If there's one thing that symbolizes the social and economic transformation of the former Eastern Bloc, it's the coffee shop. Fast-growing economies, rising incomes, and changing lifestyles mean that networks of coffee shops are now becoming as much a part of the culture in Moscow, Kiev, or Riga as they are in New York or London. It's a trend that has meant runaway success for Double Coffee—the Baltic states' answer to Starbucks (SBUX).
Founded in Riga in 2002 by Latvian entrepreneurs Sergei Pushnoy and Nick Ustinov, Double Coffee has taken the three Baltic republics of Latvia, Lithuania, and Estonia by storm. With 45 outlets, it's already the region's largest coffee chain. Last year, the company's Latvian business, with 500 employees, churned out revenues of 4.7 million euros ($5.9 million). The group's overall sales were 9.5 million euros ($12 million) last year, which is expected to rise to 15.8 million euros ($20 million) in 2006.
Its rapid growth testifies to the huge gap in the market that previously existed for midrange cafés catering to everyone from students to businessmen. As well as 50 different types of coffee, the cafés also serve cakes, cocktails, breakfast, and snacks. "The main idea is that we aren't just selling coffee, we're selling the atmosphere," says Ustinov. "What we can offer is better quality. Because we're very big, we can put a lot of money into quality control and service," he adds, explaining why Double Coffee has proved such a hit.
BAPTISM BY FIRE
Pushnoy came up with the idea after living for eight years in Moscow, where Starbucks-style chains have become a major phenomenon in recent years, first appearing there in the mid-'90s. As marketing manager of a Moscow cinema, Pushnoy was surprised at how much money the cinema's cafés made—more even than its bar and restaurant.
That revelation gave him the idea of trying out the coffee-shop idea back in his native Latvia. He teamed up with Ustinov, a friend since his teens. Pushnoy's years in Moscow, including a stint in the metals trade, gave the budding entrepreneur a baptism by fire in the harsh world of Russian business. His partner, a graduate of the Stockholm School of Economics then working in the IT industry, brought experience of Western business culture to the company.
It proved to be a successful combination. Originally, the two friends planned to establish a chain of just five or six cafés only in Riga, with a total investment of around $300,000. But the business just kept growing. It proved so popular that within a year, Double Coffee expanded into neighboring Lithuania, entering Estonia in 2004, and Ukraine in 2005.
And the growth won't stop there. Now it's planning to add another 50 outlets over the next two years, mostly in Ukraine—a huge new market where the café culture has only recently begun to take off. It's also negotiating with partners in Poland and the Czech Republic, with a view to launching the Double Coffee brand through master franchise agreements. "Mostly we're looking not at Old Europe but at New Europe, because Old Europe is full of restaurants and it will be much harder to compete there," says Ustinov.