The Finn who brought pizza to the east

By Vesa Kaartinen
     
      When businessman Pekka Rahunen died of a sudden illness in a private dining room at the Daddy’s Steak Room restaurant in St. Petersburg, there were rumours that a contract killing may have been involved.
      This is no wonder. It was November 1995, and in less than ten years Rahunen had built a business empire in Russia - the new Wild East.
      The autopsy confirmed sudden illness as the cause of death. Still, in death he became an almost mythical figure. In obituaries Rahunen was called a pioneer of the new trade with the east - a man who had brought pizza and bananas to the Soviet Union.
     
In the autumn of 1988 Rahunen received an unexpected phone call. Two young Finnish businessmen, Ronnie Neva-aho and Alain Brade, offered a pizzeria project for Leningrad. At this point, there was not a single pizza restaurant in the massive Soviet Union.
      While they were still in school, the men, now in their 20s, had established Pizza Express, which was the first pizza delivery service in Finland. Now they were interested in markets east of the border.
      “We had heard stories about Pekka Rahunen, who was busy on the Soviet market. He was said to have contacts and cultural knowledge, and could also speak some Russian”, Neva-aho recalls.
     
A law had taken effect in the Soviet Union allowing for the establishment of joint ventures between foreign and Soviet companies. Rahunen encouraged his old business partner, the Leto sovkhoz to join the pizzeria business. In the 1980s Rahunen had imported seedlings of trees and bushes from the sovkhoz to Finland.
      To secure the holding, Leto had 170 hectares of farmland of the sovkhoz. The premises for the pizzeria were arranged by the “restaurant group of the Leningrad executive committee of the societal nutrition administration of the Leningrad district”.
     
The first pizzeria in the Soviet Union was opened in 1989 in the centre of Leningrad. The business idea had been copied from Finland. Western cars with red Pizza Express logos drove around town delivering pizzas.
      Rahunen was the number-two man in his company, because the Soviet law on joint ventures required that a majority of the share capital and the post of CEO had to be in the hands of the Soviets. However, he had bargained considerable authority for the Finns. In practice they dominated the company.
      Rahunen was a good talker. He managed to negotiate exclusive rights for Pizza Express to sell pizza in the entire Soviet Union for five years. The pizza could only be bought with Western currency, which means that the clientele was initially limited. The most loyal customers were the 600 Finnish construction workers who were building the Astoria Hotel. They liked pizza and Lapin Kulta, the first imported beer in the Soviet Union.
     
Pizza was a lucrative business in the Soviet Union. In the first three years of operation, the joint venture did not need to pay taxes or import duties. Overheads were low: wages, rent, electricity, and local raw materials cost only a fraction of the Finnish equivalent. The price of one pizza could cover the electricity bill for an entire month, and selling two pizzas brought in the monthly wages of a cleaner.
      “The profit margin was incredibly good. It would be impossible to imagine under normal conditions”, Neva-aho recalls.
     
Even better things were to come. In the spirit of perestroika, the Duma eased rules on possessing Western currency. Russians started buying soft drinks by the caseload from the back door of the pizzeria - especially Coca-Cola.
      There were so many customers that Rahunen set up the first supermarket in Leningrad. The first Express Market had only about 40 square metres of floor space, but it was located in the Movskoskij Prospekt, a prime location.
     
A food shortage hit the Soviet Union in the early 1990s. When edible goods appeared on the shelves of traditional shops, they could only be bought using ration coupons issued by the state, and the sales clerk handed the goods to the buyer.
      There was no shortage of goods in the Rahunen shop, and customers were allowed to touch them. Payment was with any Western currency, which many Russians had in spite of the economic crisis. The exchange rates were seen on the wall. There were so many banknotes of small denominations that the local banking system was no longer able to handle the money transfers to Finnish banks.
      The only way to ensure goods deliveries of the partners was to pack the money into trash bags, and give the sacks to lorry-drivers to take to Finland. More than ten million markka in various currencies were taken over the border in a couple of months.
     
The Soviet Union was collapsing, but Rahunen was not worried.
      He was in Finland when rumours began circulating that the borders would close. He wanted to make sure that he would be on the right side of the border if this happened, and immediately took off for Leningrad.
      When the Soviet Union was turned into the Commonwealth of Independent States, and when Leningrad was given back the old name St. Petersburg, Pizza Express already had two supermarkets in the city.
      The deeper that Finland went into recession, the better Rahunen’s business was flourishing.
     
The rouble became a convertible currency in the summer of 1992. The move increased Rahunen’s potential clientele more than 1,000 times over.
      In the same year, when the red flags of the Soviet Union flew for the last time to mark the anniversary of the October Revolution, Rahunen and his partners made it into the national news. Tens of millions of viewers saw how people were crowding to get into Leningrad’s new Spar Market, with 700 square metres of floor space.
      The joint venture had become part of the international Spar chain. The name was now Peter Spar, and a new shareholder was the Hallman family from Kuopio.
     
Peter Spar began to expand its operations. It leased 700 square metres of premises for the Home Center appliance and interiors store.
      Soon after that, it rented another 700 square metres to set up a sporting goods store together with Urheilu Koskimies from Lappeenranta.
      Soon another grocery store was set up, and for a while, Peter Spar was the main supplier of Western foods in St. Petersburg.
      Along with Metro-Auto, Rahunen set up a car dealership. He promoted ice cream sales of the Finnish dairy products manufacturer Valio by offering customers freezers for storing ice cream.
      At the same time, Rahunen kept his finger on the pulse of everyday business dealings.
      “It was not exceptional at all for Peter to have about 20 cases of Lapin Kulta beer in the back of his car, which he would deliver to customers after a meeting”, Neva-aho recalls.
     
In the new Russia, like the Soviet Union, it was important to have personal connections with the powerful.
      Rahunen was connected. St. Petersburg Mayor Anatoli Sobchak and his wife sometimes stopped over at Rahunen’s office for coffee. President Mikhail Gorbachev would be seen talking to Rahunen at the Afrodite Restaurant.
      His charm even won over the Tambov mafia, one of the most influential crime syndicates of Northwestern Russia.
      “If a company did business in cash or exercises some other type of visible activities, it had no possibility to operate without an agreement with a protection racket of some kind, as there was no official security organisation”, says Jukka Svahn, who delivered goods to several shops and restaurants in St. Petersburg.
     
New entrepreneurs were usually allowed to start their businesses in peace. Only when business started working would a mafia “torpedo” walk in and demand to take the place under its protection.
      Rahunen was a practical businessman, and he saw the protection racket as being equivalent to Western security companies and insurance companies.
      Finns who operated with him at the same time said that he spoke of the mafia as a local “sports club” and he became a drinking partner of a big boss in the early phases of the business.
      When agreement was reached on the conditions of the protection contract, the company got an official bill, which was tax-deductible.
     
The Peter Spar chain continued to grow.
      In 1993 it opened a 6,000-square metre logistics centre in Pushkin near St. Petersburg. Half of the premises was a storage terminal, and the other half got the country’s first cash-and-carry wholesale outlet.
      This was of interest especially to Russian restaurants, kiosks, and other new businesses, which operated with little working capital.
      The company’s four lorries and a number of subcontracted hauliers brought goods from Finland night and day.
      The border did not have lorry queues many kilometres long at that time, which meant that a lorry could go to Finland and back in two days.
      Tapani Niiniaro, who was the sales chief at the time, is amazed how quickly news spread of a Western wholesale store, and how far the news went.
      On the opening day, two women appeared at the door wearing woollen caps. They said that they had come from the other side of the Urals. Niiniaro tried to politely explain to them that the place was not a retail store.
      “The ladies flashed a cheque for 640,000 markka and said that they wanted to buy new year’s gifts appropriate for children. This country boy almost went nuts. It took three days to complete the deal, because we didn’t have enough things in stock at first, but then they drove away in the freezing weather in open bed lorries, with just a tarpaulin protecting the goods”, Niiniaro recalls.
     
In just a couple of years, the first pizzeria in the Soviet Union had grown into a chain of retail and wholesale outlets for perishable and durable goods, with 60 Finns and 600 Russians on the payroll.
      The annual turnover was more than 200 million markka, the equivalent of nearly EUR 50 million, after adjustments are made for inflation.
      Competition for customers became more fierce. New competitors brought price levels down. Entering the market was the Finnish company Tradeka with its Renlund hardware stores and Siwa grocery stores; then there was the retail giant Stockmann, and the meat packer Itikka-Lihapolar.
      Russian officials were efficient at eating away at the profit margins. New tax laws were being passed constantly, and some of them took effect retroactively.
     
One retroactive law nearly toppled Rahunen’s business.
      A new interpretation found that the export of currency in trash bags from a year back was seen as illegal, and Rahunen’s company was ordered to pay a fine of ten million markka.
      As it was Russia, fines and other fees were negotiable. After more than a year of bargaining and negotiations, Rahunen and his partners managed to have the fine reduced to a tenth of the original sum. Nevertheless, he started growing tired of Russia.
      “Pekka was clearly tired of the constant brouhaha. He started to spend more weekends relaxing at his cottage on Lake Saimaa”, says his long-time friend Unto Kuusenkari.
     
In September 1995 Rahunen sold his majority holding in the large corporate chain to the Russian and American investment company Stonebell Investments.
      The sales price was a good one, and Rahunen eased his pace of work.
      He lost weight, and cut back on his drinking.
      Unfortunately, by then it was too late.
     
     
Helsingin Sanomat / First published in print 29.8.2010


Previously in HS International Edition:
  East Office, set up by Finnish industrial companies, starts handling trade with Russia (17.6.2010)
  Finnish companies more interested in investing in Russia (12.5.2004)

Links:
  The Finnish-Russian Chamber of Commerce