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To Russia, with coffee beans.

Coffee roasters who are eyeing the new Russia as a potential market can learn a few lessons from R.C. Beall, president of Montana Coffee Traders in Whitefish, Montana, and his Russian associates. Today, the aroma of Montana Coffee Traders-Vostok freshly roasted beans wafts through the Tagansky Market in Moscow. But the hurdles overcome by Beall and crew over the last year to accomplish this would have daunted many American business people.

It all started four years ago, when Beall met Sasha Malchik, a native of St. Petersburg, Russia, who offered consulting services to entrepreneurs seeking to do business in his country.

"Sasha got hooked on our coffee while here in the Flathead Valley," says Beall. "Whenever traveling from the U.S. to Russia, he would fill a suitcase with fresh coffee. The smell of the coffee would permeate the area, and people would follow their noses. After three years of carrying back increasingly larger suitcases of coffee, we said, |Let's roast coffee in Moscow.' The basic premise was, in a city of 10 million people, surely a small percentage can afford to buy good coffee."

The Russians had been getting coffee from India or other nations where the commodity was used for bartering. The coffees were traditionally the lowest-grade Robustas that were roasted in the supplying countries and shipped in stale. Russians also drank instant coffee and inferior teas.

"We set up Montana Coffee Traders-Vostok a year ago February to be totally self sufficient from us," Beall explains. "Six Russians ranging from 20 - to 35- years old run the business, with MCT-Whitefish overseeing by faxing and telephoning weekly.

Our premise was to educate this small group of entrepreneurs, give them the tools and knowledge to be independent. Among their peers, they are famous. They have done something that very few people in all of Russia have done -set up and manage a free enterprise business."

MCT-Vostok has developed a niche in specialty supermarkets and m the high-priced hospitality industry as a wholesale supplier of specialty 100% Arabica from all the basic growing regions, offering light roasts, dark roasts, and a variety of flavored coffee choices. But the company's success has come with a price. Amidst the free market opportunities, the political and social climate is wreaking havoc

Banking. -Its a disaster to try to get any kind of hard currency out of that country," says Beall. The most dffficult part of this whole project had been dealing with a banking system where, instead of electronic banking, they are possibly still using simple adding machines, pulling the lever down, going 'click, click' and still writing transactions by hand. A bank transfer takes six weeks to three months. They try to tax every bit of money, so you must pay $5,000 to have a hard currency account. We're having to buy and sell hard currencies from the hard currency stores, and the Russian economy is not up to a world hard currency trading level."

Mafia: "MCT-Vostok pays the Russian mafia monthly. They control distribution, taxis, street comer businesses, wheeling and dealing. They are the free market enterprise. They are pretty nice guys as long as you get along with them." Beall jokes, We're trying to get them hooked on the coffee so we'll have a little leverage."

Location: Selecting a roasting site in Moscow proved to be an adventure. "We did a little research and found ourselves a location in a historical marketplace. We got a 700-sq. ft. space tucked away at the back of the store on the second floor. To get there, you must walk through dimly fit corridors with smells that must be 100 years old, smells you can't identify with, through three locked gates, and past the employees' cafeteria. Not very public, not very visible. Security seemed to be a big factor in our decision to set up here."

Office equipment: "It was technology withdrawal. There wasn't a copying machines around. Access to computers and paper supplies were difficult to come by. If you did find them, they were very expensive and inferior in quality. It was nine months before MCT-Vostok got a telephone, and even then, it cost $3,000."

Suppliers: "Men they hear we are doing business in Russia, all of our suppliers are demanding payment before they even put anything in the truck," says Beall. For example, the Belgian broker supplying the green coffee demands hard currency. Montana Coffee Traders' Whitefish functions as a supplier to the Vostok business for items such as packaging and printing because they are unavailable in Russia.

Inflation: "The ruble on the black market was 40 rubles to a dollar, now it is 720 rubles to a dollar. The inflation is incredible," Beall says. "The government is saying that for every dollar you receive in hard currency, they want 30% changed back into rubles. They are taking the hard currency away. Every two weeks, they give you a different list of tax requirements to register."

Transportation: The six Moscow entrepreneurs don't own a car. They use mass transit to make deliveries.

Contacts: "Sasha Malchik is the MCT-Vostok connection. He is our fixer. He negotiates with the government."

Communication: "The language is so difficult to deal with."

Business practices: The Russian entrepreneurs had no experience with capitalism, so they lacked business skills. "They were used to being subsidized, but with the loss of that system, MCT-Whitefish made them stand on their own feet and figure out ways to deal with the difficult Russian economic structure."

"Where could I find a harder place to do business? How about the East Coast of the United States," says Beall. But he adds, "It is up to the Russians now to get their act together. If the new free enterprise system falls apart, I don't have any control. For MCT-Vostok, we will have to figure out how to keep these guys supplied on an international level with green coffees' They are now part of the infrastructure since they are a Russian business. Whatever happens to Russia is part of their destiny.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Friedman, Susan
Publication:Tea & Coffee Trade Journal
Date:Apr 1, 1993
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