Doing Business : Perestroika Pioneer Makes ‘Beeg Meks’ Work in Moscow : After years of planning a Soviet McDonald’s, George Cohon basks in its success, defying skeptics who predicted failure.

They said George Cohon couldn’t do it. They said it at every step along the way.

Back in 1976, when the ebullient president of McDonald’s Restaurants of Canada first broached the notion of opening a branch in the Soviet Union, the skeptics said he could never cut a deal with the grim authorities in Moscow.

When years of negotiations and bucking the bureaucracy finally yielded an agreement in 1985, people warned that he would never be able to meet McDonald’s quality standards in a country where shoddiness rules.

“Well, how’re we doing?” Cohon asked last week, waving a defiant hand at the crowds of hungry Muscovites toting their well-laden trays of “Beeg Meks” to spanking clean tables in a shining tile-and-plastic haven redolent of that uniquely McDonald’s frying aroma.

“Even the bathrooms are clean,” said a pleased Moscow grandmother waiting in the half-hour line outside with a 5-year-old in red hair ribbons.

The skeptics also said Cohon could never train the staff, raised on Soviet surliness, to offer brisk service with a smile.

Cohon’s answer to that: “Who wins the Olympics?”--a suggestion that young Soviets in particular can, with proper training, do almost anything they set their minds to do. His largely teen-age staff members, decked in McDonald’s maroon, cheer wildly every morning as the doors open at 10, then gesture customers over to the line of 27 cash registers.

Then, the skeptics said Cohon would never be able to get reliable supplies of the staples that go into McDonald’s food.

The company channeled much of its original $50-million investment into building a massive food processing plant, imported more than $700,000 worth of potato, lettuce and cucumber seeds and contracted carefully chosen farmers. It has now served an estimated 20 million meals. True, the fish fillet had to be pulled off the menu when a barter deal fell through, and prices have more than doubled. But the burgers and fries have remained plentiful.

And finally, when the restaurant on Pushkin Square opened in January, 1990, media wags told Cohon that although the place might be fine at the start, it would inevitably deteriorate--if he could keep it running it all.

“But I said, ‘See you a year from now. See you two years from now--come on back in whenever you want,’ ” Cohon, 54, recalled.

More than 18 months later, the biggest McDonald’s in the world is still steaming along, a testament to Cohon’s perseverance. It is also a model for Soviet officials to hold up as proof to Western business leaders that if they are willing to invest for the long term and to work hard, they can build businesses that will both serve the public and line their pockets.

Soviet President Mikhail S. Gorbachev has called Cohon a “pioneer of perestroika “ and pledged to help him expand. And Cohon, in a meeting with the Soviet president last month, denounced Western “pirates” looking for a quick buck in the Soviet Union.

In a country where customs duties on some items can suddenly jump 500% overnight, where taxes yo-yo, the gross national product drops at an annual rate of 10% and no one quite understands which financial rules apply where, McDonald’s is salting away millions in profits.

True, the millions McDonald’s is raking in are rubles--that pesky currency that cannot be exchanged on world currency markets and that has recently plummeted in value here from six to the dollar at the tourist rate to 32 to the dollar.

Yes, Cohon acknowledged, that is the skeptics’ latest line--that he will never be able to do anything with the “tens of millions” of rubles the restaurant earns.

“So I say--who’s imposing that question on me?” he asked. “I mean, what’s to say that we want to repatriate profits right now? (Skeptics say) ‘We’re not going to do anything?’ Well, we’re building a 12-story office building. That’s not doing anything? There are ships pulling out right now with products that are being sold for hard currency that we bought for rubles.”

Cohon declined to go into details about the special barter arrangements that he has been able to make with the Soviet government. But if the deal is typical of many joint ventures, he is selling Soviet products--perhaps metals and other raw materials--to help cover the cost of items from cups to restaurant equipment that the company must still import.

In any case, the big payoff in dollars is not expected until later, as McDonald’s expands its chain of restaurants in Moscow and moves into real estate.

That 12-story office building, for example, is scheduled to be built largely for rubles just off Tverskaya Street, a central thoroughfare, by the end of 1992--and to provide welcome injections of hard currency from rents paid by foreign tenants.

Some of the new restaurants McDonald’s plans to open will sell burgers and fries for hard currency as well, and the food plant has also begun selling some of its surplus iceberg lettuce and buns for dollars.

Cohon insists repeatedly, though, that quick dollars are not the point. “We’re glad we’ve got a mountain of rubles,” he said in an interview.

(Although McDonald’s does not disclose the revenue of the Moscow franchise, it does claim to serve about 50,000 customers a day in the Soviet capital. If each spends 10 rubles--about the cost of one “Beeg Mek”--the outlet would take in half a million rubles a day, or about $16,000 at the current tourist exchange rate.)

Of course, even if Cohon were unhappy about his ruble empire, his listeners would probably never know it. He and his staff exude such enthusiasm and burger-fueled zeal for the endeavor that they can seem almost like cult members.

They tend to gloss over the problems they have encountered, dismissing certain “supply problems” that have arisen and declining to get into details about the three or four new restaurants in the works--modest results compared to the 20 that Cohon promised would soon be launched when the flagship restaurant opened.

According to Mikhail Berger, an economics columnist for the government daily, Izvestia, Cohon has discovered the key to making rubles work: the right partners.

McDonald’s joint-venture partners are the Moscow city catering officials. And it is the city administration which controls the vast majority of commercial property in Moscow. Under the circumstances, it’s no wonder McDonald’s gets the best sites, Berger said.

“It’s a sort of half-corruption, half-market arrangement,” Berger commented, noting that for a firm to have city officials as partners would be considered a conflict of interest elsewhere. “But for such a firm here, there’s a point to earning rubles because they will always be able to invest them.”

“It will all come out in the end,” he added. “Cohon is occupying ground on a market that, sooner or later, will inevitably become highly interesting.”

Meanwhile, Cohon seems content with a cautious pace. “We’ve got to crawl, then walk, then run,” he’s fond of saying.

Cohon splashed into the headlines last month when Soviet and Western media reported that he had agreed with Soviet Chief of Staff Mikhail Moiseyev to start deploying McDonald’s posts on Soviet bases. Cohon denounced the reports as exaggerated; he and Moiseyev merely had a casual conversation on the subject, he said, and nothing is in the works--yet.

Requests for McDonald’s branches have come in from virtually all 15 Soviet republics and most major cities, said Marina Tulupnikova of the main McDonald’s office here.

Hundreds of visitors from Soviet food-processing and catering institutes have visited the McDonald’s plant--nicknamed “McGulag” for its heavy security--and the company has gained growing acceptance by raising more than $1.5 million for Soviet charities.

McDonald’s appears to have replaced Lenin’s Mausoleum as Moscow’s main attraction, Berger commented: “You tell someone you were in Moscow and they say, ‘Oh, did you go to McDonald’s?’ ”

“This is like some different world in here,” management trainee Marina Mikayelian said, looking around at the model Eiffel Tower and wall murals depicting various corners of the globe. “We not only feed people but make them happier.”

The young employees are incessantly mopping the floors and wiping the tables, and the toilets are a true luxury--Western models. Soviet customers routinely take away their disposable cups to reuse, and McDonald’s staffers pick up litter in the entire area surrounding the restaurant, including the tunnel to the nearby subway.

McDonald’s provides several other totally new experiences for Soviet diners: high chairs and baby seats, wheelchair-accessible bathrooms and staffers who stand at the door--not to keep people out as in so many Soviet restaurants, but to politely say hello and goodby to everyone who passes through.

Some of the Western ambience even seems to affect customers’ manners as they forsake their street rudeness and maneuver politely from the Europe area near the door out to the China room or up a winding staircase to the America section with its Mississippi riverboat decor.

Even Gorbachev’s daughter and granddaughter reportedly visited the 700-seat restaurant.

“That’s it, ‘Beeg Mek,’ that is what they liked,” the president said when Cohon handed him a card for a complimentary Big Mac, according to Cohon.

Cohon has done some impressive calculations. The United States has a population of about 240 million and now supports 8,500 McDonald’s restaurants. The Soviet Union has a population of 290 million.

“The potential is for thousands and thousands and thousands,” he said.

But for now, he added: “My vision is to look outside the window and see how long the line is and be sure we’ve got food in the bin and be sure the crew kids say, ‘Thank you, please come back again’--and to keep opening restaurants.”

Cohon takes obvious enjoyment in personally defying the gloom and doom of academic economists who see the Soviet Union as barren ground for investment.

“If I would have listened to you,” he recalls telling an august academic panel, “you’d have told me all the reasons why we can’t serve 50,000 people a day. Well, let me tell you, we’re doing it.”

Moscow McDonald’s by the Numbers 20: Millions of Soviet customers served in first 18 months 40,000-50,000: Average number of customers a day. 45: Average wait in line, in minutes. 30: Approximate price of a Big Mac, in cents, according to the current tourist exchange rate. Equivalent to about four times the average Soviet hourly wage. 0: Coffee, breakfast, fish fillet sandwiches, salads or chicken nuggets on menu. (Just the basics: burgers, cheeseburgers, Big Macs, fries, shakes, drinks and ice cream.) 1,500: Soviet employees of McDonald’s: 1,100 in the restaurant, 400 in the food plant. 1: Millions of buns that can be made a week at the food processing plant. 140,000: Pounds of beef that can be produced a week at the plant.

Big Mac on the Move

1986 1990 TOTAL RESTAURANTS 9,410 11,803 NUMBER OF COUNTRIES 46 51 United States 7,272 8,576 Canada 515 526 Pacific Rim 873 1,288 Europe 665 1,150 Latin America 85 163

Pacific Rim: Australia, China, Guam*, Hong Kong, Japan, Macau*, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand. Europe: Andorra, Austria, Belgium, Denmark, England, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Scotland, Soviet Union, Spain, Sweden, Switzerland, Turkey, Wales, Yugoslavia. Latin America: Argentina, Aruba*, Bahamas, Bermuda, Brazil, Chile, Costa Rica, Cuba, El Salvador, Guatemala, Mexico, Netherlands Antilles*, Panama, Puerto Rico*, Venezuela, Virgin Islands*. *Territory Source: McDonald’s Corp., 199c