How Russia has replaced Western brands - Business Beyond
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00:00 And these have become these.
00:03 The withdrawal of Western brands from Russia has changed the face of Russian shopping streets.
00:09 So who exactly are these copycat brands?
00:12 The replacer of McDonald's was called Tasty and That's It. Ridiculous name, I think.
00:18 And how do they compare with the originals?
00:21 This isn't McDonald's.
00:23 After other brands pulled their products from the shelves, are Russians still able to get the Western goods they want?
00:30 If you want a can of Coke, or if you want a brand new iPhone, or if you want a pair of sneakers, it is available.
00:37 Can these brands do anything to stop that?
00:40 The situation has just presented this vacuum to these bad actors,
00:45 and there will have to be some enforcement activity to right this situation.
00:51 Over a year into the Western corporate exodus from Russia,
00:55 has the Kremlin managed to sidestep the problems, or will the impact prove painful and permanent?
01:02 Answers to all these questions coming up.
01:05 This is Business Beyond.
01:08 Since Russia's invasion of Ukraine, some of the biggest US and European brands
01:15 have taken the decision to pull out of Russia completely,
01:19 closing their outlets and refusing to allow their products to be sold there.
01:23 This decision came at a price.
01:26 Olga Komenchuk has been keeping a close eye on the firms exiting Russia.
01:31 Russian market is significant in size. 140 million people live in the country,
01:36 so it was a costly decision, and yet they made it.
01:39 Since then, the vacuum left by these gigantic brands has been filled in two ways.
01:45 One, by Russian businesses and Russian shoppers finding innovative ways
01:50 to get hold of Western products that are no longer being sold by those brands in Russia.
01:55 We'll talk about that later.
01:57 And two, replacement businesses have opened up,
02:01 promising an almost identical experience to the Western originals.
02:04 And it's those that we're going to look at first.
02:07 Let's start with the most symbolic of all departures, that of McDonald's.
02:13 The Golden Archer's arrival in Moscow in the dying days of the Soviet Union
02:18 and Muscovites' eagerness to get through the doors
02:21 was a meaty manifestation of American capitalism's victory over Soviet communism.
02:27 But the closure of its Russian restaurants three decades later,
02:31 in the early months of the war in Ukraine,
02:34 was a stark reminder of the ideological differences that continue to separate East and West.
02:40 McDonald's sold its 850 outlets to this man, Alexander Gavor.
02:45 And within weeks, they were open again, with a new colour scheme and a new name.
02:51 "Guzna i Tochka".
02:53 Translation, tasty, and that's it.
02:57 Russian vloggers were quick to boast their experiences of this new arrival on the high street
03:03 and compare it with its famous predecessor.
03:05 Smells somewhat like McDonald's.
03:08 Now, a lot of Russians say that the experience in these replacement restaurants
03:12 is very similar to the real thing.
03:14 But there are certain key items missing from the menu.
03:18 For example...
03:20 No Big Mac.
03:22 The new restaurant's signature sandwich is presumptuously called "The Big Hit".
03:28 Other trademark names are also missing from the menu, like "The McFlurry".
03:33 In the early days of "Guzna i Tochka", you couldn't even get fries with that,
03:38 thanks to a sanctions-driven shortage of potatoes.
03:41 And that's not the only economic effect that's proven a drag for the fast food chain.
03:46 The new McDonald's, the tasty and that's it, McDonald's had to raise prices recently.
03:50 There were expectations maybe it will affect the demand.
03:53 So far, it did not.
03:55 One of the major reasons why they had to raise the prices, I think, is inflation,
04:00 which followed the sanctions that were imposed on Russia.
04:04 Self-sanctioning is a term sometimes applied to the firms who voluntarily withdrew from Russia,
04:11 albeit after some pressure from back home.
04:14 KFC and even Pizza Hut, whose advertising once featured former president Mikhail Gorbachev himself,
04:21 - To Gorbachev! - To Gorbachev!
04:23 have announced they're leaving Russia and have sold their assets.
04:27 But another American icon that's already upped and left is the world's biggest coffeehouse chain,
04:33 Starbucks.
04:35 Not that you'd notice out of the corner of your eye,
04:38 Star's Coffee slipped seamlessly into its stead.
04:42 Putting the star in Star's Coffee is Kremlin-friendly rapper Timothy,
04:46 who is one of the owners of the new chain.
04:49 Of course, it isn't just the big American brands that have left Russia.
04:53 Certain big blue buildings are no longer occupied by their Swedish owner.
04:58 IKEA was replaced by the Belarusian brand Sweathouse, which also makes simple furniture.
05:05 Although I have to say IKEA wasn't so simple for Russians. Not everybody could afford that.
05:10 And it was mostly represented by stores in large cities for that reason,
05:14 because the larger the city, the higher is the salary.
05:17 That's why Moscovites miss it most.
05:19 A look inside a Sweathouse superstore reveals something barely distinguishable from IKEA.
05:26 Similar items with similar labels with similarly Nordic-sounding names.
05:32 Sweathouse is actually unlike the other replacement businesses we've talked about so far,
05:37 because it isn't some Russian upstart.
05:40 It's an established Belarusian company.
05:43 And that's part of a trend of foreign firms from friendly or neutral countries
05:49 filling the gaps left by Western brands.
05:52 This was once Spanish retailer Zara's flagship Moscow store,
05:57 but now it's occupied by Lebanese-owned Marg.
06:00 Its parent company, Daher Group, bought all 502 stores owned by Zara's parent, Inditex,
06:07 which also runs Bershka, Pull & Bear and Massimo Duty.
06:11 And other nationalities are also finding a new home on Russia's shopping streets.
06:15 Fast fashion was substituted mostly by Turkish brands.
06:19 Since the beginning of the war, Turkish business has flourished in the country, in Russia.
06:25 So what do Russians make of the changing names that they see around them?
06:30 Are they just as happy now the local Krispy Kreme has become a crunchy dream?
06:35 Are they missing US brand Dunkin' when they queue up for a Donutto instead?
06:41 And are they bothered that the Lego store has been refashioned into World of Qs?
06:47 On the one hand, there is a group of people who think that it's not worse, everything is fine,
06:55 and we are good as we are, we will be fine.
06:58 And I think probably those would be the ones coinciding with those who say that
07:02 they are upset and that they don't want the brands back.
07:07 But on the other hand, there is a sizable amount of people who are joking about the replacements,
07:13 who find it funny.
07:15 They are joking about the replacement of McDonald's, you can't replace it.
07:20 Some say Belarusian furniture is not Swedish furniture.
07:24 And it's that Swedish furniture that Russians say they're missing the most.
07:29 A survey suggests IKEA is the brand they're finding it hardest to live without.
07:35 The top three brands were IKEA, McDonald's and Zara,
07:41 so representing very different things, right?
07:44 Home decor, fast food and fast fashion.
07:48 And Russians are also revealing how much affection they have for these Western names
07:53 when they find themselves in countries that still have them.
07:57 Many parts of the world don't want to see Russians there.
08:00 So there's much less tourism going to European countries.
08:03 But, for example, in Turkey, Russians used to go there before the war.
08:08 It was one of the popular destinations for summer vacation.
08:11 And they do this now.
08:13 And only now I see something I've never seen before, when people go to their, you know,
08:17 some Turkish resort, and besides swimming in the ocean, swimming in the sea, they go to IKEA.
08:25 Or they take a selfie with a, you know, Starbucks coffee cup,
08:30 which, again, isn't a big deal maybe for us.
08:33 But once you don't have it, you realise that you miss this brand.
08:37 So they take pictures with a Starbucks behind them.
08:41 And it's that allegiance to these American and European brands
08:44 that the replacements are trying to capitalise on.
08:47 That's why their product offerings are so similar to the originals.
08:51 But the extent of the emulation does raise a question.
08:55 How are they getting away with it?
08:57 That's the question I put to Iris Gunter from the International Trademark Association.
09:02 These, let's say, imitating or imitator, imposter brands, whatever you want to call them,
09:07 have essentially used the fact that some of our well-known, famous marks and brands
09:13 have, for various well-known reasons, removed themselves for the time being from the Russian market.
09:20 So some of these new stores that have opened, restaurants,
09:24 some of the products that are being sold may well be infringing,
09:28 may well be considered to violate local trademark laws and also the local jurisprudence.
09:36 But it does take a plaintiff.
09:38 So basically, the Western brand's withdrawal from Russia
09:41 means that they're not around to defend their trademarks.
09:45 So does that mean that their intellectual property,
09:48 what makes McDonald's McDonald's or Starbucks Starbucks, is fair game?
09:54 Absolutely not. In my opinion, they're not fair game.
09:58 And I am sure that several of these large companies are considering their options,
10:04 taking action against these players, just like in any other market.
10:08 Bad faith actors take advantage of vacuums like the one that has presented itself
10:15 due to the political situation to advance to advance their own interests.
10:21 Let's take a look at the other aspect of the Western withdrawal that I wanted to talk about,
10:25 because not only have Western businesses been closing their outlets in Russia,
10:30 but they've been trying to prevent their products being sold there altogether by anyone.
10:36 But a look on the shelves of stores across Russia tells you that that hasn't gone to plan.
10:42 Sure, there are replacement brands here, too.
10:45 Cool Cola instead of Coca-Cola and Fancy instead of Fanta.
10:49 But you can also get the real thing.
10:52 When it comes to the comforts of life that Russians are very much used to
10:57 and the flow of high end luxury goods as well as standard consumer goods,
11:02 you can pretty much find everything that you want in Moscow.
11:05 It's perhaps a bit more expensive, but if you want a can of Coke
11:10 or if you want a brand new iPhone or if you want a pair of sneakers or even medicine,
11:16 it is available.
11:17 And the reason why it is so easily accessible is because there is demand
11:22 and supply is not complicated.
11:24 Ram Benzion is founder of Ultra, a company that helps agencies to keep an eye
11:29 on what goods are moving around the world.
11:32 The most common way to get consumer products into Russia is parallel imports.
11:40 Parallel imports are a way in which Western goods can easily find their way into Russia
11:46 simply because Russia allows certain products to cross into the country
11:50 without the trademark holders permission.
11:53 It's a very common trade practice.
11:55 That basically means I'm not sending my product directly to Moscow.
12:00 I will send my products to the distributor in Azerbaijan, Kyrgyzstan, Armenia, Georgia,
12:07 a wide range of neighboring countries that do not have the need or desire to enforce sanctions.
12:14 And from there on, it will be conveyed in trucks into Russia easily all the time.
12:21 The Kremlin maintains a list of the products that it will allow to be imported in this way.
12:26 And it's been adding to it since the Western backlash against its full-scale invasion of Ukraine.
12:32 And of course that list has now gotten a lot longer, a lot longer,
12:36 because the brands are not coming in or the products that people like and love and want to buy
12:42 are not coming in through the regular channels anymore.
12:45 So they've essentially just opened that list up to pretty much any product.
12:50 The list is allowing goods from all manner of European, American and Japanese brands
12:56 to be available in Russia, despite the brands no longer selling to Russian retailers.
13:01 So you will see if you are Coca-Cola or if you're Colgate,
13:06 you'll see a surge in demand of your representatives in neighboring countries,
13:13 whereas the goods end up in Moscow instead of Peterborough.
13:17 This of course means that Russians aren't getting the versions of those products intended for the Russian market.
13:23 Instead, they're getting versions from all over the world.
13:26 I can share with you actual footage of Polish, Danish and I think Kyrgyzstan Coca-Cola on a shelf,
13:36 lying one next to another.
13:38 So you would not be able to walk into the Nike store,
13:42 but if you want to get a pair of Nikes, you'll get them. It's all there.
13:46 Parallel imports are by no means the only way that Russians are managing to get hold of the Western products that they crave.
13:54 Another one is using a little something called the Internet.
13:58 There's no shortage of websites that are happy to link up importers of uncontrolled goods with eager Russian shoppers.
14:06 So you will go to Yandex, which is the very popular Russian website like Amazon,
14:11 and I welcome you to search for Coca-Cola, Colgate, iPhone, Nike, Adidas.
14:20 Everything is available. If you will allow me to share my screen.
14:24 Yeah. So obviously you see the different types of Coca-Cola's that you can buy.
14:28 But what is atypical, you see the little flag here?
14:32 Georgian flag. Right.
14:34 So in some cases, there's actually a specific indication.
14:38 OK, this is British Coca-Cola. Maybe it's more expensive.
14:41 So you can choose pretty much every product. It could be Coca-Cola or an iPhone, the brand new 14 or Colgate.
14:48 You'll get the results. And there's also a third way that Russians are getting hold of these items and one that cuts out the middleman.
14:56 They're sourcing these items from overseas themselves.
15:00 They have France, somewhere abroad, in any country, really.
15:03 I don't know, Kazakhstan, Armenia or United States or Germany.
15:08 They ask them to send things. I personally was asked to help buy clothing for children through H&M.
15:18 Again, a brand we're used to, not a big deal. Right.
15:21 I mean, once you don't have it, you notice it.
15:24 I know that some people are making kind of small businesses out of it.
15:30 So again, we have to ask, how is this able to happen?
15:34 And the answer is that Russian law allows it.
15:37 And that means the affected brands can't do an awful lot about it.
15:41 There's not much, in my opinion, or at least I don't know of much that these brands can do,
15:47 except to try to work with local authorities when the products are, let's say, faulty or really so different from the ones that are normally sold on the market
15:57 that you would consider them materially different and thereby try to stop them.
16:01 However, what I have heard is that working with the enforcement agencies on the ground, meaning customs and police,
16:09 that has become, from what I heard, a little difficult.
16:14 The Russian authorities appear to have decided to take a permissive stance and to allow the products that Russians want into the country,
16:22 perhaps as a way of maintaining levels of public support for the Kremlin's war in Ukraine.
16:27 But while that may seem like a smart move now, it may well backfire.
16:32 Why is this a problem in the long term?
16:36 When you enable an illegitimate, even criminal infrastructure to drive products into the country to serve a short term requirement,
16:50 it will remain there in the long term.
16:53 So these mechanisms that now have been trained and created to ship in goods uninspected into Russia will be there long after the war
17:06 and will continue to make money by bringing counterfeit goods, poor quality medicine.
17:12 At the end of the day, if you create something that is bypassing regulation, ultimately it will be there to stay.
17:21 This seems like a good point to start talking about the future.
17:25 First off, are these Western brands going to fight for the integrity of their products in a landscape that's become an imports free for all?
17:34 This is something that I'm sure these brands are putting a lot of thought into because obviously these are valuable assets.
17:41 But again, considering that the people are trying to get those products from everywhere,
17:45 these are brands that are well loved in the region and in the country.
17:49 So it's going to be interesting to see how this plays out from an IP perspective.
17:56 Everyone is holding their breath to see once, hopefully, this terrible war ends, how things will go back to normal and then what the next enforcement steps will be.
18:10 But here's something we haven't considered.
18:12 Should the burden of preventing these abuses of their products fall entirely on the companies themselves?
18:19 After all, the success of their exporters plays a crucial role in the success of Western economies.
18:26 It is our claim that the responsibility to enforce trade policies is with governments and not with the private sector.
18:35 And it is such governments who are willingly turning a blind eye to the flow of goods into sanctioned Russia.
18:45 These are the administrations that need to be accountable, be it neighbouring countries, be it online platforms.
18:53 The US government, the European Union can go and say, stop it.
18:59 And if we do allow ourselves to imagine a future where the Ukraine war is behind us and relations between Russia and the West have normalised, what happens then?
19:08 Will European and American brands rush to regain their positions in the Russian market?
19:14 And if so, will Russians welcome them back?
19:18 About one quarter says they are upset and they don't want them back.
19:21 Two thirds say they don't regret it at all.
19:25 But when you think about two thirds, you think, OK, that's the majority.
19:29 And yet in a sizeable market as Russian market is, even one third of those who say that they do regret is a lot.
19:37 That's all for this edition of Business Beyond. But if you've made it this far, we reckon you'll enjoy this episode, too.
19:43 We'll see you over there.
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