Russian Hopes to Urn His Stripes with His Own Brand of Java

Jewish businessman Ilya Yakubson figures he can cream Starbucks or any of the coffee ventures springing up in Russia.

Yakubson, who ran 113 discount stores and casinos before quitting unexpectedly and selling out to his partners, opened his first Santa Bean this summer in his native Oryol.

Situated in a downtown pedestrian mall on a site formerly occupied by one of Yakubson’s gambling halls, it was the central Russian city’s first coffeehouse. Yakubson since has opened two more Santa Beans in Oryol.

“I was tired of the boring food retail business,” Yakubson, 35, says of his career change. “In the region’s coffee market I am a pioneer. For me this is about self-actualization rather than money.”

Western-style coffee consumption, unheard of in Russia until the mid-1990s, has become increasingly fashionable in the larger cities, where three major chains compete fiercely for business.

In Moscow and St. Petersburg, the dark brown logo of Kofe-House, the creamy logo of Chokoladnitsa and the coal black logo of Coffee Bean are even more prevalent than the golden arches of McDonald’s. In both cities there is hardly a street without a coffee shop.

That was not true in Oryol. Before Yakubson opened Santa Bean, those few who dared to order coffee to go in the local canteens were looked upon as odd. Drinking coffee outdoors was considered bad manners, though drinking beer on the run was not.

Yakubson, who wants to expand quickly, says he ended up with enough cash after the sale of his convenience stores and casinos to fund 15 coffee shops in several regional capitals. The first outlet cost him $250,000.

The only Starbucks outlet in Russia opened this August in a mega-mart in the Moscow suburb Khmiki.

Yakubson entered Russia’s business world several yeas ago as part owner of the Pallada chain of budget food stores and the Niagara gambling houses in Oryol, a sleepy regional capital of 370,000 residents 225 miles south of Moscow.

Once known as Russia’s “literature capital,” the home of famous writers including Tolstoy and Turgenev, Oryol today is part of the so-called “Red Belt,” an impoverished region of central Russia where the old Communist Party bosses still hold power and fly red flags over Town Hall alongside the official Russian tri-color.

Little has changed in Oryol since Soviet times — perhaps even since Tolstoy’s.

Yakubson is confident he can compete with the big boys. His prices are lower: A mug of Santa Bean coffee costs 35 rubles, or $1.40, while a Starbucks’ Vento cup in Russia goes for 135 rubles, or $5.50. That’s steep for the average Oryol resident: a hundredth of his monthly wage.

Santa Bean is turning a profit, its finance director says.

“In spite of such a low per-cup price tag, the daily net profit of one Santa Bean outlet amounts to $1,000,” Julia Shtelter says.

Yakubson plans to open five more outlets by the end of the year in Oryol, Kursk and Belgorod, central Russian cities where he once had his discount stores.

A glance at Santa Bean’s logo makes it clear whom Yakubson sees as his main competitor, if not his inspiration. Its green-and-white circle logo and typeface is quite reminiscent of the Starbucks Mermaid logo. For that, Yaubson could face legal trouble.

Starbucks’ global communications manager, Carol Pusik, told Moscow’s Vedomosti business daily that “the company may consider filing a lawsuit” against Santa Bean for misleading customers with its logo.

Yakubson doesn’t deny that he and his wife, Natalia, learned a lot from the Seattle giant, but they are not afraid of being sued by Starbucks for trademark infringement.

“Well, it’s true, we kind of imitate Starbucks, and I even employ a former Starbucks barista,” Yakubson acknowledges.

He adds, however, that it was his son who invented the Santa Bean name and logo.

“At the end of the day, our chain in Russia is larger than that of Starbucks — we’ve got three outlets in the country while they have only one,” says Yakubson, who recently expedited a shipment of humanitarian aid from the Oryol Jewish Community Center to Rostov-on-Don.

Although there is enough room for new coffeehouses in Russia — Jerry Ruditser, head of the Coffee Bean chain, estimates the country’s taste for coffee could top $1 billion a year — the smaller towns cannot provide enough business to attract a world-scale player.

“It is not too hard to compete with Starbucks in the Russian provinces,” Ruditser says. “Russians are not accustomed to the take-out format. Local chains, like that in Oryol, simply pave the way for the giants to come later.”

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