Resources and Suppliers

Characteristics

Current situation

Future trend

What are the most important resource markets used by this industry?

The most important resource market for every restaurant is the food market. The special feature of the high-end restaurants is that along with ordinary products they use many kinds of exclusive food, the local market for which is very narrow or even doesn’t exist at all, so the firms have to enter the global markets.

Another extremely important resource market is the market for drinks, especially alcoholic beverages.

Whatever interiors and other peculiarities the elite restaurants may offer, their dishes will definitely remain their main product, so they will always need food supplies. The basic products (for example, milk) that are produced locally will always be needed. The fashion can change, but there always will be exclusive products that can be produced only in specific regions of the world, so the overall situation is unlikely to change.

Are these markets concentrated? Who has more market power at these markets: buyers or sellers?

The markets are concentrated. Most restaurants use only a few main suppliers (the main are “Meridian” and “Global Foods” that offer bulk supplies for hotels, restaurants and cafes only, but there are some other competitors as well). The products range of all these suppliers although overlaps, but is not absolutely the same for all the firms. And some of the products are bought only abroad (for example, oysters, meat), the number of suppliers ready to work with Russian companies is not too big. There are though some examples of resource markets with very low concentration (the greengrocery is bought at the common city markets), but these do not play a significant role in restaurants resource expenses. The beverages market is also dominated by a very limited number of suppliers. So these are sellers who have market power.

The situation with exclusive food supplies probably won’t change. There could be probably more suppliers of basic products that would decrease concentration rate, but due to the specifics of the exclusive restaurants and rather average size of the market the probability for this is not too high.

Do firms in the industry purchase relatively small volumes relative to other customers of supplier? To sales of typical supplier?

The high-end restaurants all together serve much less clients than cafes, hotels and all the less exclusive restaurants, which are other customers of the same suppliers. Consequently, the volumes of supplies are lower. The international suppliers of exclusive products serve the restaurants worldwide. So even if St-Petersburg restaurants buy in the same amounts as other restaurants (which is not always so), they still constitute only a small part of typical supplier’s sales.

The number of high-end restaurants and their volumes will probably rise, but it is not mass market by definition, so the firms in the industry will remain minor customers, unless firms occur that will work specifically with exclusive restaurants. That is possible if the market grows rapidly.

Are there substitutes for these resources?

For many products there are no direct substitutes: on the one hand, milk from Finland or beef from New Zealand can be substituted by cheaper local food, but on the other hand lower quality of these products can negatively affect the restaurant’s reputation, which is very important for this particular segment.

The positive changes in Russian food industry can increase local products’ taste and quality, but another important factor is prestige: while it is more prestigious in the society to consume foreign products, the possibility for substitution will remain low.

Credible threat of forward integration

The business of supplying products and of cooking and serving them in the restaurant are too different. There is no credible threat of forward integration.

Nothing will change: the suppliers will always need to make significant investments if they want to integrate forward, but this won’t bring them any economies. So no trend towards integration.

Are suppliers able to price discriminate?

Prices with all the restaurants are discussed individually and often are not observable to the competitors. So different prices to different customers may be offered.

Like many other b2b industries food supplies do not seek more transparency, so price discrimination will remain possible in the future.