Background:

Sushi-bar was one of the most profitable businesses in the fast food industry as its opening
demanded the minimum starting investments, being comparable only with coffee (the price of
opening one coffee house was about US$70,000). As a rule, the organization of fast food
restaurant requires a total area of 50200 m2, with the average volume of investments being
$9001500 per m2 a year. The monthly profit of one average restaurant/bar is around $10,000.

In late 2002, Yevgeny Kadomsky and Mikhail Tevelev, decided on opening a restaurant with an
original style that offered Japanese cuisine. Their new approach would attempt to leave behind
all traditional stereotypes of Japanese restaurants. Dve Palochki (Two Sticks) was founded in St.
Petersburg in 2003. By 2008, twelve restaurants were opened under the brand in both the
historical center and new residential areas of the city. Every day Two Sticks restaurants served
over four thousand guests, with an average bill of 450 rubles ($15). Their appeal was different
from their competitors because they offered an unusual atmosphere and original advertising
campaign. In 2008, the company announced ambitious plans to open three hundred restaurants in
Russias biggest cities and expand abroad within five years. Some of them were located in the
city center, while others were farther uptown on busy prospects. In 2008, the chain served an
estimated 150,000 visitors a month, with a total turnover of $30 million.

A restaurants atmosphere which made Two Sticks different from other restaurants was well
known to be created by its personnel and characteristics. This is why the company management
paid enormous attention to recruitment. Employees were encouraged to build strong relationships
with each other.

Another direction of the campaign was the development of a uniform for the waiters and
waitresses. When the uniform campaign started, the marketing department decided to avoid
dullness and monotony, but keep a unified corporate style. The uniform had to be identical but
individual

Problems:

In the middle of the first decade of the 21st century, the food service industry was growing by
2030% a year in Russia. New restaurants in the big cities were hard to open: rent had increased
significantly, causing restaurants to become unprofitable.

The chains marketing director, Yakov Pak, understood that maintaining the same level of
service quality was imperative during the expansion. However, the challenge was to offer the
same unique atmosphere in each and every restaurant.

When discussing the problem of differentiation in the market, Yakov Pak said, Russian people
still see no difference between sushi bars and Japanese cuisine restaurants. While the quality of
sushi and rolls in all the Japanese cuisine chains was almost equal, a key to success in the market
was ingenuity.

Although food and service standards in Japanese cuisine restaurants were leveling out and were
expected to become fully equal by 201214, in 2008 the quality of food and service was not the
same in different restaurants. However, Russians were not as sophisticated as Americans or
Europeans and often chose lower prices over quality of service.
The company also investigated countries neighboring Russia. The first restaurant abroad was to
be in Kyiv, Ukraine. The executives started negotiations to rent three premises in the Ukrainian
capital. They were to be financed by reinvesting the companys own money and taking external
loans.
Simultaneously, the company started planning its expansion to Sweden. Having visited
Stockholm, the executives initiated a project to enter the Swedish market through a series of
meetings with Swedish business people on possible cooperation, real estate agents to find
appropriate premises, and recruitment agencies and law firms to support the operations in
Sweden. However, having thoroughly studied the perspectives in the Ukrainian and Swedish
markets, the company decided against both. Unlike Europe, Ukraine could not provide a valuable
international experience. In Sweden, the major drawbacks were very high investment costs and
little interest in Japanese cuisine.

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