’s right now,” he added.

AK Russia has signed most of the agreements to use the KFC brand until 2035, which gives the company the right not to rename its establishments.

The rights to develop the KFC brand in the Russian Federation until October 2022 were held by Unirest, a subsidiary of the American Yum! Brands, which announced its withdrawal from the Russian market due to the conflict between Russia and Ukraine. At the same time, the Unirest business was bought by the Izhevsk franchisee of the network, Smart Service Konstantin Kotov and Andrey Oskolkov. After leaving Yum! Brands, the new owner announced the renaming of KFC outlets to Rostic’s. General Director of Unirest Tatyana Shamanskaya announced on September 28 that the company had agreed on rebranding with more than 90% of the network’s franchisees. Yesterday, she told reporters that the complete rebranding of all 1.15 thousand KFC establishments will be completed by the end of the first quarter of 2024.

According to Kartoteka.ru, in 2022, AK Russia’s revenue increased by 45%, to 8.6 billion rubles. The same database indicates that 90.01% belongs to the Cyprus Lerondale Assets Ltd, where among the final beneficiaries was the Shokoladnitsa group of Alexander Kolobov. The source said that Mr. Kolobov left this business even before the pandemic. The businessman himself also confirmed this information, refusing to name the buyer of his share.

Back in early 2023, Hey Kay Russia and a number of other KFC franchisees asked the authorities to suspend the deal to sell the business to Yum! Brands “Smart Service”.

They argued that after the deal, all restaurants should be renamed Rostic’s, which is known only by about 20% of the country’s population, while KFC’s recognition reaches 99%. However, the royalty rate remains the same – 11%. However, the deal was still closed, albeit with some difficulties.

As Reuters reported on September 25, the US Treasury was delaying consideration of Yum! Brands from the Russian Federation, fearing that the American company will have to pay an “exit tax” to the Russian budget. Russian officials promised to introduce such a fee for all foreign companies that decide to curtail their business in the Russian Federation, but so far it is not in effect. At that time, according to the agency, the deal to sell the Russian business to Yum! Brands was almost agreed upon, so the US Office of Foreign Assets Control (OFAC) had to intervene in the process.

Ombudsman of the Moscow restaurant market Sergei Mironov believes that AK Russia’s reluctance to rebrand is “justified,” because the company initially bought the international KFC franchise. If the name is changed to Rostic’s, the popularity of the establishments could fall by 20%, he believes. Most likely, Mr. Mironov notes, the company is also not satisfied with the proposed conditions for rebranding.

Fast food, despite the crisis, is in a more favorable position than other segments of catering. In January–June 2023, traffic in fast food restaurants in Moscow increased by 10% compared to the base year 2021, while the entire catering market in the city decreased by 3–5%. In January-August 2023, according to Rosstat estimates, the turnover of the catering market throughout Russia increased by 22% year-on-year, to 1.78 trillion rubles.