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Pizza Hut Says 'Nyet' To Moscow

When food supplies dwindled during the 1991 coup attempt, Russian President Boris Yeltsin called Pizza Hut delivery, according to Pizza Hut's Web site.

However, if the current crisis deteriorates that far again, the president will have to consider McDonald's (MCD) instead, because Tricon Global Restaurants (YUM) is pulling out of its Pizza Hut joint venture in Moscow, which operates two of the chain's busiest restaurants.

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Tricon Global Restaurants (YUM)
Pizza Hut, formerly owned by Pepsi Co. (PEP) before being spun off as part of a recent restructuring process, was one of the first foreign-owned restaurants to open shop in communist Russia, thanks to its parent company's connections with the Soviet government. Pepsi had secured the rights to export and sell Russian vodka in the United States in exchange for the Soviets pocketing the revenues from selling Pepsi within their country.

Even with the break-up of the Soviet Union and its split from Pepsi, Pizza Hut retained a strong commitment in Russia. It even had former Soviet President Mikhail Gorbachev hawking its wares in TV ads.

Retail and restaurant analysts said the pizza chain, which rang up worldwide 1997 sales of $4.7 billion, decided to quit its joint venture after 10 years because of its partnership arrangement, not because of the country's financial crisis. "I think the reasons for that [withdrawal] are not on the surface," said Galina Ryltsova, a hotel and restaurant business expert at Arthur Andersen in Moscow.

Pizza Hut officials reached in the United States said the decision to pull out of Moscow was a planned one, but would not go into further detail. "We no longer have leases and therefore we closed the restaurants. That is all we have to say about it," said Jonathan Blum, senior vice president of Tricon Global Restaurants, which owns and manages Pizza Hut, KFC and Taco Bell. Blum is based in Louisville, Ky.

"We took a write-off in the fourth quarter of last year and closed down certain restaurants and refocused our international growth in a select number of high-growth ptential markets across the globe," he added.

An executive from another Moscow fast-food company who did not want to be identified said the U.S. company had tried to renegotiate terms with the Russian partner, but were totally unsuccessful. "They [the Russians] were more than uncooperative," the source said. "The reality of the business climate is that you have to live with a Russian partner. If not, they'll have you run out of town, or you better leave yourself."

The company's Russian joint venture partner, Mosrestoranservis, holds a 51 percent stake in the venture. Sergei Borovikov, general director at Mosrestoranservis, said the Americans had decided last November to stop operating in Moscow. He said there was "no ill will" between the two sides.

Tricon's decision to leave Moscow does not affect the two Pizza Hut restaurants in St. Petersburg, which are franchises rather than joint ventures. The restaurants are run by the New Jersey-based Business Development International Inc.

Written By Margaret Coker, CBS MarketWatch Moscow correspondent

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